4 years from the inception date

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

Romanian Case Study of Compulsory Insurance: The

PAID Insurance Framework

4 years from the inception date……

October 1st_{– 2}nd_{, 2014} _{Nicoleta Radu-Neacsu}

Belgrade, Serbia CEO

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• Romania is one of the European countries significantly exposed to

natural disasters, especially earthquakes and floods, which cause loss of life and damages with major social and economic impact.

• PRAC (the Romanian program for catastrophe insurance) was a

project financed by the World Bank and its result was a new law in the Romanian legislation (nr. 260/2008).

• PAID is the only pre-event establishedpool.

• PAID was officially established on 5th November 2009 and received

authorization of the Insurance Supervisory Commission on 28th

December 2009.

• First policy was issued on 15 July 2010.

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• Providing homeowners with a simple, affordable and effective

insurance product

• Providing social products and premiums

 10euro premium/10 000euro sum insured for adobe houses

 20euro premium/20 000euro sum insured for wood, concrete, bricks houses, etc.

• Establishing of disaster reserves at national level

• Reducing the budgetary impacts of a disaster to the Romanian

Government

• Raising awareness within the population about the benefits of

home insurance

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• 15 July 2010 - PAID starts to function under the provisions of Law

260/2008

• November, 2010 – the law is amended, the householders that have

completed a voluntary insurance which covers all the risks listed in the mandatory insurance are not obliged to purchase PAD

• 26 June 2013 - the Romanian Parliament amends Law 260/2008,

PAID becomes again the only insurer for dwellings within the limits imposed by law. All companies authorized by the ASF to write CAT risks, not only PAID shareholders, are entitled to write PAD policy on behalf of PAID.

PAID becomes an entity of national strategic importance, managing CAT risks for the entire housing stock of Romania.

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BUSINESS CYCLE OF PAID:

AN INTEGRATED MODEL BETWEEN PAID AND INSURANCE COMPANIES

Reinsurance market PAID 1 Insurance Companies Reinsurance 1 2 3 … … … … … … … n 1 2 3 … … … … … … … 23

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FACULTATIVE POLICIES PAD POLICIES EQ LS FL FIRE ROBBERY X 40 000 Euro 20 000 Euro …

NAT CAT OTHER RISKS

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PORTFOLIO DEVELOPMENT 2010-2014

0 200.000 400.000 600.000 800.000 1.000.000 1.200.000 1.400.000 1.600.000 1.800.000 ју л. 10 се п. 10 н ое .10 јан .11 м ар.1 1 м ај. 11 ју л. 11 сеп. 11 н ое .11 јан .12 м ар.1 2 м ај. 12 ју л. 12 се п. 12 н ое .12 јан .13 м ар .1 3 м ај. 13 ју л. 13 се п. 13 н ое .13 јан .14 м ар.1 4 м ај. 14 ју л. 14

In force policies

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CLAIMS ACTIVITY

Paid claims euro Year of occurrence 2010 2011 2012 2013 _{(until 31 August)}2014 No losses Value euro No losses Value euro No losses Value euro No losses Value euro No

losses Value euro

2010 2 2,413 5 8,778 - - - - - - 2011 - - 25 65,664 12 27,631 1 232 2012 - - - - 65 34,953 18 26,194 1 2173 2013 - - - - - - 83 74,266 53 84982 2014 (until 31 August) 83 96955 Total 2 2,413 30 74,442 77 62,584 102 100,692 137 184110

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- even in small events, lack of loss adjusters

- poor coordination between insurance companies and PAID

CASE STUDY –2014 FLOODS

Event dates No claims Losses value, euro

16-20 April 62 60,936.56

5-6 May 36 32,790.71

28-31 July 304 448,197.73

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- In order to increase the stability of the capital, starting with 2014, PAID decided to purchase Reinstatement Premium Protection for the CAT XL program.

- Minimum rating requirements “A-”

- Actual premium level allows RI capacity level at RMS 100 years RTP - Brokers: AON Benfield, Guy Carpenter, JLT, Willis Re

REINSURANCE PROGRAM

Period Capacity (euro) Retention (euro) Annual Aggregate

Deductible 2010-2011 200,000,000 250,000 2011-2012 300,000,000 250,000 2012-2013 100,000,000 1,000,000 2013-2014 525,000,000 1,000,000 2014-2015 450,000,000 1,000,000 1,000,000

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• adapting in a short time to legislative changes

• adapting the IT system to the new increased underwriting

capacity and to the increased number of users

• adjusting the reinsurance program according to the fast

growing exposure

• coordinating its specific activity with the other insurance

companies

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PAID STRATEGY FRAMEWORK

• In april 2014, the Shareholders Meeting of PAID approved PAID

Strategy

• This document :

- explain the multi year strategy to reach this vision

-prioritize the changes in reference with the strategy framework -communicate on progress in delivering the multi years strategy -clarify and share with all stakeholders the vision for PAID

• Strategy statement of PAID

-transform PAID to become effective & sustainable

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Right governance of PAID:

• Adequate Board of Directors standards • Clear and approved multi-year strategy • Adequate management reporting

Close alignment with ASF and compliance rules adjusted to PAID specificity Adequate operational risks mitigation:

• Disaster Recovery Plan and Business Continuity Plan • Adequate reserving for catastrophe

Adequate partnership with insurance companies:

• Protocole optimization

• Optimized end to end processes

• Adequate handling of mass claims in case of a disaster • Pooling of insurance companies expertise

• Meaningful complementarity of Pad and Facultative in the eyes of clients

Optimized partnership with reinsurance brokers:

• For modelling of economic exposure and reinsurance capacity required • For cost effective access to required reinsurance capacity

• For advices

Cost effective reinsurance:

• Actuarial premium/ deductible on SI in case of claims, to be able to face 1977 EQ (RTP>200) • Only A rated reinsurers

Development of alternative

distribution, to grow

PAID penetration beyond the potential of a deductible to

facultatives

Efficiency

to absorb growth in portfolio and

maximize margin for adequate reinsurance and reserving St ra teg y fo u n d at io n s Value creat io n

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• develop the contingency plan for the entire insurance market in what regards CAT risks on residential property

• end to end process with the insurance companies

• adjust the insurance premium based on actuarial calculations / imposing a deductible

• develop alternative distribution channels • build a solid CAT fund

• simplify the home insurance (PAD+ facultative) by having only one document • better enforcement of the fine stipulated in the law in order to increase the

penetration rate of PAD

• develop of a nationwide households database, assigning a unique identification code for each dwelling

• improve collaboration between PAID and the public institutions engaged in this project

• improve education in what regards insurance and increase the public trust in insurance industry

• raising the capital by new injection (retaining earnings and catastrophe reserve)

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