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1 NATURAL DISASTER INSURANCE POOL Romanian Case Study of Compulsory Insurance: The PAID Insurance Framework 4 years from the inception date October 1 st 2 nd, 2014 Belgrade, Serbia Nicoleta Radu-Neacsu CEO

2 ABOUT PAID Romania is one of the European countries significantly exposed to natural disasters, especially earthquakes and floods, which cause loss of life and damages with major social and economic impact. PRAC (the Romanian program for catastrophe insurance) was a project financed by the World Bank and its result was a new law in the Romanian legislation (nr. 260/2008). PAID is the only pre-event established pool. PAID was officially established on 5 th November 2009 and received authorization of the Insurance Supervisory Commission on 28 th December First policy was issued on 15 July 2010.

3 OBJECTIVES Providing homeowners with a simple, affordable and effective insurance product Providing social products and premiums 10euro premium/10 000euro sum insured for adobe houses 20euro premium/20 000euro sum insured for wood, concrete, bricks houses, etc. Establishing of disaster reserves at national level Reducing the budgetary impacts of a disaster to the Romanian Government Raising awareness within the population about the benefits of home insurance

4 LEGAL FRAME 15 July PAID starts to function under the provisions of Law 260/2008 November, 2010 the law is amended, the householders that have completed a voluntary insurance which covers all the risks listed in the mandatory insurance are not obliged to purchase PAD 26 June the Romanian Parliament amends Law 260/2008, PAID becomes again the only insurer for dwellings within the limits imposed by law. All companies authorized by the ASF to write CAT risks, not only PAID shareholders, are entitled to write PAD policy on behalf of PAID. PAID becomes an entity of national strategic importance, managing CAT risks for the entire housing stock of Romania.

5 BUSINESS CYCLE OF PAID: AN INTEGRATED MODEL BETWEEN PAID AND INSURANCE COMPANIES Reinsurance market n Reinsurance PAID Insurance Companies

6 PAD vs. FACULTATIVE POLICIES X Euro FACULTATIVE POLICIES Euro PAD POLICIES EQ LS FL FIRE ROBBERY NAT CAT OTHER RISKS

7 јул.10 сеп.10 ное.10 јан.11 мар.11 мај.11 јул.11 сеп.11 ное.11 јан.12 мар.12 мај.12 јул.12 сеп.12 ное.12 јан.13 мар.13 мај.13 јул.13 сеп.13 ное.13 јан.14 мар.14 мај.14 јул PORTFOLIO DEVELOPMENT In force policies

8 CLAIMS ACTIVITY Year of occurrence No losses Paid claims euro Value euro No losses Value euro No losses Value euro No losses Value euro 2014 (until 31 August) No losses Value euro , , , , , , , (until 31 August) Total 2 2, , , ,

9 CASE STUDY 2014 FLOODS Event dates No claims Losses value, euro April 62 60, May 36 32, July , TOTAL , even in small events, lack of loss adjusters - poor coordination between insurance companies and PAID

10 - In order to increase the stability of the capital, starting with 2014, PAID decided to purchase Reinstatement Premium Protection for the CAT XL program. - Minimum rating requirements A- REINSURANCE PROGRAM Period Capacity (euro) Retention (euro) ,000, , ,000, , ,000,000 1,000, ,000,000 1,000,000 - Actual premium level allows RI capacity level at RMS 100 years RTP - Brokers: AON Benfield, Guy Carpenter, JLT, Willis Re Annual Aggregate Deductible ,000,000 1,000,000 1,000,000

11 CHALLENGES adapting in a short time to legislative changes adapting the IT system to the new increased underwriting capacity and to the increased number of users adjusting the reinsurance program according to the fast growing exposure coordinating its specific activity with the other insurance companies

12 PAID STRATEGY FRAMEWORK In april 2014, the Shareholders Meeting of PAID approved PAID Strategy This document : - explain the multi year strategy to reach this vision -prioritize the changes in reference with the strategy framework -communicate on progress in delivering the multi years strategy -clarify and share with all stakeholders the vision for PAID Strategy statement of PAID -transform PAID to become effective & sustainable

13 Strategy foundations Value creation Efficiency to absorb growth in portfolio and maximize margin for adequate reinsurance and reserving Cost effective reinsurance: Actuarial premium/ deductible on SI in case of claims, to be able to face 1977 EQ (RTP>200) Only A rated reinsurers Optimized partnership with reinsurance brokers: For modelling of economic exposure and reinsurance capacity required For cost effective access to required reinsurance capacity For advices Adequate partnership with insurance companies: Protocole optimization Optimized end to end processes Adequate handling of mass claims in case of a disaster Pooling of insurance companies expertise Meaningful complementarity of Pad and Facultative in the eyes of clients Development of alternative distribution, to grow PAID penetration beyond the potential of a deductible to facultatives Adequate operational risks mitigation: Disaster Recovery Plan and Business Continuity Plan Adequate reserving for catastrophe Close alignment with ASF and compliance rules adjusted to PAID specificity Right governance of PAID: Adequate Board of Directors standards Clear and approved multi-year strategy Adequate management reporting

14 LONG TERM GOALS develop the contingency plan for the entire insurance market in what regards CAT risks on residential property end to end process with the insurance companies adjust the insurance premium based on actuarial calculations / imposing a deductible develop alternative distribution channels build a solid CAT fund simplify the home insurance (PAD+ facultative) by having only one document better enforcement of the fine stipulated in the law in order to increase the penetration rate of PAD develop of a nationwide households database, assigning a unique identification code for each dwelling improve collaboration between PAID and the public institutions engaged in this project improve education in what regards insurance and increase the public trust in insurance industry raising the capital by new injection (retaining earnings and catastrophe reserve)

15 NATURAL DISASTER INSURANCE POOL (PAID) Thank you!

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