Slovak insurance sector Vladimr Dvoek The insurance in

Slovak insurance sector Vladimír Dvořáček The insurance in EU on the threshold of the third millennium – May 2011

Brief overview of history § September 1996 - December 1996: § January 1997 - December 1998: § January 1999 - October 2000: § November 2000 - March 2002: § April 2002 – December 2005: § 1 st January 2006: Insurance supervision was organised as a stand-alone Section of insurance supervision within the Mo. F of the SR Control division, Section of the state supervision, Department of the insurance supervision within the Mo. F of the SR Financial market division, Section of the financial market supervision, Department of the insurance supervision within the Mo. F of the SR Financial Market Authority (FMA) was established in accordance with Act No 329/2000 Coll. – as a state supervisory authority over the insurance and capital market subjects FMA was relaunched in accordance with the Act 96/2002 Coll. as an independent legal entity, authorized to conduct supervision over the insurance and capital market subjects (in the area of public administration) FMA was integrated into the National bank of Slovakia The insurance in EU on the threshold of the third millennium – May 2011 Vladimír Dvořáček 3

Brief overview of history NATIONAL BANK of SLOVAKIA – bank supervision FINANCIAL MARKET AUTHORITY - insurance supervision - capital market supervision - pension saving supervision Act No. 747/2004 Coll. on Supervision of the Financial Market by which was established integrated supervision over all Slovak Financial Market with effective from 1 st of January 2006 NATIONAL BANK of SLOVAKIA The insurance in EU on the threshold of the third millennium – May 2011 Vladimír Dvořáček 4

Current situation Legal framework issued by the National Bank of Slovakia: http: //www. nbs. sk/en/financial-market-supervision/insurancesupervision/legislation Laws: § § § Act on National Bank of Slovakia (566/1992 Coll. ) Act on Supervision of the Financial Market (747/2004 Coll. ) Act on Insurance (8/2008 Coll. ) Act No 381/2001 Coll. on Compulsory Contractual Motor Vehicle Third Party Liability Insurance Act No 40/1964 Coll. Civil Code (only Chapter XV - regarding Insurance Contracts) The insurance in EU on the threshold of the third millennium – May 2011 Vladimír Dvořáček 5

Developments in the Slovak insurance sector § Analysis of the Slovak Financial Sector http: //www. nbs. sk/en/publications-issued-by-the-nbs/nbs-publications/analysis-of-the-slovakfinancial-sector § Slovak insurance market § Life insurance undertakings (6) § Non-life insurance undertakings (2) § Composite insurance undertakings (12) § Slovak insurance Bureau (1) § Reinsurance undertakings (0) § Branches of insurance undertakings § EU (16) § Non EU (0) The insurance in EU on the threshold of the third millennium – May 2011 Vladimír Dvořáček 6

Mild growth of premiums § Gradual improvement of the economic situation in 2010 resulted in increased demand for insurance products and increase in written premiums § The growth rate has not reached the pre-crisis levels § Negative developments continued in non-life insurance, premiums fell Chart: Distribution of changes in premiums Life insurance Non-life insurance The insurance in EU on the threshold of the third millennium – May 2011 Vladimír Dvořáček 7

Life insurance § Premiums increased in all lines of business except pension insurance § Unit-linked insurance recorded the highest growth, however, also the highest policy surrenders or withdrawals § The growth of surrenders for total life insurance decreased § Number of contracts in traditional life insurance has stagnated or decreased for the past couple of years Chart: Y-o-y change of premiums in life insurance The insurance in EU on the threshold of the third millennium – May 2011 Vladimír Dvořáček 8

Non-life insurance § Decrease of premiums in property insurance despite the increase in number of new contracts § Increased demand from households, where the premium per contract is considerably lower than in the corporate segment § Increase demand relates to recent heavy floods in Slovakia § § Premiums in motor insurance decline again and reached the lowest level in seven years Premiums rose in 3 lines of business (General liability insurance, Credit insurance, surety insurance and miscellaneous financial loss insurance and Accident and sickness insurance) Chart: Y-o-y change of premiums in non-life insurance The insurance in EU on the threshold of the third millennium – May 2011 Vladimír Dvořáček 9

Claims costs § Considerable decrease of claims costs in life insurance § Claims costs in non-life insurance increased § Almost the complete increase of claims costs can be attributed to property insurance line of business § In motor insurance the loss ratio decreased y-o-y despite the decrease of earned premiums Chart: Claims costs The insurance in EU on the threshold of the third millennium – May 2011 Vladimír Dvořáček 10

Reinsurance and technical provisions § § Y-o-y growth of ceded premiums by 7, 5 % Reinsurance dominated by non-life insurance § Y-o-y growth of technical provisions by 7, 2 % § Conservative investment strategy of technical reserves continued § Almost 50 % of assets are government bonds § Bank bonds increased, mostly in the first half of 2010 Chart: Y-o-y changes in investment strategy of assets covering technical provisions Chart: Allocation of assets covering technical provisions as at 31 December 2010 The insurance in EU on the threshold of the third millennium – May 2011 Vladimír Dvořáček 11

Insurance sector’s financial position § § § The net profit decreased y-o-y by 2, 9 %, due to result in one insurance company, otherwise it would have risen by third More than 50 % of insurance companies improved profitability Profit from financial operations and technical result from life-insurance increased The situation in non-life insurance outweighed this positives Six companies ended year 2010 with a loss as in 2009 Chart: Distribution of profit in insurance companies and total profit for the whole sector The insurance in EU on the threshold of the third millennium – May 2011 Vladimír Dvořáček 12

Main risks of the insurance sector § § Risk of a prolonged period of low-yield environment (reinvestment risk on maturing investments) – caused by higher guaranteed rates on life insurance policies (about 4 %, one of the highest guaranteed rates in the euro area) Risk of another downturn in the real economy (decrease of demand for insurance) Insurance risk Impact of strong competition on the calculation of premiums in MTPL Chart: Comparison of the guaranteed rate and investment return The insurance in EU on the threshold of the third millennium – May 2011 Vladimír Dvořáček 13

Macro stress testing § § Baseline – NBS medium-term official prediction as at Q 4 2010 Sovereign crisis – negative development caused by growing uncertainty about the sustainability of public finances of selected euro area member states § Increase of volatility on financial markets, decrease of foreign demand due to a slow down in economic growth § Supply inflation – as a result of excessive commodity price increase and loose monetary policy of the Federal Reserve § Increase of inflation and interest rates, volatility of financial markets, slow down of economic growth Chart: y-o-y real GDP growth Chart: Inlaftion (HICP) The insurance in EU on the threshold of the third millennium – May 2011 Vladimír Dvořáček 14

Impact of the stress scenarios § The financial assets are exposed mainly to the decrease of market value of securities § Almost no impact on interest income due to long duration § Furthermore, the interest income would cover market losses of assets Chart: Impact of the baseline and stress scenarios on financial assets (excluding Unit-linked assets and liabilities) The insurance in EU on the threshold of the third millennium – May 2011 Vladimír Dvořáček 15

THANK YOU FOR YOUR ATTENTION Vladimír Dvořáček Executive Director Financial Market Supervision Unit Tel: 00421 2 5787 2810 E-mail: vladimir. dvoracek@nbs. sk National Bank of Slovakia Imricha Karvaša 1 813 25 Bratislava 1 Slovak Republic The insurance in EU on the threshold of the third millennium – May 2011 Vladimír Dvořáček 16