Peter BRAUMULLER, Director Insurance and Pension Supervision, FMA - Austrian Financial Market Authority
Until few years ago, the Romanian market was outside the EU borders and has - since then - made serious efforts to satisfy the European requirements. Obviously, Romania is a very large market and there is still room for further development and growth.
XPRIMM: Austria is, at the moment one of the most important investors
on the Romanian market, and without any doubt the most significant player
in the insurance industry. How can you explain this phenomenon?
Peter BRAUMULLER: It is difficult for a supervisor to answer this
question but I suppose they are looking for opportunities of development,
especially in the insurance market, which has potential. Until few years
ago, the Romanian market was outside the EU borders and has - since then
- made serious efforts to satisfy the European requirements. Obviously,
Romania is a very large market and there is still room for further development
and growth.
As a supervisory authority, we are monitoring the financial indicators,
the economic figures and insurance data and we analyze whether the groups'
strategies are in line with the legal frame and the economic environment.
XPRIMM: The Austrian insurance players are among the most significant
investors in CEE markets. Do you think that this trend will continue
or we are going to assist to a stabilization of the market?
P. B.: This trend is obvious and I assume that a main reason for
Austrian insurance companies' important position in Central, Eastern
and South Eastern Europe is the fact that they were among the first who
entered these markets and gradually worked on strengthening their position.
Regarding the speed of these investments, this is depending on the actual
investments opportunities. Generally speaking, I consider that the general
trend will continue, but at the same time we will also see more consolidation
and stabilization. VIG, UNIQA and GRAWE are major players on the Austrian
market who have discovered new business opportunities and they will certainly
continue their strategy.
XPRIMM: Do you consider that applying Solvency II will offer you the
power to supervise these groups?
P. B.: We have had group supervision in the EU since the entry into
force of the Insurance Groups Directive. Solvency II will further strengthen
group supervision and extend the regime to completely new areas like
joint approval procedures for internal models and the group support regime.
In this matter, the supervisory authorities periodically organize meetings
of the coordination committees, and CEIOPS provides guidance on the functioning
of those coordination committees. In addition, bilateral meetings are
held between the group supervisor and the relevant solo supervisors in
order to exchange views and opinions and to improve the mutual knowledge
on insurance markets, legal frameworks and supervisory practices.
XPRIMM: Recently, VIG and ERSTE have surprised the market by announcing
the transfer of the bank's insurance operations to VIG. How do you comment
on the fact that banks give up their insurance business? Is this aspect
related to the fact that Solvency II and Basel II are not well connected?
P. B.: One of the issues CEIOPS is looking into is the consistency
between Basel II and Solvency II in order to avoid regulatory arbitrage.
It is a crucial concern of supervisors that that bad or risky assets
are not shifted from a bank to an insurance company or vice versa, because
capital charges are lower there. As a supervisor, I would not like to
assess companies' business strategies. However, one should keep in mind
that participations are not the only way by which banking and insurance
activities might be linked together. In Austria, more the 50% of the
life insurance products are distributed through banks. Therefore, it
could be more attractive to sign agreements with banks, rather than to
operate through own sales networks or other means. It can also be expected
that insurance companies are trying to extend any successful acquisition
policy to Central, Eastern and South Eastern Europe as well.
XPRIMM: Can you enumerate some particularities of the Austrian insurance
market?
P. B.: In Austria, there are at present more than 100 domestic insurance
companies, more than half of which are small mutual associations. The
overall number of insurance undertakings has been slightly decreasing
over the last few years, whereas the number of participations of Austrian
insurers in foreign insurance companies has significantly increased and
the actual number of such foreign companies already exceeds the number
of domestic insurers.
The life and non-life sector account for approximately the same share
of total insurance business. The growth of life insurance has been very
moderate over the last three years. However, unit-linked and index-linked
business as well as state-sponsored retirement provision have grown quite
strongly, whereas traditional life insurance is less dynamic, especially
as concerns single premium contracts. The non-life sector has shown a
steady growth in premiums over the last few years of about 4 to 5 percent
p.a. In international terms, there still seems to be still some potential
of expansion in life insurance. The occupational pension market which
has been established in Austria around 18 years ago got new rules through
the transposition of the EU IORP Directive some years ago. The investment
rules are now based on the prudent person principle, combined with risk
management requirements. Traditionally, pension companies are investing
a higher proportion of their money in equities which leads to a higher
volatility and dependency of their return on market fluctuations. Since
the main part of the occupational pensions is defined contribution type
schemes, bad investment income might easily result in pension cuts.
We have seen some convergence between the life insurance and pension
sector in Austria over the last few years. On the one hand, a new type
of insurance was created called "occupational group insurance" which
is very similar to pension contracts but offered by insurance companies
and both are subject to the same tax treatment. On the other hand, a
limited change of beneficiaries within pension schemes was permitted,
so that they may be allowed to change twice between different funds (investment
and risk sharing groups), but only into those with less risky investment
policies.
XPRIMM: Is there any penalty for switching the fund that you already
choose?
P. B.: No, the practical functioning of the system is depending on
the agreement between the employer and the pension institution. In most
cases, there will be no penalty and they will probably not charge them,
because the aim is to foster the private pension system and to make the
pension forecast more reliable the nearer the beneficiary comes to the
retirement age. The future development of the pension sector is also
depending on new profession groups entering the occupational pension
system, e.g. public employees.
At present, there are around EUR 13 billion invested in the second Pillar
and around EUR 70 billion of assets in life insurance.
Because of the convergence between occupational pension and insurance
products the Austrian FMA believes that there should be a new Solvency
regime for pensions as well, based on the principles of Solvency II but
also taking into account the particularities of the pension sector. In
CEIOPS there are different opinions depending on the respective systems,
and there are really a lot of differences between the countries, it's
a huge puzzle.
XPRIMM: The Romanian life insurance market is on early stage of development
and the insurers and supervising authorities are trying to find some
solutions in order to stimulate this sector. One of the solutions is
some fiscal facilities insurance segment. Do you have in Austria some
tax facilities?
P. B.: In Austria, most people do not want to be obliged to keep
money permanently in funds or to be penalized when they take it out at
some stage, so products which allow free disposition over your money
after 10 or 15 years are well received. In addition, tax incentives are
stimulating demand for certain products. As a supervising authority,
we should not influence the market development, because this is not our
task and we are not better managers than others. I will only tell insurance
managers or politicians about the possible risks of certain decisions
or strategies. As supervisors, we never recommend what product should
be created or promoted, we just form expert opinions on the risks that
might occur and the possible impact on the financial situation or development
of a company or the market.
XPRIMM: Can you give us some advice in order improve the savings especially
in insurance and private pension system in Romania?
P. B.: Let me again take Solvency II as an example. It is crucial
that managers identify, assess and manage risks. In Solvency II, higher
risks automatically lead to higher capital charges. If tax laws or other
means are used to promote specific forms of private investment it is
important for decision makers to fully understand all elements of that
decision and in particular the risks involved so that the capital charge
is appropriate to the risks. For those who steer market developments
by creating incentives to the customers or the companies it is important
to understand all possible effects of such a measure. Consequently, the
supervisor should be involved in the legislative processes which might
impact the insurance market. By the way, this is also foreseen in the
international standards on insurance supervision.
XPRIMM: What is the Austrian Supervisory authority opinion regarding
the Solvency II project? What about the insurance market opinion?
P. B.: We have had some discussions with the representatives of the
Austrian Insurance Association and industry representatives about Solvency
II. In general, they are satisfied, of course, since the new framework
will provide more opportunities to the industry. From our point of view,
I think it is absolutely the right direction. The possible problem for
supervisors is the fact that for some companies it is difficult to understand
and implement complex systems. And also for the supervisor, the new system
poses a set of challenges. So mainly, we are very positive, and we are
working a lot together with the industry, we are organizing many seminars
and workshops on that subject. There are still many problems to be debated,
but we are optimistic. And we are already adapting our internal structure
and processes to the new regime.
XPRIMM: What is your message to the Romanian insurance market?
P. B.: I can not send any messages about how people should run their
business. I am a supervisor, I am not a manager. I do believe that strengthening
the market means also strengthening the supervisory authority. Considering
that the Solvency II project is crucial for the insurance market and
insurance supervision in all our countries, it is extremely important
to have an efficient dialogue between the industry and the supervisory
authority. One key message of Solvency II is that we need strong supervisors
because there are a lot of advantages for the whole market and no market
participant should be in a position to gain unfair advantages through
violating the rules. An effective supervisor is a prerequisite for good
market developments.
| Published on 10.10.2008 |
