SEISMIC RISK IN PORTUGAL. 26 september 2012

Transcription

1 SEISMIC RISK IN PORTUGAL

2 SEISMIC RISK IN PORTUGAL 2 INSURANCE SOLUTIONS Compulsory Insurance Non-Compulsory Insurance Compulsory Cover Non-Compulsory Cover Iceland Romania Turkey Denmark Belgium Spain France Norway Switzerland (?) PORTUGAL

3 SEISMIC RISK IN PORTUGAL 3 ROLE OF THE STATE State intervention No State intervention Denmark Belgium Spain France Iceland Norway Romania Turkey Switzerland (?) PORTUGAL

4 SEISMIC RISK IN PORTUGAL 4 MAIN FORMS OF STATE INTERVENTION Technical Administrative Financial Scope of the cover Tariffs regime Deductibles regime Claims limitation Calamity declaration Control over a ruling entity Financial guarantees Last resort reinsurer

5 SEISMIC RISK IN PORTUGAL 5 MAIN CONCERNS THE INSURERS POINT OF VIEW: Complete dependence on reinsurers to accept the risk; Volatility of reinsurers capacity and price; Potential mass demand determined by the banking system; Low or negative profitability, even without events. CONCERNS on the sustainability of existing system.

6 SEISMIC RISK IN PORTUGAL 6 MAIN CONCERNS THE SOCIETY POINT OF VIEW: High exposure; Growing understanding of the risk and its catastrophic potential impacts; Fear of seeing the country unprotected and with no means to protect itself; No capacity to save on a national level for a potential national problem; CONCERNS on the vulnerability of the patrimony.

7 SEISMIC RISK IN PORTUGAL 7 MAIN CONCERNS THE STATE POINT OF VIEW: Social liability in catastrophic situations; Insufficiency of the insurance cover (only 10% of private dwellings ngs); Potential financial effort to be required (some pp of GDP); Regular capital outflows instead of national savings; CONCERNS on its social liability, with hard budgetary restrictions ns.

8 SEISMIC RISK IN PORTUGAL 8 ROUND FIGURES Existing household dwellings: 6.0 M Covered by Fire or MR policies: 3.0 M 300 bi of insured capital With an earthquake cover: 0.6 M 100 bi of insured capital Estimated PML of an earthquake event in Portugal with a return period of 500 years and a 5% deductible: 2% of insured capital For policies with an earthquake cover: 2 bi

9 SEISMIC RISK IN PORTUGAL 9 SCOPE AND BASIC CONDITIONS Concentrated on the seismic risk and related events Only for household dwellings and small businesses in their buildings Compulsory extension for existing fire or multi-risk policies Reconstruction cost until the insured capital, over a 5% deductible

10 SEISMIC RISCK IN PORTUGAL 10 STRUCTURE State? Funded Resources and External Reinsurance Insurers Retention Liability in case of an earthquake split between: - Insured (deductible) - Insurers (retention) - Funded resources and reinsurance capacities - State (if involved) The goal being to reach a capacity for a PML with a 500 years return period (around 7.2 bi ) Deductible

11 SEISMIC RISK IN PORTUGAL 11 Property Covered Scope of protection ISP Project APS Project Remarks Apartments and buildings for habitation or that are a part of buildings specific for that purpose covered by a fire or multiple risks insurance policy Compulsory for holders of multiple risks or fire insurance policies Optional for those that are not subject to hold a compulsory fire insurance policy with the possibility of subscribing an isolated cover for seismic risks with an insurer of their choice. In the event of 3 insurance companies refusing the cover of seismic risks, a system for the placing of the risk will be defined. Identical, but excludes buildings that do not meet the habitational and safety requirements. Compulsory and automatic for the holders of a multiple risks or fire insurance policies, independently of the fact of the insurance being compulsory or optional. If the fire insurance or multiple risk insurance proposal is refused by 3 insurers, the seismic fund may itself assume the Seismic Risk of the building in question. Avoid situations of abuse and exposure of the Fund to an increased risk. Avoid anti-selection Inspired on the solution of the Calamity Fund.

12 SEISMIC RISK IN PORTUGAL 12 Characteristics of the Fund ISP Project APS Project Remarks Characterization of the Fund, omitted The Fund has administrative and financial autonomy and is ruled by the regime applicable to the insurance activity. Public Fund with administrative and financial autonomy, being initial funding and maintenance of the solvency levels the responsibility of the State. The Fund is ruled by the regime applicable to the insurance activity with the necessary adaptations. Clear delimitation of responsibilities Responsibility of the different parties 1º Policy holder (deductible) 2º Insurance companies that underwrite the insurance contract with the seismic risk cover and that the 1st layer of the risk receded to by the fund 3º Seismic fund 4º State 1º Owner of the building 2º Seismic Fund where all insurance companies are called to intervene as first Re-insurers and the remaining Re-insurers. 3º State Greater transparency for clients and a clearer definition of responsibilities.

13 SEISMIC RISK IN PORTUGAL 13 Policyholder/ participating insurers /Fund Responsibility of the insurance companies that don t participate in the system ISP Project APS Project Remarks The cover of the seismic risk is formally guaranteed by the insurer that guarantees multiple risks or fire insurance policies, but afterwards it is ceded at 100% to the Fund, that in turn returns a share to the insurance companies. The protection against seismic risk is assured directly by the Fund that transfers a part of the risk to the insurance companies in the form of ceded reinsurance. Deductible of 5% due by owner of the building Deductible of 5% due by the policyholder Omitted Responsible for the coverage of seismic risk in the terms and conditions to be approved by ISP. Transparency for the consumers Clear delimitation of responsibilities Clarification of the system

14 SEISMIC RISK IN PORTUGAL 14 State Responsibility Participation of the Insurance companies ISP Project APS Project Remarks Guarantee of the system - up to the limit indicated in the State Budget. Guarantees the solvency requirements of the fund, by way of a Government Order. Optional and formalised by means of contracts to be defined by law. Intervention of the State limited to a fixed amount, for the payment of the damages that exceed the responsibility of the Seismic Risks Fund. Guarantee of the Seismic Fund, liable for the initial solvency and subsequent capital of the Fund (due to its classification as a public fund). Optional.. Formalized by means of a declaration of participation, the model of which to be approved by Law. The rights and obligations of the parties will be contemplated in a regulation as an annex to the Decree law. Clear delimitation of responsibilities Transparency Transparency. Being a Public Fund the rules should be contemplated in the Law and not through separate and private contracts.

15 SEISMIC RISK IN PORTUGAL 15 Protection formalities Insurers contribution to the Fund ISP Project APS Project Remarks Through the insurance contract The insurance company charges the policy holder a premium and pays the Fund a contribution defined by the government, corresponding to a percentage of the sums insured and differentiated according to the seismic zones. By means of a Certificate sent to insurance companies on behalf of the Seismic Fund. The EGFAAS creates an updated data base of all of the buildings that fall within the scope of the system against seismic risk. The insurance company pays the Fund a fixed amount set by the government, corresponding to a percentage of the sums insured for fire and multiple risks insurance policies. The percentage is differentiated per seismic zones and construction period and the cost may be passed onto the policyholder as the premium. Transparency. An insurance policy shouldn t be issued, because in neither of the models are insurance companies expected to assume any direct liability. The percentage is also differentiated taking into account the construction period of the property. The solution was inspired on the model that until, only recently was used to calculate the contribution to the Portuguese Motor Guarantee Fund.

16 SEISMIC RISK IN PORTUGAL 16 Commission paid to the insurance companies by the Fund for the risk ceded ISP Project APS Project Remarks The Fund will pay insurance companies a premium, though its nature and calculation isn t very clear. The Insurance companies will deposit with the Fund 50% of those same premiums. The amounts referred are not receivables of the Seismic Fund, but the results of the financial applications are considered income. If a company abandons the system the amounts of that company revert in favour of the fund. The Fund pays insurance companies a reinsurance premium calculated based on certain criteria and after having heard the Monitoring Committee. Insurers maintain a deposit with the SF as a reserve of its premiums, 50% of which will accrue the minimum guaranteed commission. If an Insurance company abandons the system, 50% of the amount deposited will revert in favour of the Fund. Clarification of the premium as reinsurance premium. Definition of the rules for the calculation of the premium. Clarification of the regime applicable to the financial revenue imputable to that deposit.

17 SEISMIC RISK IN PORTUGAL 17 ISP Project APS Project Remarks 17 Management of the claim file Of the responsibility of the insurance companies. The seismic fund is responsible for legal, administrative and other proven expenses with the exclusion of general expenses and salaries of the insurers workers. Identical Involvement of the Insurers in the management of the Fund Not contemplated. Insurers participate in a Technical Committee created through a Government regulation. Not contemplated. Insurance companies participate in an independent Monitoring Committee, created by Decree Law. This Committee has the power to intervene in a broad range of matters and issue binding opinions. Greater involvement of the insurance companies in the management of the Fund.

18 18 Launching of the system Transition ISP Project APS Project Remarks The system will be implemented when all of the participating insurance companies with seismic risk cover represent x% of the sums insured of that cover, subscribed on the date of entry into force of the Decree Law. Contracts in force are integrated into the system as of the date of the first renewal. The system will be implemented when the participating insurance companies represent more than 50% of the market share of the Fire and Multiple Risks branches. Buildings specific for dwelling purposes will be integrated into the system on the date of renewal. Buildings that have other purposes, but that are part of a property destined almost exclusively for dwelling purposes will be integrated into the system at the request of the policy holder. The solution proposed by ISP implies that insurance companies start to underwrite seismic risk covers without any certainty as to whether the system will come into force. Insurance companies lack information that will permit the automatic integration of building that is not specifically destined for dwelling purposes.

19 SEISMIC RISK IN PORTUGAL 19 PRESENT SITUATION -Cooperation with Portuguese State in not possible - Finantial constraints - Clear different opinion about management of the system -APS is studying a possible private alternative within the portuguese insurance system. -Task force leaded by APS and top experts will propose during 1º semester 2013 a proposal to be discussed and implemented, if possible from 2015.

20 SEISMIC RISK IN PORTUGAL 20 Pedro Seixas Vale