Assen CHRISTOV, Chairman of the Supervisory Board, EUROHOLD Bulgaria

16 March 2023 — Daniela GHETU
Assen CHRISTOV, Chairman of the Supervisory Board, EUROHOLD Bulgaria
XPRIMM: How would you characterize 2022 for EUROHOLD / EUROINS Insurance Group in terms of financial results and development?

Assen CHRISTOV: Last year was very successful for our holding. Firstly, we finished our restructuring process and now EUROHOLD is focused on two main businesses: energy and insurance. The total revenue for the group exceeded EUR 3.2 billion and the operating profit amounted to EUR 146 million. So, it was a really successful year for the shareholders and our partners.

As we have concentrated in two divisions, we have much more time to develop them and pick up the fruit of our efforts - results are getting better and better.

XPRIMM: EUROINS Insurance Group (EIG) is aiming to become one of the most important regional players and all the recent moves have been made in this direction. This strategy seems to be a mix between M&A and organic growth. How do these two elements could balance in the future?

A.CH.: In 2022 due to the increased organic growth, we strengthen our presence in the existing markets of the 12 countries that we currently serve. In future, of course, we are looking also for some acquisitions, if there are some interesting targets. But what I want to say is that now, EUROINS Insurance Group has become one of the biggest players in the insurance market, especially in South-eastern Europe where we operate predominantly. Last year our revenue was around one billion euro, and the assets of the group grew to EUR 1.2 billion. We had a lot of restructuring processes, and we are now much more focused in reinsurance which we have achieved through the group similar to what some classical insurance groups do. Our group's reinsurance company EIG Re has 20 years of experience (it was created before the insurance company) and has developed a very professional team across the years. So, in future, we will be much more focused, we will reinsure much more through our reinsurance unit and our colleagues will transfer the risks outside the group to higher rated reinsurance companies.

XPRIMM: Since you invested considerably in the Romanian insurance market, what would you say about the current status and its potential?

A.CH.: We have been serving this market for more than 15 years already. We had very interesting and profitable times. I think that now, the Romanian insurance market is much more stable than before. We don't see any problems in the market, also the prices are stable. As you know we are currently doing mainly MTPL and car insurance, and, in these segments the prices are stable. So, in comparison to previous years the market looks much better now than before. I think the market's growth potential is very high. Romania has almost 20 million inhabitants, while the number of cars registered in Romania is close to 10 million. In other countries the ratio is almost 1:1. So, from this point of view, Romania has much more growth potential compared to other countries. What has been a little bit worrying recently in the Romanian environment is related to the negative impact of the rumours and pressures.

XPRIMM: The Romanian market still has a lot of challenges ahead and most of them are coming from the MTPL side, and you are the leader of the market. Can you comment the actual situation and the rumours?

A.CH: Well, there are a lot of approaches how to calculate the market share of each company. As you mentioned, we are the market leader in the MTPL segment. GROUPAMA is very close to us. Actually, I don't know which of the two companies is on the first place and which is on the second one now. I wouldn't be surprised if GROUPAMA would be the leader. From my point of view, there is only one way to calculate a market share in the MTPL sector and this is the following: the ratio of the number of actual policies and the number of the registered vehicles. All other calculations could distort the figures and could be misleading. For example, I've recently read in some articles: "only 77% of the cars in Romania are insured". This is not true. Because if this was true, the guarantee fund would pay a significant number of claims from the non-insured cars. Where is the difference coming from? From our point of view, the actual number of policies for registered vehicles is wrongly calculated. Maybe for some other calculations, this number is correct, but for the market share it is totally wrong.

This can create a problem for Romania, for example somebody could subject the system to monitoring, because a penetration rate of less than 95% in terms of insured cars and active drivers is dangerous. So, this is one issue.

The other issue which sometimes creates challenges comes from some regulations. And we've already been discussing this problem with different people and different authorities in Romania for more than two years - I am talking about the additional liquidity ratio. This is totally different from the liquidity ratio in Solvency II.

Two years ago, after a proposal of the insurance supervisory department of ASF (NR - Autoritatea de Supraveghere Financiara / Financial Supervisory Authority - FSA), a new norm was approved by the ASF Board, changing the way the liquidity ratio was calculated. From our point of view, the regulator does not have the authority to do this, as changing the law is in the prerogatives of the Parliament. The norm is very restrictive and disturbs the activity of any insurance company registered in Romania - it does not help any company to become healthier. On the contrary, it affects them negatively. Also, this is in contradiction with the European Directive of Solvency II, so practically with the European legislation. At the same time, it is a discriminatory and anti-competition measure.

Why? Because this coefficient is applied only for companies that are registered in Romanian the Romanian market. But in Romania there are also some other companies operating under the FOS system. So, for them this additional liquidity ratio has not been applied. First of all, this is discrimination and, secondly, that puts us in an unfavourable position from the competition law point of view.

It is enough for some people to discuss only these aspects and see what has happened and why it has happened. And we could turn to the anti-monopoly commission because this has affected the company for more than 2 years. We can also provide three legal opinions that this coefficient is established totally against the law, absolutely against the law.

So, these are exactly the problems in detail - not with the legal system, but with the norms created by some experts. I am not saying that it is ASF Board's fault -they vote what the experts who are working in the insurance department recommend. Look, I'm also a top manager and when my experts come to me and persuade me for something, I listen to them and usually follow their advices. That's the only challenge we face in the Romanian market now.

XPRIMM: You mentioned earlier a form of discrimination regarding insurance companies registered locally, like EUROINS. Could you tell us what are you referring to?

A.CH.: For example, this additional liquidity coefficient is calculated like this: every company should have some assets, such as shares, bonds, etc. The value of the assets is compared as ratio with the RBNS - and the number should be higher than one. The companies operating on FOS are not obliged to cover this coefficient. This is one huge discrimination difference.

So, a local company must invest a significant amount in assets that have a reduced return and some of them even with negative return. The effect is less profit for the local insurance companies and more expensive insurance policies. At the same time, the FOS companies are not monitored by the regulator for their RBNSor assets. And this puts those companies in a more favourable position if they sell MTPL policies.

As mentioned earlier, we have three legal opinions that the method of calculus for this coefficient is established in a discriminatory way. If a local company decides to sue Romania for discrimination based on this fact in a European or international law court, it will probably easily win this lawsuit. I am not saying that this is the plan of EUROINS in this moment.

People in the insurance sector in ASF check this coefficient, introduced by a secondary norm through the back door, and not in accordance with Solvency II. And from my point of view this is a big issue and discrimination.

XPRIMM: Then, the problem is not selling insurance at the right price and paying claims, but it's the action of different stakeholders who are not part of the insurance market. I saw a different opinion from a repair shop association and a transporters association. Are they competent?

A.CH.: This is another story. Three years ago, some experts in the insurance sector proposed to the board of ASF to adopt a decision which assigned the claims evaluation to the car repair shops. So, they put an insurance company, who has a license, experience, knowledge, etc. on the same level as a repair shop. And they even gave much more rights to the repair shops to make the evaluation of the car claim.

The problem here is that practically the car shops are in conflict of interest. The unscrupulous shops have much more interest to gain excessively high profits on behalf of the MTPL prices paid by the policyholders. So, every time they evaluate the cost which we need to pay to repair the car, this means very high price and broad room for fraud. You have seen in the media that there are many cases in the court against us and ~85% of them have come from eight repair shops - and I underline - only eight. At the same time, we work perfectly with more than 1000 car repair shops which are correct in our relations.

People in the unscrupulous shops are really specialized in this type of unreasonable claims - sometimes they require price for one bumper equal to the one for an entire car. They make very good money from the penalties, because, for example, even if we agree and pay the very high amount they pretend, there are small differences, and from these differences - if they win in court, we are obliged to pay 0.2% penalty per day - this is 73% per year. So, there are many people who take advantage of this norm to generate income that exceed the market levels by far and there are a lot of frauds. Believe me, there are really lots of frauds and we have discussed these court cases with some people from ASF about, because we must create reserves. So, can you imagine, we pay for some claims two or three times more than the market rates and we still need to keep money aside as reserves. And there are people eager to take advantage of this. That is the challenge.

On the other hand, prices are high due to all these things I mentioned. And this is directly from the pocket of the Romanian people. This is the situation where we are now. If somebody wants lower prices, which of course will be better for the people in Romania, all we need is a little bit of change of the legal framework which would stop some people making frauds against the insurance companies. That's the reality.

XPRIMM: The market, like you said, is stable, the prices are quite stable. Of course, there is the inflation. From your point of view, if I understand correctly, part of the solution is to have new and competent people at different technical levels of execution. What other solution do you have in mind?

A.CH.: I think that new competent experts is very important, and I will confirm why. For example, we saw that there were some reports regarding who is guilty of the bankruptcy of City Insurance - a list of managers of the company. At the same time, some suggest that the ASF board was also to be blamed. I do not agree with this suggestion. The board of ASF takes and votes the measures proposed by the insurance department of the institution. If some people from this department are not competent, the board would be misled by the information provided by experts from the insurance department.

Both Romania and Bulgaria are members of the European Union, and we both comply with the European legislation - directives, regulations, everything. It is top priority to have a unitary, single legislation and not change it through secondary legislation. This is why I think that we need more young and competent people in the insurance regulator. Competence is the key - the rest will come along.

XPRIMM: Can you tell us how was 2022 for EUROINS Romania and what are the plans for 2023? From our understanding, one strategy will be to limit the MTPL share.

A.CH.: Yes, I can say that in 2022 we have doubled our income from the non-MTPL segment. We hope that we will keep this trend in 2023 - to double, or even triple the non MTPL business and this is our focus now. At the same time, in the first two months of 2023, we really tried to keep our market share in MTPL at less than 25% - this is also our target for 2023. In January and February, our revenue form MTPL has already decreased by 12%.

Now we are overall at around 27-28% market share, but we also think that we will grow on Cargo & Freight Insurance. We also see a high demand for property insurance now, following recent earthquakes.

Another aspect is that the Romanian economy is growing, and this will create a bigger non MTPL market.

We also try to develop the travel insurance business, as EIG is a leader in travel insurance in all other markets where we are present - our target is to become a leader in travel insurance.

XPRIMM: finally, what could you tell me about the expansion of the group? Which new countries are in your plans?

A.CH.: As you know we are operating now in Greece, Poland, Romania, North Macedonia, Ukraine, and Georgia. We have operations in Italy and Spain, and we are looking for expansion in Hungary, Czech Republic and Slovakia in order to be close to the countries we are already presented.

XPRIMM: Thank you.