The Romanian government recently issued the first law specifically for the MTPL sector, which was governed, until now, by the secondary legislation issued by the Financial Supervisory Authority (FSA).
The law was adopted after representatives of the transportation industry protested against sharp price increases in less than a year, which insurers explained were caused by a rise in compensations and claims frewuency, as well as the bankruptcy of ASTRA Asigurari and CARPATICA Asig, two players known for their very competitive price on the MTPL lines.
The most important change brought by the current legislation is that the prices for all segments of customers will be capped for a period of 6 months at a level of reference which will be calculated by the Financial Supervisory Authority until October 15th. Also, the parliament also currently debates another law draft that mentions the possible establishment of a state owned insurer to enter the MTPL market.
Nevertheless, the only restriction in Romania is to make a profit, GROLL said. "If this is possible, there is no intention to change something here in the future".
"If I am informed right, there are rumors in the Romanian public that foreign insurers take the money out of Romania. I can tell you that for VIG it simply is not true and therefore it is not fair", GROLL said, answering accusations from voices within Romania that large insurance groups have the means to take the profit out of a certain country. "We invested a lot in the market and until now we simply were not able, out of different reasons, to show profitability, which is key for us. We are a listed company and we need markets where we have a fair chance to make profit. It is important to mention that we are not a hedge fund. We are a strategic investor. We came to stay. There is no intention to step out. What we urgently need are conditions and that the mid and long term perspective will get better. If you look at MTPL, the combined ratio over the last years was roughly 130 percent, far beyond any chance to be profitable", said Roland GROLL.
"We believe we have a lot of experience in developing markets and we learned to have patience. MTPL is one of the most important issue in this country. We see that Romania is now finding a balance between all groups of interests", said Hans RAUMAUF, Member of the Council, WIENER Stadtische Versicherungsverein, VIG's main shareholder.
"We know (there is a political influence), we can live with this and we know from other situations that it will become normal after some time. We are hoping that the legislation will also take into consideration some economic arguments from the industry. It is not only a question of the premiums. It is the general situation. There are 25% uninsured cars in the country. I am optimistic that if there is a clear and objective discussion, these arguments will be accepted to some extent", RAUMAUF added. "If we have to live 6 month with fixed premiums, we will survive, but we need the future to be clear and fair. We think that the FSA knows well the situation, but they are trying to find a compromise between all different interests".
"If we look at 2015 only on MTPL where we had a combined ratio of 130%. That means a 30% loss, if we reduce the premiums by 30%, the losses will be even higher. In the meantime, I do not see any major changes in frequency or average claims in the future", GROLL explained.
About a potential exit from the MTPL segment, he mentioned that it is too early to give a strict answer. "What we need on a mid and long term perspective is to see a fair chance to make a profit out of this business which was not possible in the past 4-6 years. If we do not have a fair chance to make a profit out of the, by far, the most important insurance business in Romania, it will be hard for us to explain to our investors why we are in Romania. Nevertheless, we will do anything to find solutions and business models to stay in Romania for the next 50 to 100 years. If we look at the income of our sales network or brokers it's not easy to find models without MTPL in which they are able to live. There is, of course, in theory, a strategic possibility (to exit MTPL), but we do not plan this at all. If we step out, who will remain?", Roland GROLL outlined.
Regarding the potential establishment of a Romanian state-owned insurer that will enter the MTPL market, Roland GROLL explained that "if it's a state owned or private insurer is established, competition is welcome. If the state company is able to run this business with significantly lower costs, it is beneficial for us that we will be pressured to be more cost efficient".
VIG is the market leader in Romania, holding a market share of approximately 26%. Currently, it controls 3 local insurers - OMNIASIG on the non-life segment, BCR Asigurari de Viata on the life side and ASIROM as a composite company. Recently it has acquired the local life business of the French group AXA.