No. 114, August 14th, 2008
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XPRIMM
News - THE ROMANIAN INSURANCE MARKET NEWSLETTER No. 114, August 14th, 2008 Click here to subscribe! Click here to unsubscribe! |
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| EDITORIAL |
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The mandatory private pension system finally got started, already collecting the first money and even starting to invest it. The moment has been waited for more than ten years, so the satisfaction of all parties involved, from fund managers to the Supervisory Commission and even the specialized press, was perfectly motivated. But for things to go as we would like the next issue on the agenda is by all means the improvement of the system - the reasons are, again, enough. The investments' efficiency, meaning cumulated yields as higher over years and years must now be the main target of the market. Although now may not seem, the mandatory pension system still has a lot of obstacles to break through. The first would be its own operating costs - administrative commissions and other expenses related to the guarantees of the system - technical provisions, contributing to the guarantee fund and others. These expenses will react, directly or indirectly, on the funds' expenditures. As a result, they must be offset by sufficiently high yields. Then, we will always have inflation as the first benchmark for funds. Americans say that there are only two truths in the world: death and taxes. In our case, inflation is an unseen tax (but still there) that will wear down pension funds also, as it scours any income in the economy. The funds will therefore have to offset inflation in order to have the argument of earnings in real terms. Perhaps, paradoxically, the system must bear down the inflation alone, through efficient investments in the long term, and not by any legislative provision. In this case, funds would invest massively in super-safe and super-cautious instruments (state bonds and maybe bank deposits) with results matching expectations. The discussions about the necessary guarantees of the system and about the effect of inflation on the pension funds are going towards a single point. "Risk is risk, it can not be legislated away" - as Dinko NOVOSELEC, President of the ALLIANZ pension unit in Croatia, was saying at this years' FIAR. The risk of investment and the market risk are there, and they can not be offset by a vote in Parliament - nor in Romania or anywhere else. And asking excessive guarantees from the private pensions system (who needs them more, funds' participants or politicians? How expensive are they and who will support them, if not the participants again? - Here are some interesting questions), especially that the public PAYG pension system offers basically no guarantee, is illogical and maybe even immoral. Thus the State would require funds, by law, to outrun inflation and to have large and constant outputs regardless of the financial markets' evolution. Unfortunately, it is impossible - if it was possible, the solution had already existed somewhere in the world and hadn't to be invented in Bucharest. Eventually, the best guarantee that the system needs is a mixture between competition between funds and the participants' freedom of movement from one fund to another - namely the common sense laws of the free market. Why we had brought the argument about politicians in discussion? Simple: because funds will have to compensate their natural predilection to populism. Maybe over 20 years, when the mandatory pension system will make its first payments, politicians will have decided that the state pension should represent 60% of the average wage, compared to about 40% -45% now, despite obvious demographic trends and limited budgetary capacity. People then will make their first calculations: I contributed with these amounts at the public system, which brought me the pension I have today. What about the private system, was the replacement rate better or worse? Was it worthwhile? Thus, the pension funds must perform well enough to pass this exam too. Here are the reasons for improvement since today, not tomorrow, of the system. How can this be done? Most of the burden falls also upon the authorities: an increasingly flexible law, to allow more efficient investments and do not require pension funds aberrant guarantees. The other part, at all insignificant, falls upon the funds' administrators which must always find and capitalize on investment opportunities for delivering growth to these funds. And for this, funds must overcome soon, both aided by legislation, as well as on its own initiative, the super-careful attitude (in fact the feature of any start) of the '80% fixed income and no more than 20% equity' investment type. State bonds are just a win-lose kind of game for the Government, which wants to privatize the pension system, but keeps financing or even subsidizing this privatization by making the pension funds buy its bonds - and thus the state postpones the final step is has to take back out of the private pension system. In other words, the state walks some money between two of its pockets, and the convenience of investing money from private pension accounts in state bonds isn't beneficial neither for funds nor for their participants. Both parties (the authorities and the pensions' companies) must therefore
have a single target in mind: the best interest of the participants.
And barriers needed to be overcome by private pension funds, the ones
described above, mean that the system needs all the support it can
get, from all parties involved. by mihai.bobocea@mxp.ro |
  
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| INTERVIEW |
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Interview
with Mr. Fanel PLOPEANU Fanel PLOPEANU: Insurance companies who are present in the agricultural insurance segment perceived 2006-2007 as a warning to take action on an economical and technical level. It seems that global warming is making its presence felt in our country. We are facing unusual weather phenomenon for Romania which are more frequent and more aggressive. Having this in mind, the claims ratio (crops and livestock) for 2007 climbed to 100-200%. That is why insurers have to take measures to cover the costs of these risks. XPRIMM: What is your opinion on the proposition from the Minister of Agriculture regarding the cover for draught and floods through insurance? F.P.: We believe that this measure is premature for Romania. Considering that the notion of insurance in our country is relatively new in comparison to other countries, companies do not have the reserves and the financial strength to cover catastrophic risks. XPRIMM: Which are the modifications you think are required on a legal level so agricultural insurance to be stimulated? F.P.: First of all, the 50% subvention for insurance premiums should be reintroduced, together with widening the list of crops and animals that will benefit from this. Private producers don't have the possibility to cover the insurance at their own expense like the ones from more developed countries do. On the other hand, insurers must reanalyze how premiums will grow according to the specific risks, the use of the "malus" system and introducing new types of insurance to cover all their needs. The Committee for Agriculture of UNSAR, with the participation of MAPDR can start debates to establish a plan for this situation. If the appropriate measures are not taken, this type of insurance will disappear because will prove not to be profitable and investors will drop agricultural insurance. XPRIMM: What do you think about the potential of this segment? F.P.: The potential as an area is large, 70-80% of the crops and livestock. Presently, only 15-20% of the surface is covered but as far as and some animal farms are concerned insurance is insignificant and also improfitable. by mihaela.circu@mxp.ro
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| TOP PRESS |
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www.privatepensions.ro - Everything about private pensions in
Romania! GROUPAMA is officially the only shareholder in ASIBAN EUR 212 million in H1 (+12%) and EUR 5 million profit for ALLIANZ-TIRIAC ASIROM establishes a new Claims Call Center The first season of Pillar II transfers: only 322 transfer requests
were submitted LLOYD's has its eyes on Romania The private health insurance - the most desirable benefit at the
workplace GENERALI Asigurari grows by 12% in six months ING Life: Flat premiums and profit in Q2 CSSPP asked the Ministry of Finance for variable deductibility
on voluntary pensions, up to EUR 2,000 per year Finance minister: We shall at least double fiscal deductibility
for voluntary pensions Change of leader on Romania's voluntary private pension market ARDAF aims to double its business in 2008 BT Asigurari increased its capital Radu VASILESCU resigned from the management of ING Pension Fund.
Emilia BUNEA, the new CEO Top mandatory private pension funds with the most "valuable" clients
in Romania Pillar II in CEE: 29 million clients and EUR 55 billion worth of
assets in 2007 |
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| CEE & CIS |
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EUROINS Insurance Group raises capital to EUR 122.1 million OTP sold two subsidiaries in Bulgaria Insurance against natural disasters should be introduced in Ukraine,
says president TRANSSIB Re increases capital through additional share issue Ukrainian government to support exporters |
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| FINANCIAL NEWS |
| Romania, 4th in the EU in terms of annual industrial production
growth Romania's central bank injects EUR 385 million into the banking
market BRD posts net earnings worth record-high EUR 140 million Industrial production drives annual growth by 4% in June |
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| EVENTS | ||
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