On 15 July, the results of the independent assessment of 13 Romanian insurance companies representing more than 80% of the Romanian insurance market were published on the Romanian Financial Supervision Authority (“FSA”) website. The assessment included a balance sheet review and stress test based on multiple scenarios – the results of both are summarised below.
The balance sheet review indicated that four of the thirteen insurers had capital shortfalls, with an aggregate shortfall of RON 1.6 billion (about EUR 356 million) under the Solvency I legislation. Of the four insurers with shortfalls, two of them are already placed under financial recovery procedures and will have to report how the shortfalls were managed to the FSA within twenty days after the recovery procedure closes. The other two must submit, by 4 August 2015, action plans explaining the measures they will implement to restore compliance with the solvency margin requirements under Romanian law to the FSA.
The assessment also considered insurers’ balance sheets under the Solvency II requirements, a regime that will take effect on 1 January 2016. The results indicate that the insurance sector will not have sufficient capital: (i) four insurers have a solvency ratio above 100%; and (ii) eight insurers have the minimum solvency ratio above 100%. Some of the insurers have already implemented a number of corrective measures, which will be considered when the ASF receives the action plans.
The stress test portion of the assessment sought to measure insurers’ resilience in the event of unfavourable economic and financial market scenarios and natural disasters (i.e. earthquake and flood). The earthquake and flood scenarios were the most concerning because they revealed that only (i) one insurer for the earthquake scenario and (ii) three insurers for floods scenario could meet the solvency ratio, whereas four insurers were able to satisfy the ratio under the economic and financial market scenarios. The non-compliant insurers have until 4 August 2015 to submit their plans explaining the measures that they will take to ensure compliance with the Solvency II requirements.
The assessment, which was initiated in 2014, was intended to improve consumer protection in the Romanian insurance market and was a joint collaboration between the FSA, European Commission and the European Insurance and Occupational Pensions Authority. For more information on the assessment please see our previous articles here and here.
The report on the results of the Romanian Balance Sheet Review and Stress Test are available (in English) here.