ICAR Conference Bucharest

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ICAR ConferenceBucharest October 1st
2007Situation regarding the development of
Guidelines on Risk Management, Asset Allocation
and Operation of Romanian Catastrophe Scheme (
PAID)
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Agenda

• Introduction Summary of AC9 project
• Current working assumptions
• Draft structure based on current working
  assumptions
• Overview of Modelling assumptions
• Required outputs of the AC9 Project
• AC 9 planned timetable
• Issues to be addressed by consultancy
• What should Romanian Insurers do next?

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Introduction Summary of AC9

• AC9 Consultancy Project is funded by World Bank
  to
• Development of Guidelines on the Risk
  Management, Assets Allocation and Operation of
  Romanian Catastrophe Insurance Scheme (PAID)
• Willis Re has been selected via a competitive
  tender process to support the development of PAID
  by assisting in the development of these
  guidelines
• The guidelines need to be developed in advance of
  the inception of the compulsory insurance law.
  This requires urgent and close co-operation with
  insurers.
• A need to ensure the operating procedures of the
  compulsory insurance scheme are effective and
  efficient for insurance organisations and other
  related parties.
• PAID will become a significant part of the
  Romanian insurance landscape from 2008 onwards. A
  major opportunity to grow insurance penetration
  across Romania There are approximately six
  months to prepare.
• PAID is attracting worldwide attention to the
  Romanian insurance industry. Successful
  implementation will further enhance the
  reputation of the Romanian financial services
  sector throughout international markets

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Current working assumptions

• Authorised Romanian insurance companies will
  distribute policies and collect premiums. 100 of
  exposure arising from PAID policies will be
  reinsured by insurance companies to PAID
• Insurance companies will receive a commission of
  up to 10 of the original gross premium on every
  PAID policy sold.
• Insurance companies will provide details of
  policies sold on to PAID and remit premiums in
  respect of policies sold to PAID.
• Insurance companies will provide PAID with
  details of policies sold in a preagreed
  spreadsheet format to allow PAID to efficiently
  consolidate policy data and track their aggregate
  exposures
• In the event of any claims the insurance company
  responsible for selling the policy will settle
  the claim. PAID will provide funds to the
  insurance companies on receipt of claims advices
  in a preagreed spreadsheet format.

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Draft structure based on current working
assumptions
Policyholder
PAID
External Reinsurance and Government
Authorised Insurance Company
IT interface
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Overview of Modelling assumptions

• Modelling outputs will provide indications of the
  likelihood and size of potential losses
• Penetration rates Willis will model 100 basis
  and various other scenarios e.g. 20 penetration,
  40 penetration etc.
• Initial capital of PAID - to be confirmed (
  dependant on various considerations)
• Loans available to PAID the amounts and
  conditions - to be confirmed
• Reinsurance structures to be confirmed by the
  Consortium of Reinsurance brokers
• The key assumptions are the modelling outputs and
  the penetration rates

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Required outputs of AC9 Project

• Develop a Customised Dynamic Financial Asset
  model for PAID
• DFA tool to be able to analyse the financial
  viability of PAID to changes in the direct cover
• Recommend optimal Asset Liability Management
  Policy
• Design a risk management structure including
  reinsurance on the basis of the DFA modelling
  outputs
• Prepare cost effective operating procedures
• Provide Training

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Review of plan timetable

• Deliverables are as advised in the revised
  inception report
• Inception report - 1st August 2007
• Report on the production of customised DFA model
  - 15th October 2007
• Report on optimising PAID policy, risk and
  capital - 15th November 2007
• Deliverables report and outputs - 15th November
  2007
• Final report -15th August 2008

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Issues that need to be addressed by consultancy

• The following are points that have been raised by
  the Insurance Industry and which need to be
  addressed
• No underwriting risk but we are insurers not
  agents!
• Commission of 10 too small
• Unknown associated costs and claims settlement
  costs
• Details of claims handling procedures
• Interrelation between compulsory policy (PAD) and
  Facultative Policies
• Concerns of adjustment process after a BIG
  catastrophe
• Development of a Database

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What can Romanian Insurers do in preparation?

• Instigate dialogue with the CSA
• Feedback through Willis Limited and the AC9
  consultancy
• Prepare sales force in the light of your Company
  business plan