Present today at the online debate: ”The Romanian insurance market” organized by Media XPRIMM, the Director of the Strategy and Financial Stability Department within ASF, Mr. Valentin Ionescu, made the following comments.
”According to IMF, the global economy is projected to contract sharply by 3% in 2020 reflecting a much deeper economic shock than during the financial crisis of 2009 when growth contracted only by 0.7%. In EU the forecast for Euroa area is – 8.7%, with Italy, Spain and France estimated to have a GDP decrease more than 10-11% .
The National Commission for Strategy and Prognosis has revised downward the economic growth forecast from -1.9% (in the previous scenario) to -3.8% in 2020, due to the declining activity in industry (-8.6%), agriculture (-7.1%) and services (-2.7%) compared to 2019. According to the NCSP forecast, constructions will have a positive contribution to GDP this year, with an estimated growth of 5.8%. For the next year, NCSP estimates a recovery of the Romanian economy, with an advance of 4.9%.
According to Summer 2020 Economic Forecast of the European Commission for Romania, real GDP is set to contract by 6% in 2020 and then rebound by 4% in 2021. Such estimates are made taking into account the assumption of a gradual lifting of containment measures, which has happened in recent months. Unfavorable evolution of the number of infections may lead to the reintroduction of stricter measures, and implicitly the rebound of the Romanian economy will take place at a slower pace.
However, we expect a recovery of the Romanian economy in 2021, but there is still uncertainty about the full recovery of losses registered as a result of the crisis generated by COVID-19.
Despite of the adverse environment , In the first 6 months of 2020, the insurance market in Romania had, overall, a positive dynamic without extreme fluctuations, amid a high degree of uncertainty. The volume of gross written premiums increased by approximately 3.4% for both life and non-life insurance, compared to the same period of the previous year. The gross written premiums for the non-life insurance business increased by 5.4% in the first half of 2020 compared to the first half of the previous year, while the value of the underwritings for the life insurance business registered a decrease of 4.2%.
The concentration degree (by insurance classes, but also for insurance companies) remained at high levels (In MTPL Herfindahl Hirschman index is 0.2864, very concentrated). Also, the combined loss ratio remained high for the main insurance classes (A3 – CASCO and A10 – MTPL), but decreased compared to the same period last year.
The most affected business lines, in terms of gross written premiums for non-life insurance, were the marine insurance which decreased by 45% and marine liability insurance which registered a decrease of 33%. Also, the aviation liability insurance decreased by 47% due to the massive disruption in the aerospace and aviation industry generated by the COVID-19 pandemic. The aviation industry has been severely affected by the introduction of travel restrictions and border closures, measures taken by states to prevent the spread of COVID-19.
The increase in gross written premiums for both categories of insurances, non-life and life, in the first half of 2020 compared with the same period of the last year is due exclusively to the positive dynamic recorded in the first quarter of 2020. However, in the second quarter of 2020, the volume of the gross written premiums decreased by 1.8% compared to the second quarter of 2019, respectively by 9.3% compared to the previous quarter, due to the effects of COVID-19 and measures taken to prevent the spread of the virus.
Compared to the first quarter of 2020, the non-life insurance market in Romania decreased by 5% in the second quarter of 2020. The decrease of gross written premiums between April – June 2020 compared to January – March 2020 was due to the decreases registered by the main insurance classes: class A10 (-6.8%), class A3 (-4.0%) and class A3 (-14.8%).
The life insurance market decreased by 25% in the second quarter of 2020 compared to the previous quarter due to the decrease of the volume of gross written premiums for all lines of business.
At the end of June 2020, the asset allocations for Romanian insurers remained stable, with dominant exposures towards fixed income assets (mostly government and corporate bonds) and equities, exposing insurers to fluctuating market valuations due to the COVID-19 shock.
A sharp drop in listed equities was registered at the end of the first semester of 2020 compared to the end of 2019 (by 20%). On the other hand, the unlisted equities has increased by 17% in H1 2020 compared to the end of 2019.
The total assets held by the insurance sector in Romania have increased by 5% in the first semester of 2020 compared to the end of 2019.
FSA (ASF) issued the Norm no. 21/2020 which aims to extend the submission deadlines for both Solvency II reporting and national reporting, thus supporting insurance companies to continue their business activities in this context of high volatility and significant implications for economic activities.
In March 2020, FSA also conducted a consultation on the impact of COVID-19 on the activity of insurance companies authorized and regulated by the Authority, addressing the following issues:
- An analysis of the impact that this pandemic could have on the activity and financial stability of companies in terms of solvency, liquidity and potential change in the risk profile;
- Presentation of the types of insurance and the risks they cover which could be affected by this phenomenon and a quantitative analysis of the impact of exposure to these types of insurance;
26 insurance companies provided relevant information on the impact of coronavirus on their business. All insurance companies have submitted business continuity plans or procedures and/or measures for emergencies, including in pandemic scenarios.
Most companies do not evaluate the impact of COVID-19 as a major one on their risk profile and financial position. Some of them performed additional stress tests and impact assessments, resulting a marginal impact. Also, most of the companies are well capitalized, with liquidity and solvency indicators above the minimum thresholds. From the perspective of insurance products, most companies have a low exposure to this type of risk.
We are proactive in the emerging risks identification and, also, we are trying to find solutions in order to mitigate all the risks. Digitalisation is also our top agenda priorities. All the companies supervised by FSA have the posibility now to send the reports online.
Although it still has a relatively small share in the total volume of gross written premiums, health insurance continued the positive trend observed in previous years, recording in the first 6 months of 2020 the highest half-yearly values.
At the end of the first semester of 2020, the health insurance business line accumulated gross written premiums amounting to approximately Lei 264 million, an increase of approximately 29% compared to the same period of 2019. Most of the health insurance contracts in force (342,742 representing over 98% of the total number of contracts) are assimilated to non-life insurance.
In the first half of 2020, the gross premiums written for suretyship insurance registered an increase of more than 90% compared to the same period of the previous year, while the value of gross claims paid decreased by approximately 33% compared to the first semester of 2019.
FOE increased with 11% till 500 mil lei GWP”