Solvency Requirements: Practice of Ukraine and the EU Iryna Nyenno, Doctor of Economics, Odessa I.I. Mechnikov National University. - презентация

1 Solvency Requirements: Practice of Ukraine and the EU Iryna Nyenno, Doctor of Economics, Odessa I.I. Mechnikov National University

2 CLAIMS OR LOSS RATIO is an indicator calculated as the ratio of claims paid and payable to earned premiums. QUATATION - Definition by the insurer of the premium rate at which he is ready to insure the risk. CUMULATION - а) the concentration of insurance risks in one company in a volume that can lead to many losses as a result of one insured event; b) the concentration of insured objects in one territory, street, house, port, railway station, vessel, that in case of simultaneous insurance event (for example, an earthquake) can lead to violation of the financial stability of the insurer. C. should be taken into account in determining the part of the risk that remains on the insurer's retention. Basic terms and determination

3 CLAIMS RESERVE - element of technical provisions. R. s. intended for payments from unpaid damages. The formation of a rhizobium is formed on the basis of statements of insurers for a certain date, containing the relevant claims for damages. The size of the r.sv. at the reporting date is the sum of the outstanding unpaid amounts of insurance indemnity at the request of the policyholder, for which a decision on the total or partial refusal to pay insurance amounts has not yet been taken. If r. increases against the previous reporting date, then the difference (increment) refers to the costs of the insurer. In the case of a decrease in P. s. the difference relates to the growth of the insurer's income. Basic terms and determination

4 UNEARNED PREMIUM RESERVE is part of premiums under insurance contracts that correspond to the insurance period that goes beyond the calendar year. In the world of practice, there are several methods for determining the state of the art. etc. In Ukraine, R.N. etc. at the reporting date are formed depending on the amount of insurance premiums received during the previous 9 months (the accounting period). In addition, the amount of premiums received for 1 quarter multiplied by 0.25, for the next 3 months of the calculation period - by 0.5, for the last 3 months - by The products found are added. The same amount of reinsurers' share in unearned premiums reserves is calculated. With the increase (decrease) in the sum of the shares of reinsurers in RN. etc. in the reporting period, respectively, increase or decrease earned insurance payments. Basic terms and determination

5 INSURANCE RESERVE - the system of insurers' funds, which are formed depending on the types of insurance, with the guarantee of future insurance indemnities and payments of insurance sum. R. s. are determined differently in risk insurance and life insurance. In the risk types of insurance, a reserve of unearned premiums and a reserve of losses are formed, and in the life insurance - mathematical reserves. Temporarily Free Funds are invested in securities, real estate, placed on deposit accounts with banks, etc., which enables insurance companies to receive additional income. TECHNICAL RESERVE - a set of unearned premiums reserves (by type of insurance) and provisions for losses. Taxpayers are formed by insurers who carry out insurance types other than life insurance, in order to ensure future payment of insurance amounts and insurance indemnity. Basic terms and determination

6 An insurer has a complex and heterogeneous structure of financial flows. The insurer's financial flow includes: insurance premiums received, investment income and increase of authorized capital. Significant size of the input financial flow makes it possible to form the financial potential that can be used in the future for development. Potential is the result of exceeding the insurer's income over costs, on the one hand, and the result of a certain level of capitalization - on the other. The financial potential of the insurer's development is a combination of the insurer's financial obligations, which are aimed at expanding activities. Targeted use of financial potential is the financial basis for its development. Procedure for formation and appointment of financial flows in insurance

7 The insurer's capital structure determines the principle of accumulation and further distribution of financial resources. The resources of the insurance organization are largely represented by the capital borrowed from the insurer, which for some time is a collection of temporarily free funds. Both expenses and revenues of an insurance company are connected with the double nature of its activities - insurance and investment. Allocate expenses for insurance operations (they form the cost of insurance services) and expenses for other operations (expenses, which accompany receipt of income from investment and financial activity, as well as its other income from ordinary activities and emergency operations). Procedure for formation and appointment of financial flows in insurance

8 Circulation of the insurer's funds is not limited to insurance operations; it is complicated by the need for constant attraction of cash deposits in the investment process. This allows determining the insurer's funds for insurance operations and investment activities, as its investment potential and the component of financial capacity. In terms of capitalization, the financial potential of the insurer is determined by the size of the authorized capital, which in the process of activity is replenished at the expense of various sources (profit, issue of securities, investment income). Expenditures of the insurer are formed in order to provide insurance protection and financing of domestic economic activity. Namely: this is the cost of payment of insurance indemnities and insurance amounts, that is, repayment of obligations, deductions for the formation of reserves and preventive measures, the cost of conducting the affair of the insurance organization. Procedure for formation and appointment of financial flows in insurance

9 The main components and weight are costs for the payment of insurance sum and reimbursement to the entity (a natural or legal person) who has suffered a loss or survived for a certain period. The level of payments is influenced by various factors and processes occurring in the economy as a whole and the lives of individual citizens, that is, the occurrence of losses. Because of the notion of damage is the implementation of the concept of risk. Since the risk is a volatile value, the insurance company must constantly monitor the development of risk, otherwise it will reduce the insurer's financial stability through significant insurance payments. It is necessary to analyze the risk factors that characterize the risk groups. Different estimation methods are used for this purpose. The results obtained usually affect the system of discounts and allowances for calculated insurance premiums to account for the base set of risk factors. Risk circumstances lead to the implementation of risk, that is, before the occurrence of insurance cases. Due to the fact that the indemnity for insured events is the main purpose of insurers, they must constantly analyze the financial stability of specific insurance operations for the normal functioning of the market environment. The costs associated with the formation of reserves, and is like a kind of a variant of the cost of future periods in the insurance business. Procedure for formation and appointment of financial flows in insurance

10 The accidental nature of insurance events means the accumulation of funds in a favorable period for disbursement of disadvantages. The purpose of the formation of insurance reserves is to ensure the financial stability of insurance operations, and the source of formation - underutilized part of the net rates for all payments received, since the payment of insurance and compensation is intended precisely netstandard. The net balance of payments, not spent for the direct purpose in the current favorable year, will accumulate from year to year until the adverse year, in which the current proceeds of payments to the insurer will not be sufficient to fulfill obligations to the policyholder, will accumulate from year to year. In general, the required size of the reserve funds is determined by the requirements of ensuring the financial stability of insurance operations and the level of development of reinsurance. The stronger the reinsurance is developed, the lower the reserves can provide financial stability of insurance operations. Reserves can be formed for all types of insurance as a whole, for each type of insurance separately, and also possible to create them for several types of insurance, if the insurer considers it appropriate. The only reserve fund allows the insurer to actively maneuver funds, using the layout of losses between types of insurance. Procedure for formation and appointment of financial flows in insurance

11 The greater part of the total cost of an insurance company falls on current financial or insurance costs. These costs are uneven. According to the economic content, costs can be divided into groups: payment of insurance sum and insurance reimbursement under insurance and reinsurance contracts; costs of servicing insurance and reinsurance. In international insurance practice, these costs are divided into acquis, collection and liquidation. Actually, the most comprehensive explanation of specificity allows us to reveal the peculiarities of determining these costs. Procedure for formation and appointment of financial flows in insurance

12 Acquis - costs are the costs associated with the involvement of new insurers, the conclusion of new insurance contracts. These costs may include the payment of services for the development of conditions, insurance policies and actuarial settlements; commission fee to insurance intermediaries (brokers, agents); payment for services of specialists who evaluate the risks taken for insurance; expenses for manufacturing of forms of insurance documentation; advertising costs, etc. Under the insurance costs of insurance companies, we understand: Procedure for formation and appointment of financial flows in insurance

13 - labor costs and contributions to social activities in terms of work performed by workers for the preparation and conclusion of insurance contracts, reinsurance, risk assessment, insurance, coinsurance and reinsurance; - expenses for the remuneration of the insurance agent for the services provided for the conclusion of insurance contracts, the reinsurance of the reinsurance broker for the services of preparation, conclusion of reinsurance contracts, remuneration to other insurers for the services rendered for the conclusion of insurance contracts; - expenses for payment of services for the assessment of risks taken for insurance, coinsurance and reinsurance; - insurer expenses for pre-sale and advertising measures for insurance services. Procedure for formation and appointment of financial flows in insurance

14 Incineration costs are expenses related to cash servicing of insurance premiums: for the payment of employees of the company, which provide receipt of insurance premiums in cash; expenses for the production of receipts forms and information on acceptance of insurance premiums; for payment of banking services related to the collection of insurance premiums. Liquidation costs are expenses related to the settlement of losses. They cover the payment of specialists' services to find out the reasons and determine the amount of damages inflicted on insurance objects; payment of banking services; travel expenses of the emergency commissioner and experts; litigation costs; deductions in the reserve of losses and so on. The cost of maintaining an insurance company is the same administrative and managerial costs that any economic entity has; expenses related to the provision of investment and financial activities, that is, the costs of managing their assets and liabilities. Procedure for formation and appointment of financial flows in insurance

15 An important element of the cost of the insurer is the cost of doing business. According to the classification adopted in our country, they include wage costs, household and stationery expenses, travel expenses, operating expenses, and some others. Sources of financing for the costs of doing business play an important role in the formation of the cost of insurance operations. At present, the most important part in the cost of doing business is the remuneration of insurance workers. At the expense of insurance payments, the insurer may finance measures for the prevention of natural disasters and accidents. Due to the fact that preventing adverse events is always economically more profitable than compensating for their damage, solid insurance organizations usually take part in the financing of preventive measures. The source of funding is the load to the net rate. Procedure for formation and appointment of financial flows in insurance

16 A strong inflow of financial flows, which constitute insurance premiums, is undoubtedly evidence of stable insurance activity, competitiveness and financial sustainability. In this context, it should be noted that the receipt of insurance premiums does not directly form the financial potential of the development of insurers. However, if a large proportion of the received insurance premiums are transferred to reinsurance, they form only insurance of insurance obligations. Having determined the total inflow, total expenses, incl. Insurance obligations, company managers can form financial support for the development of the insurer. Separating from this flow the forecasted income of owners, receive the financial development potential, which consists of own resources minus current payments and expenses. Procedure for formation and appointment of financial flows in insurance

17 Own resources include: authorized capital, retained earnings, free reserves, depreciation, financial assets owned by the insurer by ownership, guarantee fund. The borrowed resources include financial assets that are attracted by the insurer and can be presented in the form of investments, loans, subventions, funds for the implementation of joint activities. To conditionally involved include insurance payments. Procedure for formation and appointment of financial flows in insurance

18 Assets - any resource that allows the company to carry out its activities. Its value is increasing as the company has the opportunity to use it to generate income and profit. For accounting, there are three categories of assets: 1. Current Assets - any asset that will be converted into cash in current settlements or as a result of current operations in the current year. 2. Fixed Assets (Fixed Assets) - real tangible assets. Fixed assets are used to generate income, that is, the company does not intend to convert them into cash. 3. Intangible assets are a resource that is not a physical object or a security. Categories of assets

19 Liabilities - debt of a company that is a debt obligation of a company in the form of officially confirmed loans or in the form of debt that arises during the company's activities. There are three categories of obligations: 1. Short-term debt is an indebtedness to be repaid during the current period, in particular year. It has both commitments that arise during the company's operations and the current portion of long-term debt. 2. Long-term liabilities are a debt that is not required to be paid during the current period. 3. Obligation to lease with the transfer of title after the expiration of the term. Rental with the transfer of ownership at the time of expiration is a long- term non-cancellable lease agreement. The economic effect of such an agreement is that the company undertakes to provide regular payments in the future. Thus, this lease is a long-term borrowing and should be recorded as an obligation. The current share of liabilities is short-term liabilities. Categories of obligations

20 Equity - a category that characterizes the interest (interest) of the owner of the company. In the joint-stock company interest is represented in three forms: 1. Preferred shares. Acquisition of these shares gives their holder special rights (privileges) in respect of dividends and returns on investments, as well as in case of liquidation of the firm. 2. Contributed capital. Ordinary shares are securities that are the final equity ownership rights. After performing debt obligations to creditors and providing profits in accordance with the agreements on preferred shares, the holders of ordinary shares have all other rights to liquidate assets and to store profits. A common stock is recorded in two records. The record "ordinary stock at par" is fixed at the moment of registration of the share price at par value or at the declared value. This is done in accordance with legal norms. The majority of shares are sold by joint stock companies at a price higher than the nominal value or the declared value. Earned as a result of additional funds are recorded on a separate account "Paid overhead capital" or "Capital invested overnight". Equity

21 Revenues are a flow of money or the right to receive money that is the result of an insurer's activities. This flow should be distinguished from the money received from creditors and owners of the company. You can highlight: 1. Operating Revenue - Receipt of money from the sale of goods and the provision of services. An example is the receipt of insurance premiums. 2. Investment Income - This is the receipt of money as a result of investing in assets. If the insurer buys bonds or lends money, he will receive a percentage. If an insurer buys shares of other companies, he will receive dividends. 3. Other income - receipts of money not related to the results of the insurer. For example, income from the sale of fixed assets. Revenues

22 Ukrainian insurers operate on the basis of the Law of Ukraine "On Insurance", other laws on types of insurance, the Decree of the Cabinet of Ministers of Ukraine on the procedure and rules for the implementation of certain types of insurance, the instructions of the State Commission for Regulation of Financial Services Markets of Ukraine and the State Commission for Securities and Stock Market of Ukraine, are guided by the documents of the Motor Transport Insurance Bureau of Ukraine regarding the provision of services and compilation of accounts by the type of compulsory insurance "Civil liability of owners of land vehicles and so on. Supervision of EU insurance supervisory authorities for solvency is shown in the following. Solvency requirements for the payment of the insurers: the practice of Ukraine and the EU

23 Insurers of Ukraine are obliged to submit financial reports and other reporting data to the Financial Services Commission of Ukraine on a quarterly basis in the form established by the Authorized Agency, approved by the owner (authorized body) of the insurer, and also provide, upon request of the Authorized Agency, necessary explanations regarding the reported data. Insurers are obliged to observe the following solvency conditions: - availability of paid charter capital and availability of guarantee fund of the insurer; - creation of insurance reserves sufficient for future payments of insurance sum and insurance indemnity; - exceeding the actual insolvency of the insurer over the estimated regulatory reserve of solvency. Solvency requirements for the payment of the insurers: the practice of Ukraine and the EU

24 The minimum amount of the authorized fund of an insurer who carries out insurance other than life insurance is set at an amount equivalent to 1 million euros, and the insurer, which carries out life insurance, - 1,5 million euro at the foreign exchange rate of the currency of Ukraine. The insurer's warranty fund includes additional and reserve capital, as well as the amount of undistributed profits. Solvency requirements for the payment of the insurers: the practice of Ukraine and the EU

25 According to Art. 30 of the Law of Ukraine "On Insurance" insurers, depending on the volume of insurance activities, are required to maintain an appropriate level of actual solvency margin (net assets). The actual solvency margin (net assets) of the insurer is determined by deducting from the value of the property (total assets) of the insurer the amount of intangible assets and total liabilities, including insurance. Insurance liabilities are accepted equal to the amount of insurance reserves, which the insurer is required to form in accordance with the procedure provided for by this Law. For any date, the actual stock of solvency of an insurer must exceed the calculated normative reserve of solvency. Solvency requirements for the payment of the insurers: the practice of Ukraine and the EU

26 The statutory margin of solvency of an insurer who carries out insurance, other than life insurance, for any date is equal to the greater of the specified values, namely: - the first one is calculated by multiplying the sum of insurance premiums by 0.18 for the last 12 months (the last month will consist of the number of days at the date of calculation). At the same time, the amount of insurance premiums is reduced by 50 percent of insurance premiums due to reinsurers; - the second is calculated by multiplying the sum of insurance payments for the previous 12 months by 0.26 (the last month will consist of the number of days at the date of calculation). At the same time, the amount of insurance payments is reduced by 50 percent of the reimbursements reimbursed by the reinsurers in accordance with the concluded reinsurance contracts. Solvency requirements for the payment of the insurers: the practice of Ukraine and the EU

27 The statutory stock of solvency of the insurer, which carries out life insurance, for any date is equal to the value determined by multiplying the total value of the reserve of long-term liabilities (mathematical reserve) by The formula for calculating the regulatory solvency margin is as follows: H = max (P 1,P 2 ) where P1 points to the minimum net assets that the insurance company must hold based on the commitments made and the relevant calculation procedure is as follows: Solvency requirements for the payment of the insurers: the practice of Ukraine and the EU

28 P 1 (0,18 × min(bonus; 50million euros) + 0,16 × max(bonus - 50m euro;0)) × max (net payments / Σ insurance payments; 0,5) where P2 indicates the minimum net asset value that an insurance company should have, taking into account the insurance liabilities incurred. The indicator is calculated as follows: P2 = 0,26 × min((SAP;35 m euro) + 0,23 × × max((РСРВ); - 35 m euro 0)) × max((NP / TAAP);0,5), where, SAP - the size of annual payments for insurance cases of the reporting period; NP - net payments for the reporting period; TAAP - the total amount of annual payments of the reporting period. Solvency requirements for the payment of the insurers: the practice of Ukraine and the EU

29 The main sources of insurer information provision in Europe are the EU Three Generations Directive, whose action is aimed at creating the conditions for the operation of insurers in the territory of the "single insurance passport of the EU", which will be obtained by the insurer for insurance activities. Directives are divided into regulatory areas: 1) life insurance and insurance, other than life insurance; 2) technical reserves and asset management; 3) solvency and accounting requirements (Solvency II); 4) insurance groups and financial conglomerates. The main sources of information provision of the insurer in Europe

30 The main objective of the insurance legislation, which was developed at the level of the European Union, was the creation of a single market as foreseen in the EU Treaty, in particular: 1. The functioning of the single insurance market, which will contribute to increased economic efficiency and market integration, requires a common legal framework that will allow insurers to freely conduct transactions in all EU countries, create branches and provide services. Such a legal framework should also protect the rights of consumers, including individuals, for whom the trusted provision of promised benefits can be extremely important. This is achieved by creating a common prudential framework based on three generations of life insurance policies and insurance types other than life insurance and harmonizing the basic rules. The main sources of information provision of the insurer in Europe

31 The insurance directives define a supervisory regime that provides for the issue of a single license and exclusive prudential supervision by the competent authority of the EU Member State in which the insurance company is registered. Such a supervisory regime enables an insurance company to operate in any EU country, in accordance with the principle of free branch establishment and the free provision of services. The single insurance market was created in the mid-1990s after the adoption of third generation insurance directives - Life Insurance Directives (92/96 / EEC) and Directives on types of insurance other than Life Insurance (92/49 / EC). As a result, the EU has created one of the most competitive markets in the world. It's enough for an insurance company to get permission in only one EU member state to sell its products across the EU. At the same time, no one controls the prices set by this company and does not require prior notification of the terms and conditions of insurance (except for mandatory types of insurance). The main sources of information provision of the insurer in Europe

32 Under such a single passport system, insurance companies authorized by the prudential oversight authority of one of the EU member states may carry out their products in another EU country, either directly (for example, by telephone or via the Internet), or by creating in this country of affiliate or affiliate company. The basis of such a system is the principle of mutual recognition of oversight carried out by the authorities of different countries in accordance with the rules harmonized at the EU level to the required level. The main sources of information provision of the insurer in Europe

33 Life insurance and insurance types other than life insurance. According to the current legislation regulating the activity of insurance companies, the insurer cannot simultaneously take up life insurance and insurance, other than life insurance. This is due to the natural differences in the risks inherent in each of these types of insurance, as well as the requirements for financial and accounting. The main differences between life insurance and insurance types other than life insurance are reflected in the classification of risks and types of insurance adopted at EU level. Life insurance and insurance, other than life insurance

34 Technical provisions and asset management. As for life insurance companies and for those who are engaged in insurance, other than life insurance, absolutely different modes of work with the assets representing the technical reserves, which are the basis for the implementation of insurance payments on the requirements of the insured, are determined, and assets that cover other liabilities and are used to pay off the claims of other creditors. Since there is a natural difference between these asset categories, different investment rules apply to these asset categories. But in all cases, for the sake of reliability and profitability, the principles of diversification, spread and liquidity should be respected. Technical reserves and asset management

35 The requirement for insurance companies to provide a sufficient margin of solvency is one of the most important generally accepted prudential rules. The solvency margin is just one aspect, albeit very important, of the financial situation of the insurance company. The solvency regime created in the 1970s has recently been modified and upgraded within the framework of the Solvency 2 package. Solvency 2 is the European Union Directive, which was adopted by the European Parliament on April 22, 2009 and was sent to the Council of Ministers on May 5, The date of implementation of this Directive , after which there will be changes in the existing regime of capital adequacy. Solvency 2 is a fundamental review of the capital adequacy regime in the field of insurance of the European Union. The main objective is to create pan-European capital requirements and risk management standards that will be applied instead of Solvency 1. Solvency II will cover all insurance and reinsurance companies with gross revenues of the insurer over 5 million euros or technical reserves larger than 25 million euros Establishing more stringent requirements for capital adequacy and risk management will help reduce insurer insolvency risks, consumer losses and market destabilization. Solvency and accounting requirements (Solvency II)

36 The Solvency 2 project is a continuation of work begun within the framework of the "Solvency 1" project. While the goal of Solvency 1 was to change the current solvency regime in the EU, the Solvency 2 project is much wider. It provides for a fundamental review of the current regime in many respects in light of changes taking place now in insurance, risk management, financial methods, financial reporting system, etc. One of the main objectives of the Solvency 2 project is to create a system for solvency, which would better match the real risks of the insurance company. The Solvency 2 project is divided into two distinct stages: the first phase involves examining issues relating to the overall form of the solvency system, and the second stage, more technical, will be devoted to a detailed consideration of each risk taking into account in the new system. Solvency and accounting requirements (Solvency II)

37 Since 2001, the subcommittee of the Insurance Committee has been studying issues identified for the first phase, while two smaller groups, which include EU Member State experts and actuaries, prepare the most important topics for consideration in the second stage. Two working groups were also set up at the Conference of Supervisors. As the "Solvency 2" project requires a lot of aspects to be explored, this project is very large. It is also likely that he will be affected by changes that will occur in other areas, for example, in the international accounting system and in the prudential supervision of reinsurance companies, which are now creating new EU principles. A wide range of issues that will be addressed under the Solvency 2 project indicates that its implementation will last for at least several years. The Commission and EU Member States have already begun work on this project in close cooperation with the insurance industry. Solvency and accounting requirements (Solvency II)

38 The main objective is to try to better match solvency requirements with those risks that are actually encountered by insurance companies in order to improve the quality of their assessment and risk monitoring. Differences between risks should be reflected in different solvency requirements, and the same requirements should apply to the same risks. Harmonization of the requirements for the same risks of banks and insurance companies will prevent regulatory arbitrage within the framework of financial conglomerates. Solvency and accounting requirements (Solvency II)

39 Thus, supervision over the solvency of insurance companies should not be considered separately from the supervision of the activities of financial institutions in general. In this regard, the goals of the Solvency 2 project are in line with the goals set when making changes to the provisions of the Basel Capital Markets Agreement. At the end of the project, the Commission will determine whether it is necessary to develop new proposals for the further improvement of the rules of prudential supervision over the activities of insurance companies and to adopt them in the form of a directive. Solvency and accounting requirements (Solvency II)

40 As defined in the relevant directives, insurance companies must have a certain equity capital (solvency margin) to ensure their solvency. The solvency margin is a guarantee of protection for insured persons. The provisions of the insurance group directive are aimed at preventing groups of insurance companies from circumventing these requirements and using the same authorized capital several times to meet the solvency margin requirement of several insurance companies that are members of the group ("double coverage"). Insurance groups and financial conglomerates

41 The directive provides that when calculating the "adjusted solvency" of an insurance company that is part of a group, the financial position of other insurance and reinsurance companies that are part of this group is taken into account. In addition, a similar approach is also used when assessing the own funds of the holding company of the insurance group. This approach aims to prevent situations where these companies will accumulate excessive debts and will try to use the funds of subsidiary insurance companies to cover their debts ("leverage of capital"). Each EU Member State may choose one of the three methods for calculating the adjusted solvency, these methods are considered equivalent. The directive also provides for monitoring large transactions within a group because they can have a negative impact on the solvency of insurance companies. Insurance groups and financial conglomerates

42 In addition, the recently issued Directive 2002/87 / EC introduces new rules for the supplementary supervision of regulated entities authorized in accordance with Article 6 of Directive 73/239 / EEC (insurance companies offering types of insurance other than life assurance) Article 6 of Directive 79/267 / EEC (insurance companies offering life insurance), Article 3 (1) of Directive 93/22 / EC (investment firms) or Article 4 of Directive 2000/12 / EC (credit institutions) and included in a financial conglomerate. Some of these conglomerates belong to the largest financial groups that are active in financial markets and provide services around the world. If such conglomerates, in particular, credit institutions, insurance companies and investment firms that are part of them, will have financial problems, this can lead to serious destabilization of the financial system and damage the depositors- individuals, insurers and investors. Insurance groups and financial conglomerates

43 Thus, the directive stipulates that prudential supervision will be carried out for the group as a whole, especially as regards solvency and concentration risk at the conglomerate level, transactions within the group, internal risk management procedures at the conglomerate level, and management compliance. Directive 2001/17 / EC of 19 March 2001 defines the procedure for reorganization and termination of the insurer's activities. The decision to start reorganization and termination of activity is taken by the competent authority of the EU Member State, where the permit was issued for the company's activity (registration country) in accordance with the legislation of that country. The reorganization and cessation procedures apply to all branches of an insurance company operating in a Member State of the Community. Lenders will receive information in an appropriate manner and the ratio will be the same for all creditors, regardless of which EU country they reside. Insurance groups and financial conglomerates

44 Insurance supervisors regularly check the solvency margin (as a rule, quarterly). In case of non-compliance, the body will take a number of measures, in particular, the company must immediately submit a "financial plan" that will include: - P / L calculation with details of profit, payments, reserves, expenses; - balance; - analysis of capital needs; - reinsurance policy; - a plan for raising capital. Insurance groups and financial conglomerates

45 The supervisor may delegate to the company "commandant" who will manage and control the implementation of the "financial plan". The supervisors of certain European countries set the following requirements for insurance companies regarding the control of the level of financial stability: - corporate governance: top-level managers of any insurance company should be responsible for all areas of the company's activities, its development and strategy; Insurance groups and financial conglomerates

46 - Transparency of information: any insurer must report on concluded insurance contracts, their parameters; - Accuracy of accounting: any insurance company must comply with the rules of accounting for insurance and reinsurance operations, as well as the calculation of insurance reserves; - equity sufficiency: any insurer must calculate the solvency ratio and the minimum amount of equity; - credit risk: any insurance company must provide a permanent monitoring of the financial condition of its debtors. Insurance groups and financial conglomerates

47 1. Describe the composition and structure of the insurer's financial flows. What is the incoming financial flow of the insurer? What expenses does the insurer make? 2. Expand the essence of the "single passport" system of the insurer in the territory of the EU. Describe the insurer's regulation in the EU Directives in areas such as life insurance and insurance, other than life insurance; solvency and accounting requirements; technical reserves and asset management; insurance groups and financial conglomerates. 3. Compare the procedure for reorganization and termination of the insurer's activity in Ukraine and the EU. Check questions to section