Slovak insurance sector

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

2. Brief overview of history • September 1996 - December 1996: • Insurance supervision was organised as a stand-alone Section of insurance supervision within the • MoF of the SR • January 1997 - December 1998: • Control division, Section of the state supervision, Department of the insurance supervision within the MoF of the SR • January 1999 - October 2000: • Financial market division, Section of the financial market supervision, Department of the • insurance supervision within the MoF of the SR • November 2000 - March 2002: • 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 • April 2002 – December 2005: • 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) • 1st January 2006: • FMA was integrated into the National bank of Slovakia The insurance in EU on the threshold of the third millennium – May 2011

3. Brief overview of history The insurance in EU on the threshold of the third millennium – May 2011

4. Current situation • Legal framework issued by the National Bank of Slovakia: • http://www.nbs.sk/en/financial-market-supervision/insurance-supervision/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

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-slovak-financial-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 ofinsurance undertakings • EU (16) • Non EU (0) The insurance in EU on the threshold of the third millennium – May 2011

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

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

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

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

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

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

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

13. Macro stress testing • Baseline – NBS medium-term official prediction as at Q4 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: Inlaftion (HICP) Chart:y-o-y real GDP growth The insurance in EU on the threshold of the third millennium – May 2011

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

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