Natural Disater Insurance Pool – PAID

Review of the first year of activity

Marius Bulugea, PDG

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 resulted in a new law in the Romanian legislation (nr. 260/2008). The basis for this law was international experience in the field, with the difference that most pools were created “post event” (best example being Turkey).

Insurance - reinsurance company formed in November 2009, based on the law nr. 260/2008. PAID has 12 shareholders:

♦ ABC Insurance–Reinsurance ♦ ASTRA Insurance – Reinsurance Company ♦ CITY Insurance – Reinsurance Company ♦ CARPATICA Insurance ♦ CERTASIG Insurance – Reinsurance ♦ CREDIT EUROPE Insurance – Reinsurance ♦ EUROINS Romania Insurance – Reinsurance ♦ GENERALI Romania ♦ GRAWE Romania ♦ GROUPAMA Insurance ♦ PLATINUM Insurance ♦ UNIQA Insurances ♦

July 15th, 2010 – issue the first mandatory home

insurance policy (coverage for earthquake, flood and

landslide risks)

Potential – 8,4 million homeowners

November, 2010 – amend the law; homeowners

who have voluntary insurance are excluded from the

obligation to buy compulsory insurance policy

December, 2010 – May 2011: rate of sale for mandatory

policy decreases dramatically (amid statements by

representatives of the Ministry of Administration that

have led people to believe that is no longer required to

buy the compulsory policy)

July & August, 2011: rate of sale for mandatory policy

increases and reaches a peak of 20,000 policies per day

Currently, the average daily sales is about to 200

policies; this level is ten times lower than what we

estimated

Mandatory home insurance policy boost the

voluntary home insurance market

Insurers have developed voluntary home insurance

products similar with mandatory policy: 20.000 € sum

insured/20 € insurance premium or 10.000 € sum

insured/10 € insurance premium, depending on the type

of construction

Major difference:

mandatory home insurance policy is First Risk type

while voluntary products can be a proportional type of

coverage

e.g.:

home value = 80.000 €

sum insured = 20.000 €

claim value (total loss for compulsory policy and partial loss for

voluntary products) = 20.000 €

claim settled = 20.000 € by PAID (First Risk policy) and 20.000

€/80.000 € X 20.000 € = 5.000 € paid by voluntary products

PAID owns an excess of loss reinsurance programme for 300 mil €, designated to provide real protection for PAID current portfolio. PAID has its own retention - 250.000€/event

The placement of this programme was supported by four renowned national and international brokers, i.e. Aon Benfield, Guy Carpenter, Stellar Re and Willis Re. The reinsurance programme is placed 100%, among the participant reinsurers being Swiss Re, Munich Re, Sirius, Kiln and Lloyd's Syndicates.

Claims paid in the first year: over 69.000 €, for 32 properties affected by floods and landslides

Current situation:

Managed portfolio – 850.000 compulsory home

insurance policies (10% from total housing fund)

Underwriting rate has slowed substantially

Renewal rate for expired policies is extremely low

Conclusion:

Penalties provided by law for uninsured homeowners

frightening rather than risks that are exposed. The need

for protection is not aware.

Bucuresti 18%

Dobrogea (2) 10%

Moldova (6) 17%

Bucovina (2) 3%

Maramures (2) 2%

Crisana (2) 5%

Banat (2) 5%

Oltenia (5) 6%

Muntenia (9) 23%

Transilvania (10) 11%

Distribution per historical regions

61%

39%

Location

Urban Rural

61%

39%

Building type

A B

13414

28730

10164

0

5000

10000

15000

20000

25000

30000

35000

15/0

7/20

10

24/0

7/20

10

2/8

/20

10

11/8

/20

10

20/0

8/2

010

29

/08

/20

10

7/9

/20

10

16/0

9/2

010

25

/09

/20

10

4/1

0/2

010

13

/10

/20

10

22/1

0/2

010

31

/10

/20

10

9/1

1/20

10

18/1

1/20

10

27/1

1/20

10

6/1

2/20

10

15/1

2/20

10

24/1

2/20

10

2/1/

2011

11

/1/2

011

20

/01/

2011

29

/01/

2011

7/

2/20

11

16/0

2/20

11

25/0

2/20

11

6/3

/20

11

15/0

3/20

11

24/0

3/20

11

2/4

/20

11

11/4

/20

11

20/0

4/2

011

29

/04

/20

11

8/5

/20

11

17/0

5/20

11

26/0

5/20

11

4/6

/20

11

14/0

6/2

011

23

/06

/20

11

2/7/

2011

11

/7/2

011

20

/07/

2011

29

/07/

2011

7/

8/2

011

16

/08

/20

11

25/0

8/2

011

3/

9/2

011

12

/9/2

011

21

/09

/20

11

30/0

9/2

011

Policies sold as of

0

2000

4000

6000

8000

10000

12000

16/0

7

18/0

7

20/0

7

22/0

7

24/0

7

26/0

7

28/0

7

30/0

7

1/8

3/8

5/8

7/8

9/8

11/8

13/0

8

15/0

8

17/0

8

19/0

8

21/0

8

23/0

8

25/0

8

27/0

8

29/0

8

31/0

8

2/9

4/9

6/9

8/9

10/9

12/9

14/0

9

16/0

9

18/0

9

20/0

9

22/0

9

24/0

9

26/0

9

28/0

9

Sold policies in 2010 Sold policies in 2011

Major problem:

current legislation, who mixed the voluntary product with

the compulsory policy, which can not compete with the

voluntary products

poor financial education; low level of insurance culture

Achievements:

creating a national database with Romanian

homeowners

partnerships with local authorities

running a national campaign to increase the awareness

of compulsory home insurance

organize monthly meetings with the media

Focus on:

lobbying to change legislation

increasing compulsory insurance product rate of

coverage in total housing fund

launch a promotion campaign with emphasis on rural

zone