Amendments to provisions regarding re-insurers solvency margins

On 16 April 2014, the Official Gazette published Norm 5 of 2014 of the Romanian Financial Supervisory Authority (the “FSA”) as a supplement to several regulations relating to the calculation of the re/insurer’s solvency margin, the minimum solvency margin and the safety fund (“Norm 5/2014”).

In an effort to improve the legal provisions regulating both general and life insurers’ solvency margins, Norm 5/2014 amends: (i) Order 3 of 2008 for the application of the Norms regarding the calculation of the general insurer solvency margin, the minimum solvency margin and the safety fund (“Order 3/2008”); and (ii) Order 4 of 2008 for the application of the Norms regarding the calculation of the life insurer solvency margin, the minimum solvency margin and the safety fund (“Order 4/2008”).

Norm 5/2014 brings the following amendments to the provisions of Order 3/2008 and of Order 4/2008:

(i) The FSA is entitled to diminish the reduction of the minimum solvency margin determined by a reinsurance program if:
(1) The content or the quality of a reinsurance agreement has been significantly modified from the content or quality of the version reported in the previous financial period;
(2) A reinsurance agreement does not indicate the transfer of risk; or
(3) The risk transferred by means of a reinsurance agreement is not significant;

(ii) The risk transferred by means of a reinsurance agreement is considered as not significant if the updated expected value of the net losses of the reinsurer in relation to that reinsurance agreement is lower than 1% of the overall updated reinsurance premiums;

(iii) The insurers have an obligation to:
(1) Undertake internal calculations regarding the risk transferred by reinsurance agreements. If the risk is not significant, the insurer must submit that reinsurance agreement and the internal calculations to the FSA;
(2) Submit the reinsurance agreements that do not carry any transfer of risk to the FSA;

(iv) The documents mentioned above at points (iii) (1) and (iii) (2) must be submitted to the FSA at the same time as the report on the available solvency margin, minimum solvency margin and the safety fund as indicated by Order 3/2008 or Order 4/2008 (as applicable) and/or upon the express request of the FSA.

Within 90 days from the publication of Norm 5/2014 in the Official Gazette, the insurers whose reinsurance agreements do not contain a transfer of risk or transfer risk that is not significant must file such reinsurance agreements with the FSA, as well as the internal calculations regarding the transferred risk.