Annex 21. Fact Sheet Romania

Annex 21. Fact Sheet Romania 1. Generalities: 1.1. Some history of the agricultural risk and crisis management policies, programs and tools. The history of insurance in Romania started before 1871 and began as a process of mutual protection. The first insurance company which offered agricultural insurance was set up in 1906. During the communist period, all the insurance companies were under state administration. Following the establishment of the ADAS, the insurance business becomes state monopoly, being the only Romanian insurance company that provided insurance and reinsurance. ADAS had as its object of activity the compulsory insurance and the optional insurances. After 1990 the changing of the legislation induced the removal of the state monopoly, the setting up of many insurance companies and the establishing of a competitive environment in Romanian insurance market. By the Government Executive Order no. 1279 from 8th December 1990, regarding the setting up of some insurance joint-stock companies in the insurance field, the insurance companies, beginning with 1st January 1991, could be created as commercial joint-stock companies. Also, by this order, ADAS ceased to exist. In 1991, a new Law was issued, Law no. 47/1991 regarding the establishing, organizing and functioning of commercial companies in the insurance field. According to this law the insurance activity was carried out by the insurance companies, insurance and reinsurance companies, reinsurance companies and also, by the intermediary insurance companies (intermediary agencies). The law foresaw the fact that insurance commercial companies had to be set up with the prior notice of the Supervisory Authority Insurance and Reinsurance Activity of the Ministry of Economy and Finance. According to this law, the insurance companies could be constituted as stock companies or limited liability companies. After 1990, many intermediary insurance companies on the Romanian insurance market, appeared (in 2000 there were more than 800 companies) that acted also as agents and brokers in insurance (the latter being only few). Following the issuing of the Law 32/2000 regarding insurance business and insurance supervision, the Insurance Supervisory Commission was formed. It is an independent organization, self-governing, financed by the insurance companies having the objective to regulate, control and supervise the insurance market. On December 31, 2005, 43 insurance companies in the Insurance Supervisory Commission s records were registered, out of which only 10 companies offer agricultural insurance. Following favourable macroeconomic evolutions, the insurance market has 517

continued to develop during 2005, thus the gross written premiums volume has reached for the first time the equivalent of 1.2 billion euro. The structure of the total gross written premiums, per insurance categories is as follows: 1. Written premiums from non-life insurance contracts were totalling 918976940 euros representing 76.5%; 2. Written premiums from life assurance were totalling 282286506 euros representing 23.5% of the total. During 2005, the insurance companies have paid for the claim files (belonging to direct contracts as well as to the reinsurance acceptances) gross indemnities of euros 478296894, a real growth of 23.45% compared with 2004, and out of which non-life indemnities totalling euro 451812567 were paid. The natural disasters which took place in the last four five years had a very negative impact on agriculture. It has been noticed that the climatic changes were very strong and they affected large regions of the country. For instance, the years 2002 and 2003 were characterized by severe and persistent drought which negatively affected the agricultural crops. In the winter of 2003 severe frost was recorded. The years 2004 and 2005 were characterized by floods (heavy and persistent rains), including the Danube river-flood which also dramatically affected the agricultural crops. Thus, the last four years were characterized by adverse natural phenomena spread over large areas, including entire regions. In this context, the insurance companies were coping with difficulty. At the same time, these events triggered the development of the agricultural insurances. In this context, the Romanian Government tried to stimulate the agricultural insurance. Thus, in 2002, the Romanian Government issued Law 381 regarding the agricultural insurances through which the state subsidizes the insurance premiums for the main agricultural crops (wheat, sun-flower, soya beans, sugar beet, vineyards and orchards). Initially, the subsidy represented 20% of the insurance premium but beginning with 2005 (Gov. Decision no. 807 of 14 July 2005), the level of subsidy rose to 50%. The weather conditions have transformed the agricultural insurances into a necessity. Currently, the agricultural insurance market is developing rapidly; 5-6 years ago there were only 3 insurance companies (Agras, Allianz Tiriac and Asirom) offering agricultural insurances while, at present there are 10 companies offering agricultural insurances. The Romanian agriculture is confronted with climatic risks, which, lately have become very frequent and have an intense manifestation in the long run. In the last few years many natural disasters happened, respectively: rivers floods, land erosion, severe droughts, which caused damage to agriculture. Considering the conditions of a market economy any personal investment in agriculture is under risk and uncertainty due to climatic environment and the particularities of the production process long duration of the production cycle, slow turnover of capital, and low rate of profit compared to some other industries. 518

Under these circumstances, agricultural insurances in Romania, which have some particularities, have benefited beginning with the agricultural year 2002/2003 from the effects of Law 381/2002 regarding the granting of indemnities in case of natural disasters in agriculture. The law was meant to ensure a high protection to the agricultural producers and to financially support them in order to protect their assets through insurances. More exactly, at present there is no longer any natural phenomenon to negatively affect the agricultural crops which cannot be covered by insurance; thus the agriculture producer is compensated for the loss either by the insurance company for standard risks or by the state for natural phenomena of catastrophic type. Except for the governmental intervention (Law 381/2002) as a policy crisis management - there are some other several risk management tools known i.e. futures and option contracts. Unfortunately, these tools are not effective in Romania due to the following reasons: On the demand side: - there is no market for futures and option contracts and there is no know-how on this market, because there are no traders and speculators and products with standardized grades of well-defined quality. Nevertheless, beginning with 2004, some steps were taken in order to create such kind of market by creating and implementing the grain grading system. Unfortunately, since the implementation of this new system and due to the lack of quality grains, only a very small quantity of wheat, for instance, could be graded and standardized in class I. For instance, in 2004 only 500 tons of wheat was graded and standardized in class I. At the same time, there is a very high price volatility (mainly determined by the weather conditions), which might represent an incentive for developing the futures and option market. - Farmers do not perceive the risk and they think that disasters will not happen to them. Besides, they rely on the Law 381/2002, which is a governmental support program (disaster aid) in case of significant losses and thus, there is no incentive to think over other risk management alternatives. - There is a lack of financial resources and information among farmers On the supply side: - the insurance companies, sometimes become reluctant to take on risks i.e.: at the end of 2005 and beginning of 2006, certain insurance companies did not want to offer insurance products against the avian flu, because there was a likelihood that many farms would incur losses at the same time - high transaction costs for getting re-insurance. For instance, this year, Carpatica Insurance Company could not re-insure its agricultural activity and it did no longer provide agricultural insurance products. 1.2. Agricultural support policies A wide number of programs (either Green Box -type and exempted from the reduction commitment (Table 2), or counting in the Aggregate Measurement of Support, but are below 519

the de minimis level (Table 3) were funded by the Romanian Ministry of Agriculture to stimulate livestock sector in 2005 and 2006. Table 1. Green Box -type measures of support, budgetary allocations in 2005 Measure type Description of measure Monetary value (million RON) Direct payments to Budgetary allocations in order to stimulate increase in 17.265 producers livestock numbers: -for 45,500 calves kept for more than 6 months 3.515 -for 24,500 pregnant heifers 8.3 -for 24,300 pregnant sows 5.45 Source: Ministry of Agriculture, Forests and Rural Development Note: Additional amounts were budgeted for artificial insemination for bovine and swine animals and for epizootic control. Official exchange rate in 2005: RON 3.62/Euros Table 2. Product-Specific Aggregate Measurement of Support: Market Price Support Product Eligible production Total market price support (million RON) Total market price support (euro) Live swine delivered for slaughtering 65000 MT 78 21546961 Live bovine delivered for slaughtering 7290 MT 5.8 1602210 Live sheep delivered for slaughtering 520 MT 0.4 110497 Source: Ministry of Agriculture, Forests and Rural Development Official exchange rate in 2005: RON 3.62/Euros In 2006, most support measures are handled by the Paying and Intervention Agency. In addition, the national SAPARD Agency (for rural development funding) was turned in March 2006 into a Paying Agency for Rural Development and Fisheries, in preparation for the future structural funding. One main change in policy is the shift to direct support per cultivated areas and animal head. These measures are considered transitory to the EU direct payment system, while schemes from the previous years were largely discontinued. Most of livestock production subsidies are provided per head of animal and can be described as green box-type. Eligible are dairy cows, sheep, and fish and the subsidy is especially meant to increase livestock number and improve husbandry practices. Market price support, counting in the Aggregate Measurement of Support, but below the de minimis level, is budgeted for hogs and broilers delivered to processors. Dairy cows will be subject of a payment per head ranging from euro 138-193/head, as follows: 55 euro/head within the initial 60 days from giving birth if calf resulted through artificial insemination, 27,5 euro/head if the cow had been conventionally inseminated by a certified bull; 83euro/head for all cows which are registered with the Official Performance Control Office, 27,5euro/head for cows registered with the genealogic register, 55euro/head 520

for cows ecologically certified, 55euro/head after 6 month age of a calf resulted through artificial insemination, 27,5euro/head for a calf resulted through conventional insemination. A slaughtering premium of euro 193/head for young bovine animals weighting over 450 KG live weight is considered an important incentive for investments in the beef sector. In the hog sector, between Jan 1 March 1, 2006, the subsidy per head was set up at 27,5 euro for animals weighing 90-110 KG and delivered for slaughtering. During the same period, the amount paid per head for ecologically grown hogs was 20 percent higher. From the month of March, there were additional conditions attached to the subsidization scheme, as follows: the hogs originating from plants compliant with specified biosecurity measures and to be delivered to authorized slaughterhouses; the unit subsidy varies according to the quality class of the carcass (classified under the EUROP system), as follows: 33,1euro/head for hogs in the E category; 25,7 euro/head in the U category. Carcasses classified as R, O or P are not eligible for market price support. Ecologically grown hogs from E and U quality classes are paid 33,1euro/head. The overall budgeted amount for swine growers was increased in August 2006 to 26 million euros. 2. General Framework: Definitions of disaster (for the application of article 92.2 of the Treaty of Rome 1 ) A disaster (from Greek meaning, "bad star") is a natural or man-made event that negatively affects life, property, livelihood or industry often resulting in permanent changes to human societies, ecosystems and environment. Disasters manifest as hazards exacerbating vulnerable conditions and exceeding individuals' and communities' means to survive and thrive. A serious disruption of the functioning of a community or a society causing widespread human, material, economic or environmental losses which exceed the ability of the affected community or society to cope using its own resources. A crisis event that surpasses the ability of an individual, community, or society to control or recover from its consequences. Events that are relatively sudden, highly disruptive, time limited (although the effects may be longer lasting) and public (affecting children from more than one family). A disaster may be due to: 1) Natural causes, such as a hurricane or an earthquake; 2) A failure of technology, such as and airplane crash or the collapse of a bridge. 3) An act of human violence, such as the destruction of the World Trade Center, or an act of war. Disaster is defined as a crisis situation causing wide spread damage which far exceeds our ability to recover. Thus, by definition, there cannot be a perfect ideal system that prevents damage, because then it would not be a disaster. It has to suffocate our ability to recover. Only then it can be called as disaster. 1 The following shall be compatible with the common market: o o (a) (b) aid to make good the damage caused by natural disasters or other exceptional occurrences; 521

Disasters are not totally discrete events. Their possibility of occurrence, time, place and severity of the strike can be reasonably and in some cases accurately predicted by technological and scientific advances. It has been established there is a definite pattern in their occurrences and hence we can to some extent reduce the impact of damage though we cannot reduce the extent of damage itself. This demands the study of disaster management in methodical and orderly approach. General Law framework The insurance activity in Romanian is supervised by the Insurance Supervisory Commission. The strategy of the Insurance Supervisory Commission follows its two major aims: to protect the insured interests and to promote the stability of the insurance business in Romania. Taking into account the fact that, regarding the primary legislation specific to insurance field, the year 2005 marked the end of the transposition of the acquis communautaire, the Insurance Supervisory Commission s actions shall have as objective in the next period the completion of the secondary legislation, especially to implement and verify the way the new or amended legal provisions are applied. The agricultural insurance in Romania is governed by the Law 381/13.06.2002 regarding the granting of indemnities in case of natural calamities in agriculture According to Art.1 of this law, natural calamities are considered the quantitative and qualitative losses of crops, death and/or slaughtering in case of necessity of livestock, caused by natural phenomena and diseases on extended areas. By law, natural phenomena and diseases are considered to be the following: excessive drought, floods coming from overflowing rivers, or broken bridges, heavy rains, excessively low temperatures below the biological resistance limit of the plant, heavy snow falls which cause loss in vegetal and livestock sector, rapid melting of the snow which causes floods, rivers overflowing, hurricanes. For the enforcement of this law, the Ministry of Agriculture receives from the state budget a certain amount of money meant to compensate for losses incurred by the agricultural producers and to subsidize the insurance premium following the negative effects of the natural phenomena and diseases presented above. The payment towards both legal and physical persons affected by natural phenomena is granted only for agricultural crops, livestock, fowls, bees and fish which were insured by the insurance companies and insurance and re- insurance companies. The agricultural producers who insure the agricultural crops, livestock, fowls, bees, and fish at the insurances companies approved by the Insurance Supervisory Commission and Ministry of Agriculture benefit from a support of the insurance premium. 522

The level of subsidy for the insurance premium is established by the Governmental Decision. The administration, utilization, and the management of the amounts meant to make up for loss of agricultural producers is done by the Ministry of Agriculture. The indemnities are granted to the agricultural producers as follows: - for agricultural crops and plantations affected by calamities, only for losses which exceed 30% of production, the maximum level of indemnities being 70% of the expenses made until the date the event occurred. - For animals, birds, bees families and fish, the indemnity represents maximum 80% of the insurance value, diminished with the value of the resulting by-products, which can be commercialized according to legal provisions. The assessments of losses are made - with the agricultural producer affected by losses, present in person-, by a local commission established by the county prefect. The commission is formed by the mayor and one or two specialists from the agricultural office and a county delegate from the Ministry of Public Finance. The results of assessment and the documents written up and signed on this occasion are recorded by the County General Office for Agriculture (CGOA); Within 3 days, CGOA has the obligation to send detailed written information and the necessary documents to the Ministry of Agriculture with the view to setting the amounts necessary for paying the indemnities. The Ministry of Agriculture verifies the documents and then approves the amounts necessary for paying the indemnities. Also, the Ministry of Agriculture informs the Government, which, according to the type of natural calamity as well as the size of affected areas declares the state of natural calamity by a Governmental Decision. The CGOA are obliged to respect the destination of the granted amounts to the agricultural producers. Objectives of the existing programs: The agricultural producers benefit from the stipulation of this law if they are affected by natural phenomena presented above and if they are located in a calamity area declared by Governmental Decision, and if their crops, plantations, animals, fowls, or fish are insured by insurance companies approved by the Ministry of Agriculture. The agricultural producers will receive the due indemnities during the year when the calamity is produced. When the calamities are total and are produced in a moment when there are still climatic and technical possibilities to start a new crop, the indemnities are granted 523

immediately after the finding and evaluation of the situation in order to give the agricultural producer the possibility to start a new production cycle. In order to benefit from the indemnities, the agricultural producers have the following obligations: a) to declare and record the agricultural crops, animals, birds, bees families and fish, land lease hold contracts in the agricultural registers functioning at the level of commune or city. b) To take good care of agricultural crops and to take measures against any disease attacks or pests c) To submit a written notice to the town hall within 48 hours from the moment when the event takes place in case the agricultural crops are destroyed and in 24 hours in case animals, fowls, bee families or fish are killed. d) To submit an estimation of the loss in good faith According to an agreement between the Ministry of Agriculture and the National Institute for Meteorology and Hydrology, the latter will send detailed information on the degree of spreading of the natural events which take place. The Gov. Decision 74/2003 regarding the level of subsidy of the insurance premiums granted to the agricultural producers According to this decision, the agricultural producers who insure their crops, animals, fowls, bees families and fish at insurance and re-insurance companies approved by the Ministry of Agriculture and the Insurance Supervision Commission benefit from a subsidy of the premium. The level of subsidy for the insurance premiums is 20% of the insurance premium value. The subsidy of the insurance premiums is made through the insurance and re-insurance companies. Thus, the farmers pay 80% of the insurance premium at the moment when the insurance contract is signed. In order to cash in the subsidies the insurance and re-insurance companies have to submit to the county agricultural departments the following documents: a copy of the insurance policy, a receipt proving that the insurance premium has been paid, a certificate of the mayor s office of the county where the calamity happened. Based on the documentations received from the insurance and re-insurance companies, the counties general agricultural offices send an overall table containing the amounts representing the subsidies of insurance premiums to the Ministry of Agriculture which have to be cashed. The Ministry of Agriculture sends to the Ministry of Finance the request to grant the credit. 524

Through the Gov. Decision 807 of 14 July 2005, the Romanian Government modified the above mentioned Gov Decision (74/2003), regarding the setting of the level of subsidy of the insurance premiums granted to the agricultural producers. Thus, the level of subsidy of the insurance premiums becomes 50% of the premium insurance value, for all the insurance and re-insurance companies approved by the Ministry of Agriculture and the Commission. Accordingly, the farmers pay 50% of the insurance premium for the crops, animal breeds, fowls, bee families and fish which are subsidized, at the moment when the insurance contract is signed. In order to cash in the subsidies, the insurance and re-insurance companies have to submit to the County Intervention and Payment Agency the same documents as they were requested through the Governmental Decision 74. The rest of the articles of this GOV. Decision are the same with those of the Gov Decision 74 which were already presented above. For the agricultural year 2004-2005, the Ministry of Agriculture approved through ministerial order no. 764 of 2004, the following insurance and re-insurance companies which offered insurances for agricultural crops, animal, birds, bees families and fish: a) Agras Wiener Stadtische SA b) Allianz Tiriac c) Asigurare-Reasigurare ARDAF d) ASIBAN e) Asigurarea Romaneasca Asirom f) Asirag g) The insurance-reinsurance Company Astra h) Atlasib i) Generali Asigurari j) Omiasig k) Provitas l) Unita For the agricultural year 2005-2006, the Ministry of Agriculture approved 10 insurance companies, respectively: a) Agras Wiener Stadtische SA b) Allianz Tiriac c) Asigurare-Reasigurare ARDAF d) ASIBAN e) Asigurarea Romaneasca Asirom f) The insurance-reinsurance Company Astra 525

g) Carpatica Asigurrai h) Generali Asigurari i) Omiasig j) Unita Another important regulation was enforced in February this year Emergency Ordinance 20/2006. According to this ordinance, the state will grant subsidies for certain crops, such as: sugar beet, soya, spring barley, vineyards and orchards. The only condition to receive this subsidy is that the agricultural producers must have an insurance policy with an insurance company accredited by the Ministry of Agriculture. As regards the policy instruments, in Romania, at present there is no public re-insurance. Nevertheless, there is a legal framework for risk reduction which consists of sanitary and veterinary legislation which was adapted to the EU requirements. The Government also tried to lower the cost of risk management by granting subsidies for insurance premium. (see Law 381/2002). Unfortunately, very little is done in terms of market facilities as the farmers are not informed and trained to avoid risk and the importance of the risk management tools. Following the Law 381/2002, and the losses caused to agriculture by catastrophic phenomena during the period 2003-2006, the Romanian Government issued several Governmental Decisions: 1) the Governmental Decision (G.D.) no. 440/2003. According to this G.D. subsidies were granted to the insured farmers (who incurred losses due to law temperature and late spring frost) through the means of the insurance companies. The following table presents the level of subsidies paid per crops and per ha. Table 3: Paid indemnities according to G.D. 440/2003 Area (ha) Paid subsidies (euros) Wheat 113507 9472166 Barley 35368 2679448 Two-rows barley 29269 2274510 Rape 56177 3614387 Total 234321 18040511 Source: Ministry of Agriculture, Forests and Rural Development 2) G.D. no. 1097/2004. According to this G.D., subsidies were granted to the insured farmers (who incurred losses due to excessive drought) through the means of the insurance companies. The following table presents the level of subsidies paid per crops and per ha. 526

Table 4: Paid indemnities according to G.D. 1097/2004 Crop Area (ha) % Paid subsidies (euros) Wheat 9903,34 97,3 711216 97,9 Barley 98 1,0 5585 0,8 Two row barley 100 1,0 6161 0,8 Rape seed 76 0,7 3816 0,5 Total 10177,34 100,0 726778 100 Source: Ministry of Agriculture, Forests and Rural Development 3) G.D. 1458/2004. According to this G.D., subsidies were granted to the insured farmers (who incurred losses due to excessive drought) through the means of the insurance companies. The following table presents the level of subsidies paid per crops and per ha. Table 5: G.D. 1458/2004 Crop Area (ha) Paid subsidies (euros) Wheat 198232 12846640 Source: Ministry of Agriculture, Forests and Rural Development According to figures in table 4 and 5, the total amount of subsidies paid in 2004 was 13573418 euros. 4) G.D. 446, 827, 1227/2005. According to these G.D., subsidies were granted to the insured farmers (who incurred losses due to excessive droughts) through the means of the insurance companies. The following table presents the level of subsidies paid per crops and per ha. Table 6: Subsidies paid according to G.D. 446, 827, 1227/2005 Crop Area (ha) Area % in total Subsidies paid (euros) % Wheat 144330 60,1 11742762 49,5 Barley 5145 2,1 578824 2,4 Two-row barley 8336 3,5 866985 3,7 Rape seed 6816 2,8 563642 2,4 Corn 9813 4,1 1590542 6,7 Sun flower 38927 16,2 2803299 11,8 Sugar beet 962 0,4 125472 0,5 527

Soy bean 15740 6,6 1974825 8,3 Potatoes 190 0,1 184634 0,8 Fodder 1217 0,5 118673 0,5 Field vegetables 178 0,1 153842 0,6 Vineyards 7905 3,3 2816700 11,9 Fruit trees 619 0,3 179351 0,8 Total 240178 100 23699550 100 5) G.D. 828/June 2006 and 1006/2006 on the declaring of a state of natural calamity in agriculture and the setting up of the maximum level of the indemnities granted in order to compensate for losses. According to these G.D., subsidies were granted to the insured farmers (who incurred losses due to floods), for crops sown in autumn 2005 and spring 2006, through the means of the insurance companies. The declaring of the calamity areas is based on the information provided by the Ministry of Environment and Water Administration. The agricultural crops totally affected, for which indemnities are paid and the maximum amount granted are as follows: a) autumn wheat, triticals: 129,7 euros/ha b) barley, autumn and spring two row barley : 118,6 euros/ha c) autumn and spring rape: 129,7 euros/ha d) corn: 137,9 euros/ha e) sunflower: 124,1 euros/ha f) soya: 151,7 euros/ha g) sugar beet: 206,9 euros/ha h) vegetables: 540,9 euros/ha i) fodder: 154,5 euros/ha The maximum level of the indemnities represents 70% of the expenses made until the event occurred. For the livestock, fowls, bee families, fish, the indemnities paid represent 80% of the insured value diminished with the resulting by-products which can be commercialized according to the legal provisions. The fund necessary for indemnifying the agricultural producers is of 1507911 euros and is formed as follows: 413975 euros from the Ministry of Agriculture budged on 2006 1103936 euros by supplementing the Ministry of Agriculture budget on 2006 from the Intervention Fund at the Romanian Government disposal as stipulated in the state 528

budget for 2006 meant to cover the indemnities paid to agricultural producers in case of natural calamities in agriculture. 6) Governmental Decision 1006/august 2006 on the declaring of a state of natural calamity in agriculture for crops sown in the autumn of 2005 and spring of 2006, and fixing the maximum level of amount which can be granted as indemnity for loss. The state of calamity was declared based on the information sent by the National Institute for Meteorology. The crops totally affected for which indemnities are granted and the maximum amounts which are granted as indemnities/ha are the follows: a) autumn and spring wheat, triticums : 129,7 euros/ha; b) barley, autumn and spring two-row barley: 118,6 euros/ha; c) spring and autumn rape:129,7 euros/ha; d) corn: 137,9 euros/ha e) sun-flower : 124,1 euros/ha f) soya-bean: 151,7 euros/ha g) sugar-beat: 206,9 euros/ha h) vegetables: 540,9 euros/ha i) fodder: 154,5 euros/ha The maximum level of indemnities represents 70% of the expenses made until the event occurred. For loss of livestock, fowls, bee families, and fish, the indemnities granted represent 80% of the insured value diminished with the value of resulting byproducts which can be commercialized according to the legal provisions. The funds necessary for granting these indemnities represent an amount of 14196611 euros/ha and they are provided from the budget of the Ministry of Agriculture. The deadline for submitting all the necessary documents necessary for receiving the indemnities within 60 day from the moment this G.D. entered into force. Those who benefited from the provisions of the G.D. 828/2005 do not benefit also the stipulation of the G.D. 1006/2006. So far, a distribution of subsidies per crops and category of animals granted according to the G.Ds. 828 and 1006/2006 is not available. Law barriers: does the law forbid that ad-hoc measures or disaster funds compensate damages that could have been insured? At present, the law does not forbid ad-hoc measures or disaster funds. Although there were lots of discussions going on, there is no disaster fund created to compensate damages that could have been insured. 529

3. Market conditions Competition on prices or on quality of services. Is there an independent body that fixes tariffs? The agricultural sector is characterized by high risk and uncertainty. In Romania, due to strong weather variation, the production and yields fluctuate a lot. As a consequence, the price volatility is also extremely high. Usually, in years with good yields and production, the prices have decreased, while in years with small crops, the prices have increased. Besides, price risk is likely to increase because of the EU integration and in the long run due to trade liberalization. The avian flu has led to a poultry price reduction. That means that not only the weather conditions but also the animal diseases might influence the price evolution. Some facts about yield, production and price variability 2 during the period 1990-2004 are given below: Table 7: Production variability (%) Product 1990-1995 1996-2000 2001-2004 Wheat 28,7 30,8 46,5 Barley 26,4 32,6 31,8 Corn 18,5 31,1 26,8 Sun-flower 24,2 22,2 29,8 Milk 11,4 4,14 4,57 Beef 7,1 8,2 12,7 Pork 7 16 7,2 Poultry 20,2 6,1 9,7 Source: own calculations based on data from the National Institute for Statistics, annual yearbooks 1990-2004 The highest coefficient of variance for crop production (especially wheat) was recorded in the period 2001-2004 (table 7). Table 8: Yield variability (%) Product 1990-1995 1996-2000 2001-2004 Wheat 17,1 17,8 37,8 Barley 14,8 10,8 31,8 Corn 22,9 28,4 21,7 Sun-flower 3,7 28,3 24,9 Milk 14,1 2,4 9,7 Table 1. 2 CV=Coefficient of Variance Table 2. SD =Standard deviation Table 3. M=Mean 530

Source: own calculations based on data from the National Institute for Statistics, annual yearbooks 1990-2004 Similar high yield variability was recorded in the period 2001-2004, especially for wheat and barley. Milk yield variability was also quite high (table 8). Table 9: Farm price variability (%) Product 1990-1995 1996-2000 2001-2004 Wheat 20,3 15,3 20,8 Barley 36.3 23,6 23,2 Corn 27,6 15,4 17 Sun-flower 15,2 11 16,6 Milk 26,8 13,8 30,4 Beef 9,8 21 27,5 Pork 8,3 20 27,5 Poultry 7,5 17,3 34,9 Source: own calculations based on data from the National Institute for Statistics, annual yearbooks 1990-2004 Due to high production and yield variability, the farm price variability was also extremely high. Table 10 presents the market price variability with prices expressed in euros. When calculating variability of prices expressed in national currency (lei), the variability was even higher, due to inflation. Table 10: Market price variability (%) Product 1990-1995 1996-2000 2001-2004 Wheat 25,9 17 26,4 Barley 26,8 14,4 24,8 Corn 29,5 16,01 29,2 Milk 22 11,3 9,5 Beef 18,5 24,3 25,1 Pork 23 18,5 29,5 Poultry 30,4 20,7 15,2 Source: own calculations based on data from the National Institute for Statistics, annual yearbooks 1990-2004 As table 10 shows, the market price variability was even higher. In this context, of extremely high variability, the Romanian insurance companies try to offer a series of products and services in the field of agricultural insurance. 531

At present, in Romania there is no independent body that fixes tariffs. Each company sets up its own tariffs. The competition is mainly in the field of services. The competition in agricultural insurance is fierce, and sometimes not very fair. For instance, until 2002, only Agras provided agricultural insurance on the market. After 2002, when the Law 381 was enforced, the agricultural insurance became attractive for some other insurance companies due to the advantages, facilities and subsidies provided by the state. Moreover, in the agricultural insurance there is a need for periodical inspections which require highly trained professionals in agriculture and this process requires time. Allianz Tiriac: has been offering agricultural insurance since 2002, and the agricultural insurance market share of the company is about 30%. Allianz offers a large range of insurance products both for crop and livestock (more than 100 species of plants and animals). It also offers technical assistance and consulting before and after signing the contract, insurance conditions and technical norms, premium tariffs accessible to the insurance producers, flexibility in setting the payment conditions of the insurance premiums based on rigorous, scientific criteria: the propitiousness of the crops and the frequency of the risk factors in the region); it insures general risks and, in certain conditions it insures optional risks (drought, late harvest due to persistent rains, floods; reinsurance contracts with external re-insurance companies; permanent monitoring of the livestock and crop vegetation status, professionalism in assessing the losses and rapidity (maximum 15 days) in paying the indemnities after all the necessary documents are submitted. The policy might be paid entirely when the contract is signed or in 3-4 instalments, providing that the last instalment is paid one month before harvesting. Allianz offers a bonus to those producers who insure more than 500 ha. Generali Asigurari entered the agricultural insurance market in 2004. It offers two types of polices: 1) standard risks: late spring frost, hail, direct effects of heavy rains, storm, land erosion, early autumn frost; 2) reduced standard risks: hail, direct effects of heavy rains, storms. Generali offers insurances for the following products: cereals, technical plant, aromatic and medicinal plant, leguminous, fodder, potatoes and vegetables, vineyards, fruit trees and hops, strawberries, greenhouse crops, vineyards and tree nurseries. 532

The amount of insurance premium represents a percentage quota of the amount insured and its value depends on: the location of the fields, the crop structure, and the technological expenses made for each crop to obtain the production. The insurance premium might be paid at once when the contract is signed or in instalments as agreed by contract. Asirom: Within the General Insurances department there is a Technical Department, which, following certain analysis i.e. market studies, demands, elaborates the insurance conditions and lays down the actuarial quota of the tariffs for each type of insurance, including the agricultural insurance. ASIROM S.A. has an important percentage of the insurance contracts regarding the optional livestock and crop insurances which reflects its quality on the insurance market. Market players: Is there a dominant company? According to the report issued by the Insurance Supervisory Commission at the end of 2005, there were 42 insurance companies. The following tables present the amount of written premiums, ceded to reinsurance and paid indemnities in agricultural insurance in 2000, 2001, 2002, 2003, 2004, and 2005. Table 12: Gross written premiums, ceded to reinsurance, paid indemnities in agriculture insurance, 2000 (Euros) No. Insurance Company Gross written premium s Gross earned preminu ms Net premium reserves at 31.12.00 Ceded to reinsura nce Receive d in reinsura nce Gross paid indemnit ies Net paid indemnit ies Loss net reserves at 31.12.00 1 AGRAS 989709 873610 211177 189994 198611 140103 1199953 2 ALLIANZ TIRIAC 567970 426424 10561 225936 305683 99350-1011 3 APR 32323 15174 0 0 5502 3368 0 4 ARDAF 17034 12131 3207 5537 0 0 0 5 ASIBAN 16908 14815 2400 * 185 185 6805 6 ASIROM 0 457475 0 299298 93318-54894 0 7 ASTRA 92278 340790 361 0 15345 15345 1994 8 GENERALI 752 707 280 0 1211 1211 34 Total 1716973 2141126 227986 720766 619856 204668 1207775 Source: Own compilation based on data provided by the Insurance Supervisory Commission 533

Table 13: Gross written premiums, ceded to reinsurance, paid indemnities in agriculture insurances, 2001 (Euros) No. Insurance Company Gross written premium s Gross earned preminu ms Net premium reserves at 31.12.01 Ceded to reinsura nce Receive d in reinsura nce Gross paid indemnit ies Net paid indemnit ies Loss net reserves at 31.12.01 1 AGRAS 2830105 2055795 96859 1011042 28025 1432419 723166 264056 ALLIANZ 2 TIRIAC 1410357 1057165 15475 733337 801669 341130 101666 3 AGI 34965 28369 384 0 2480 2480 4 ASIBAN 143049 78806 9606 13064 15715 13832 5 ASTRA 340133 140840 10005 175544 25252 19219 6 ATLASSIB 30815 30815 26935 1844 7 GENERALI Total 4789424 3391789 132329 1959922 28025 2279379 1099827 365722 Source: Own compilation based on data provided by the Insurance Supervisory Commission Table 14: Gross written premiums, ceded to reinsurance, paid indemnities in agriculture insurance, 2002 (Euros) No. Insurance Company Gross written premium s Gross earned premium Net premium reserves at 31.12.02 Ceded to reinsura nce Received in reinsura nce Gross paid indemniti es Net paid indemniti es Loss net reserves at 31.12.200 2 1 AGRAS 4426367 2684506 1174511 1491449 21356 1112950 591236 273532 2 3 ALLIANZ ŢIRIAC 1063577 935393 282679 622031 0 440186 138971 3982380 ANGLO ROMANA 1913 1352 0 0 0 0 0 0 4 AGI ROMÂNIA 57911 40953 5151 0 0 3743 3743 5279 5 ARDAF 112696 81388 3914 54012 0 16791 1643 0 6 ASIBAN 233379 167968 61459 57651 23536 22597 11999 320 7 ASITRANS 21017 17785 1741 16789 0 0 0 72 8 ASTRA 182550 168392 3187 130504 0 11259 11259 487173 9 ATLASSIB 25771 22388 0 17744 0 598 598 598 12 GARANTA 90300 60613 15968 58773 0 793 771 6241 13 GENERALI 3744452 3279676 202477 3527330 280608 156762 25801 52983 Total 9.959.933 7.460.414 1.751.088 5.976.284 325500 1.765.680 786.021 4.808.579 Source: Own compilation based on data provided by the Insurance Supervisory Commission 534

Table 15: Gross written premiums, ceded to reinsurance, paid indemnities in agriculture insurance, 2003 (Euros) No. Insurance Company Gross written premium Gross collected premium Net premiu m reserves at 31.12.03 Ceded in reinsuran ce Accepte d reinsura nce Gross paid losses Net paid losses Loss net reserves at 31.12.200 3 AGI 1 ROMANIA 62775 44631 11607 0 0 12377 12377 3382 2 AGRAS 3144170 3503695 582813 1282262 62389 1346032 750142 183982 ALLIANZ 3 ŢIRIAC 1492387 1718644 199076 878147 0 521568 175095 59883 4 ARDAF 625366 472586 67496 75834 10653 37252 22650 2192 5 ASIBAN 176294 171407 59787 116243 0 10094 5878 6921 6 ASITRANS 6744 7666 1824 3038 0 0 0 509 7 ATLASSIB 11665 14342 1607 9539 0 639 639 639 8 GARANTA 76767 74193 13979 26196 0 155-2553 1811 9 GENERALI 1915605 1592482 291809 1358089 0 52785 47315 45129 10 UNITA 476754 245234 114899 231520 0 39412 14633 8740 Total 7988527 7844882 1344897 3980867 73042 2020314 1026176 313186 Source: Own compilation based on data provided by the Insurance Supervisory Commission Table 16: Gross written premiums, ceded to reinsurance, paid indemnities in agriculture insurance, 2004 (Euros) N o Insurance Company Gross written premium Gross collected premium Net premium reserves at 31.12.2003 Ceded in reinsur ance Accepted reinsuran ce Gross paid losses Net paid losses Loss net reserves at 31.12.200 3 ALLIANZ 964786, 1TIRIAC 1612450 1414652 335195,2 9 0 804073,9 319991,2 269285,7 2AGRAS 3013774 3004800 1726293 3ARDAF 605723,5 539879,3 69958,03 4ASIBAN 253641,8 231872,9 101693,1 5ASIROM 2679196 2570672 1167047 450443, 2 0 130222,4 53388,48 6716,471 95271,4 9 0 16819,6 13712,97 0 186664, 9 0 1211051 1211051 79728,63 6ASTRA 320154,9 257916,3 711251 89635,5 0 793360,6 753631,4 60120,03 CARPATICA 1415,35 7ASIG 5227,647 4096,368 1116,106 1 0 938,7151 231,9402 0 8GENERALI 2171390 2190095 214364 Total 10661558 10213984 2600624 161736 9 0 135072,9 39793,77 27959,98 340558 6 0 4817833 2391801 443810,8 535

Source: Own compilation based on data provided by the Insurance Supervisory Commission Table 17: Gross written premiums, ceded to reinsurance, paid indemnities in agriculture insurance, 2005 No. Insurance Company Gross written premium Gross collected premium Net premium reserves at 31.12.2005 Ceded in reinsura nce Accepted reinsuran ce Gross paid losses Net paid losses Loss net reserves at 31.12.200 5 AGRAS 3527461 3421678 1684630 ALLIANZ 1 ŢIRIAC 2378487 2078735 537404 1448137 0 545435-94102 88152 2 ARDAF 676795 642904 141276 340592 0 129547 41398 11205 3 ASIBAN 394657 352155-110118 168626 151515 85555 26770 4 ASIROM 3945886 3531689 1988114 278498 0 1415233 1415233 127186 5 ASTRA 343933 231500 52357 320661 1258 47969 12349 3669 CARPATICA 6 ASIG 3682 5103 720 2346 0 2983 787 469 7 GARANTA 55763 63366 10090 36032 0 2721 1361 3091 8 GENERALI 2691947 2416791 321245 2248165 1656 410112 104874 185737 Total 14018611 12743923 2941090 4843058 2914 4390146 1567453 446279 Source: Own compilation based on data provided by the Insurance Supervisory Commission Based on figures presented in tables 12, 13, 14, 15, 16, and17 taking into consideration the total amount of written premium and paid indemnities, AGRAS is the leader of the Romanian insurance market, but it is not dominant. In 2004, according to the Insurance Supervisory Commission data, (table 16) an amount of 10661558 euros was subscribed in agricultural insurance. The main players were: Agras 3 mil euros, Asirom 2,6 mil euros, and Generali 2,1 mil euros. In 2005, an amount of 14018611 euros of gross written premiums was recorded, 31% higher compared to 2004. The main players were: Agras, Asirom, Genreali and Allianz Tiriac. In 2000 Omniasig bought the main stock of shares of Agras, and lately they merged, and a new company was formed namely Agras-Omniasig. In October 2002, the main stock of shares of Agras-Omniasig was taken over by the Wiener Staedtische Group, and the name of the company became Agras GWS. In 2005, Agras became a company specialized in agricultural insurances while general non-agricultural insurances were transferred to UNITA. At the same time UNITA transferred to Agras the agricultural insurances. Asigest is the first agricultural insurance broker in Romania and its main activity is to intermediate the agricultural insurances. ASIGEST, tries to contribute to a good and solid development of the agricultural insurances market, by promoting the agricultural insurance company offers and by providing consulting services to the insured. The reduced presence of the insurance companies in rural areas is an important cause which makes the brokers mission difficult because they have to represent the agricultural insurance companies role, by presenting these companies and their products. From 536

ASIGEST point of view, there is a need for a more active participation of the insurance companies at the meeting of the agricultural shareholders associations, and they also should make the first step towards agricultural producers by informing them about the products they offer. There are no official data about agricultural insurance market, except those provided by the Insurance Supervisory Commission. This is the reason why, no data on insured crops and livestock is available. The insurance companies report the agricultural insurances in class IX. As a consequence, all the information and statistical data provided in this report is based on a compilation of data provided by the Insurance Supervisory Commission and information provided by representatives of the insurance companies. 4. General features Indications of most frequent characteristics. To be detailed in the next paragraph and the technical form of products Compulsoriness for the farmer The agricultural insurance is not compulsory. Public subsidies (%) and cost for the farmers. The agricultural insurance benefit from public subsidies as stipulated by Law 381/2002 and the G.Ds. which followed this Law. The amount of subsidies paid per year and per crop is presented in paragraph 2.2. Franchise (%). Is it computed on the total of the farm or per crop? The franchise is calculated on crop/field/event and represents the amount which is deducted from each indemnity. It varies between 10-15% from one company to another and it depends on the type of crop or the category of animal insured, the frequency of risks in the location and the safety conditions of the stables where the animals are sheltered. Existence and importance of index-based insurances The insurance policies are calculated according to meteorological data provided by the National Institute for Meteorology. The history of losses and the frequency of the meteorological phenomena are taken into consideration when determining the risks. Most usual method for determination of losses 537

Losses are estimated following an inspection of the damage. A minute is concluded in which the estimated percentage of the loss is stipulated. The amount of the compensation paid is a product of the insured amount multiplied by the percentage of the loss assessed minus franchise. Delay in paying indemnity after event or harvest. There are no delays in paying indemnities after event. The maximum number of days is 30 days (Agras) after all necessary documents are submitted. According to the Insurance Conditions, any client is indemnified after 15 days (ASIROM and Allianz Tiriac) from the final evaluation of the loss and after the client submitted the last documents requested by the Insurer necessary to determine correctly the amount of the loss as well as the technological expenses made. Is there a bonus-malus system? There is only a bonus system. The bonus is granted in the following conditions: - no damages were recorded in the first, second and third year of insurance - the area insured is higher than 500ha - if agreed the insurance premium might be paid in instalments ASIROM applies the bonus system for clients who, at the moment when the contract is renewed (re-signed), there were no losses in the previous year of insurance, by granting a reduction of 10% of the premium quota and with 20% for the third year of insurance. Agras and Allianz also apply a bonus system (see also the competition on services). Is there an income insurance? There is no income insurance. Is there a (significant) market of MPCI? (multi-peril crop insurances) Yes, there is a multi-peril crop insurance. Are there insurances on prices? There are no insurances on prices. 538

5. Insurance products available Description of all the available programs per crops per groups of crops (as probably defined by the insurances) and per type of animals. Including also information on Number of farms covered Covered areas (crops, livestock and revenue) and type of covered risk Coverage in value of production The information in this paragraph is extended in the technical form in annex. It will refer to the most recent year available. According to statistics, only about 12% of the Romanian agricultural area is insured. The agricultural land represents 14,7 mil ha while the arable land represents 9,4 mil ha. According to Agars s representative, 1800000 ha were insured by Agras in 2006 (i.e. 5,2%). In Romania, the number of farmers who sign agricultural insurances (who take out insurance policies) is smaller compared with other countries due to the fact that the financial power of the farmers is smaller 3. In 2005, Generaly Insurance Company signed 124 insurance contracts with farmers and paid indemnities of about 2,6 mil euros. ASIROM underwrote 3000 insurance polices and the value of paid indemnities was 1415233 euro. ASIBAN had 260 clients and the value of indemnities paid was 151605 euros (table 18). Following the calamities recorded in 2005, a slight increase of the premium values has been noticed lately. The agricultural insurance market is around 14 mil euros. According to the Ministry of Agriculture spokesman, the profile of somebody who signs agricultural insurance is the following: Owner or leaser who cultivates large land areas, those who have valuable crops such as: vineyards, orchards, or those who ask for banking credits or financing from the European Union. Table 18: Number of farms insured in 2005 Insurance Company Number of farms insured Agras 5128 Generali 124 Asirom 3000 Asiban 260 Tiriac 2500 Total 11012 Source: interview with insurance companies representatives Table 4. 3 Interview with ASIBAN representative 539

The potential of agricultural insurances is very high. At present, the percent of agricultural producers who have insurances policies is about 18%. 4 In 2006, the average number of farms participating in the agricultural insurance market is about 43003 farms, out of which 41818 are farm crops and 1185 are animal farms. In 2006, the average number of farms participating in the agricultural insurance market is about 43003 farms, out of which 41818 are farm crops and 1185 are animal farms. Compared to the total number of farms recorded in Romania, respectively 4200000 farms, this represents about 1%. Nevertheless, we should take into consideration the fact that, a concentration process has taken place lately. Thus, about half of the 4400000 farms are farms with an average of 100 ha and the rest are farms with less than 10 ha. An increase of the number of farms insured is expected as a result of an increase of subsidies and credits granted. For instance, in 2006 (Sept 2005 Sept 2006), Agras insured 15566 crop farms and 501 animal farms. The livestock insurance does not yet represent a popular risk in Romania, although these types of risks have existed for several years now. Nevertheless, the recent events regarding the avian flu have changed the poultry producers opinion. Recently, the owners of poultry farms have been confronted with a strange situation. Although they have become willing to sign insurance contracts with the insurance companies, the latter were no longer willing to offer this product due to the very high risks. 5.1. Insurance products available by insurer company AGRAS For the small producer, who owns from 1 to 6 ha, Agras offers a new product, namely an agricultural insurance ticket with a fix amount which is very simple and very cheap. The ticket has a fix amount, the amount insured being of 500 RON /ha (139 euros/ha) and the insurance premium of 15 RON (4 euros). The ticket is signed (is concluded), for one to five hectares. The agricultural producers who purchase 5 tickets receive one ticket for free. Conventionally, the minimum value insured is the tenor value which is paid by the leaseholder and the maximum is the value of technological expenses made to obtain the production. Agras also provides tickets for livestock, vineyards and orchards. Agras, insures all the agricultural crops and all animal breeds against all natural phenomena and diseases which cause damages in local areas. These risks are called standard and include: a) for agricultural crops: hail, heavy rain, storm, late spring frost, early autumn frost, land erosion, fire caused by natural forces; b) for animals: birds, bees and fish: surgical diseases, obstetrics and internal diseases, wild animal attacks, fire, thunderstorm. In case the loss is caused by standard risks, the insured agricultural producer is compensated for losses by Agras. In case the loss is caused by calamities stipulated in Law Table 5. 4 Interview with Agras represententative 540

381/2002, the agricultural producer (insured for standard risks) is compensated by state (when the calamity status is declared by G.D.). The agricultural producers may opt for all the agricultural insurances presented above or only for some of them. In order to benefit from the stipulations of Law 381/2002, the insurance contract for spring agricultural crops might be concluded until May 31 st while the contract concerning livestock may be concluded all the year round. The amount insured (the value insured) is fixed by the insured together with Agras insurer agent and represents: - for agricultural crops: the expenses incurred with the mechanization and manual labour activities, necessary to produce the product recorded in the insurance contract i.e. the technological expenses. For instance, the insured amount for 1 ha (of wheat, sun-flower, corn, barley) varies between 275-330 euros. - for livestock: the real value of the animal at the moment when the policy is signed (respectively, the market value). According to an interview with Agras representative the insurance value of cow depends on whether the cow is purchased from abroad (1500-1700 euros), or from Romania (550 euros, which is the local market price). For a sow the insured value is 225 euro, for a boar the insured value is 680 euros. For piglets the insured value is about 30 euro and for fattening pigs is 124 euros. For a sheep the insured value is about 410 euros. For a egg-laying hen the insured value is about 4 euros. The insurance premium might be paid in proportion of 80% when the contract is signed for the following crops: sugar beet, sun-flower, soya, vineyards and intensive orchards and livestock (bovines) which benefit of a 20% subsidy of the insurance premium, or in instalment as agreed by the insured and insurer agent and stipulated in the contract. The payment of the indemnities is made in maximum 30 days from the final assessment of the loss. Agras provides a bonus system, which is of 10% in case in the first year no loss was recorded, 20% in case in the second year no loss was recorded, up to maximum 30% in the third year. Allianz: 1) Crop insurance: The insurance policy might be signed by legal or physical persons who have the responsibility for using, protecting and conserving the land, regardless of the ownership rights confirmed by a deed of ownership, lease, rent, and donation. 541

Type of insured crops: 1) cereals 2) technical plant 3) vegetables and potatoes 4) aromatic and medicinal plant 5) fodder 6) vineyards 7) orchards 8) hops Based on a special clause to the contract, the followings might also be insured: Risks insured: 9) greenhouse crops 10) vineyards nurseries 11) strawberry crops 12) fruit shrubs 13) ornamental and decorative plants General risks: fire caused by acts of God, fired caused by natural calamities (thunder), torrential rain, storm with a wind speed of less than 80km/h, hail, land erosion, early autumn frost, late spring frost Special risks: On the client s request and with the re-insurer s acceptance, based on special conditions and supplementary premium quota, and within a certain limit set up by the insurer, the following risks might be covered: 1) winter frost 2) floods owing to heavy rains 3) drought 4) late harvesting caused by excessive rains The insurance premium: The level of insurance premium might be influenced by: 1) crops sensibility at the insured risk factors 2) the frequency of the risk factors 3) the localization of the crop 4) the level of the amount insured, which according to the type of insurance policy might cover the technological expenses or the value of production. 542

The assessment of the loss: it is made according to: 1) the type of policy signed, respectively: a) a policy covering the technological expenses and b) production value 2) the proportion of the loss according to the degree of damage, respectively, total or partial The degree of damage (loss) represents the percentage ratio between the value of average production loss and the value of the average production which might have been obtained if the event had not occurred. 2) Livestock insurance: 1) bovines: bulls, cows, buffaloes cows 2) equine species: stallions, horses, mules, donkeys 3) sheep and goats (rams, sheep and goats) 4) pigs (boars, swine, sows) Based on a special clause, the following fowls might be insured: egg-laying hens, geese, ducks, turkeys, pheasants, and ostriches. Covered risks: General risks: hail, storm, fire, thunder, explosion, land erosion, theft, strike and civil turmoil, traffic accidents Accidents Risks and diseases: o Injuries, animals being hurt by falling objects, electricity, sun stroke, asphyxia, drowning, internal lesions provoked by swallowing objects, distocia o o o o The consequences of castration or other surgery done by vets Wild animal attacks, snake bites, venomous insect stings Medical disease, obstetrics and surgery Slaughter upon order of veterinary authority The amount insured: It is set up based on proving documents which stipulate the value of the animal (procurement invoices, receipts, certificates); in case these documents do not exist, the local market prices are taken into consideration, considering the type of animal, species, sex, age, weight. The validity of the policy. 543

The insurer liability is valid: o o o for general risks: the second day of payment of the insurance policy or (fist instalment) For accidents: within 5 days of payment of the insurance policy or (fist instalment) and is extended by 5 days after the expiry date of the policy For diseases: within 60 days of payment of the insurance policy or (fist instalment) and is extended by 60 days after the expiry date of the policy. When an event occurs, the insured is obliged to announce the insurance company within 24 hours. Indemnities: In case of total losses, the indemnities are paid to the extent of the insured amounts. In case of partial losses, only the net loss is covered and/or the expenses made for animal recovery based on proving documents. The indemnities are paid within maximum 30 days after the whole documentation was submitted. ASIROM Asirom offers several insurances: 1) The so called Rural Bunch Insurance : It is meant for rural inhabitants, land and livestock s owners, and consists of 5 products: - Building insurance: it covers the following risks: fire, thunder, airplane fall or crash, any other object fall, earthquake, hail, heavy rain, flood, storm, hurricanes, land erosion, heavy snow falls, avalanche, water brake; - The insurance of the goods in the house: it covers the same risks as the building insurance; additionally it covers theft risks, and robbery; - Civil liability Insurance - Agricultural Crop Insurance; it covers the following risks: hail, fire, storm, heavy rain, land erosion 544

- Livestock Insurance (bovines and pigs); the insurer pays indemnities in case of animals death for the following covered risks: o o diseases: surgery, obstetrics, medical accidents: fire caused by natural forces (thunder), thunder, earth quake, storm, avalanche, land erosion, floods, sun stroke, asphyxia, accidental falls of objects on animals: trees, ice blocks, boulders. The following animals cannot be insured by product E: sheep, goats, equine species, ostriches, bee families, fish, etc. The insurance duration: For the products A, B, C, the insurance is concluded for 1 year. For product D: the insurance might be concluded all year round and is valid for the current agricultural year but at least one month before the harvesting of the insured crop. The amount insured: The insured amount per crop and per ha is set at a fix value, respectively: 110 euros, 165 euros and 220 euros. For product E: the insurance might be concluded all year round and is valid for one year. The amount insured is set according to the Insured s request but it cannot exceed the local market value and real value of the respective animal. The payment of the insurance premiums: The insurance premiums usually are paid in a lump sum and in advance. On the insurer s request the premium might be paid in equal instalments (two semi-annual instalments and 4 quarterly instalments). The insured might sign for two, three, four, or five products out of which product A and one of the products D or E are mandatory. 2) The optional insurance of crops, vegetables, vineyards fertile, and orchards fertile The insurance might be concluded by physical and legal persons who own land or who rent land. Covered risks: hail, fire, storm, heavy rains direct effects, land erosion, early autumn frost, late spring frost. Insurance duration: The insurance might be concluded for the current agricultural year (from sowing until harvest). It might be concluded all year round but at least one month before harvest. The amount insured represents: 545

1) the amount obtained by multiplying the foreseen average production/ha declared by the insured with maximum price/kg fixed by insurer (ASIROM) and stipulated in the contract. The wheat average production is 3,5 tons/ha. In 2005, the wheat market price was 140 euros/ton. Accordingly, for wheat the insured value is 490 euros/ha. 2) the value of technological expenses necessary for realizing the production. The expenses are determined by the insurer together with the insured based on proving documents. Thus, the insured value for cereals varies between 275-330 euros. The payment of the insurance premiums: The insurance premiums usually are paid in a lump sum and in advance. The insurance premiums might also be paid in maximum 3 instalments. They are fixed according to the tariff groups per crops and county categories, the frequency of the events, the crop sensibility in relation to the insured risks. Bonuses: reduction of the premium quota: 1) for insured areas grater than 600 ha 2) for insurance premium paid in total, in a lump sum when the contract is concluded 3) for year on year insurance, on renewing the contract, when there are no damages recorded for the previous year of insurance 3).The optional insurance of agricultural crop at a fix amount Covered risks: hail, fire, storm, direct effects of the heavy rains, land erosion. Indemnities are paid only for qualitative losses (i.e. Wheat bean, sugar roots), etc. Insurance duration: The insurance might be concluded for the current agricultural year (from sowing until harvest). It might be concluded all year round but at least one month before harvest. The insured amount: it is a fixed amount of respectively: 55 euros/ha, 110 euros/ha, 165 euros/ha. The physical persons, land owners with land plots less than 10 ha, benefit from a premium quota - very small premium for a high insured amount, (i.e. for a value insured at 55 euros/ha, insurance premium is 1.37 euros). 4) The optional fish insurance The insurance is available for physical and legal persons who grow fish in captivity in an intensive system. Covered risks: storm, avalanches, land erosion, natural calamities (flood, drought, earthquake), wild animal attacks, proven theft, disease caused by viruses. 546

Insurance duration: The insurance might be concluded all year round and is valid for one year. The insured amount: it is fixed according to the insurer s request, based on the stock insured, as follows: A) production costs resulting from the accounting documents B) fixed value set by the insured and accepted by the insurer 5) The optional livestock insurance Any physical or legal person who owns bovines, sheep and goats, equine species, pigs, bee families and other species might insure them. Covered risks: o o o o o o o diseases: surgeries, obstetrics and medical accidents caused by: fire following natural electric discharges (thunder), and accidental damage of electrical installations in stables thunder, earth quake, storm, avalanche, land slide and land erosion; floods wild animals attack, snake bite, venomous insect bite animal acute swelling due to fodder upon veterinary assistance sun stroke, asphyxia, accidental falls of objects on animals: trees, ice or snow blocks, boulders castration effected by vets. Insurance duration: the insurance is valid for one year and/ or for a technological cycle period (the period of time within which the animal reaches the slaughtering weight; for instance, for pigs this period is 6 month. The amount insured: is set for each animal and represents: o market value of an animal in the same species, without exceeding the real value of the respective animal. For instance, broiler poultry might be insured for 4 euros, a imported cow for 1500 euros, while a local cow might be insured for 550 euros. o For fattening pigs, the value is set based on the average weight of the animal multiplied by the live weight purchasing price practiced by the meat processing companies o For domestic reproduction animals or imported animals the purchasing value or the inventory value (1500-1700 euros) The insurance premiums are paid at once or in instalments (semi-annual or quarterly instalments). Bonuses offered: 547

o in case of legal persons: for large numbers of animals insured o for year on year insurance, on renewing the contract, when there are no damages recorded for the previous year 6) The optional insurance of bee families The policy might be concluded by legal or physical persons who own bee families with at least 10 standard frames in active period or 7 standard frameworks in inactive period. The minimum number of bee hives which might be insured is 20. The insurance is concluded to cover the risk of death of animals following diseases or accidents. On request, the insurance might be signed for a period of time less than one year, but at least for 3 months. The amount insured: represents the product between the number of bee families, kg number of honey/bee family and the price/kg/assortment. The insurance premiums are paid at once and in advance or in instalments (semi-annual or quarterly instalments). 7) The optional insurance of egg-laying hens aged between 20-72 weeks and of broiller poultry One can insure only healthy poultry immunized against contagious diseases. Covered risks: o fire, explosion, thunder, electrocution, asphyxia caused by fire, accidental mechanical asphyxia o Building collapsing or a part of building where the insured fowls are sheltered caused by: storm, heavy snow, earthquake, land erosion/land slide. o Low temperatures in the stables due to building collapsing or a part of building where the insured fowls are sheltered caused by: storm, heavy snow, earthquake, land erosion/land slide Insurance duration: the insurance might be concluded for one year or at least for a production cycle. The amount insured: for hens aged 20-72 weeks, the amount is fixed per head, without exceeding the acquiring value or the value recorded in the accounting documents. For broilers the amount insured is given by the production cost/head at the end of a production cycle multiplied by number of heads/cycle and number of cycles/year. The value of an insured egg-laying hen is 4 euros. The insurance premiums are paid at once or in instalments (semi-annual or quarterly instalments). 548

The ostriches can be insured if they are aged 6 month-10 years. The amount insured is made at the insured request and it cannot exceed the procurement value or the replacement value existent on the local market. ASTRA Astra offers three types of insurances: 1) crop insurance 2) animal insurance 3) agricultural household insurance 1) Crop insurance: cereals, technical plant, medical and aromatic plants, fodder, potatoes and vegetables, vineyards fertile, fruit trees, fruit shrubs, strawberries, greenhouse crops, solar crops, seedlings fruit and vineyards nurseries. Covered risks: 1) standard risks: late spring frost, heavy rains, fire, land erosion, early autumn frost 2) reduced standard risks: hail, heavy rains, storms Contract duration: The insurance contract might be concluded as follows: o until December 15, for crops sown in autumn which enter under the incidence of Law 381/2002 for Standard risks o until March 1 st, for fertile plantation (vineyards and fruit trees) insured in the Standard group risks o until March 31 st for spring crops, vineyards and orchards which enter under the incidence of Law 381/2002 for Standard risks. The amount insured: it is fixed by the Insurer together with the insured and it represents the technological expenses including the harvesting expenses. Usually the amount insured varies between 275-330 euros. 549

2) Livestock Insurance The following species and category of animals might be insured: 1) Bovines: aged 6 month-8 years 2) Sheep and goats: aged 6 month- 3 years 3) Fatting pigs: weighted 30kg-140 kg 4) Sows 5) Horses 6) Bee families, poultries, fish, snails Covered risks: are similar to those specific for the other companies The amount insured is given by the value of the animals insured (accounting value, or the local market value). 3) The agricultural household insurance The following might be insured: buildings, including furniture, inventories, agricultural equipment and machines, animals, straw Covered risks: fire as a major risk, earth quake, floods, atmospheric phenomena, fodder self-combustion, and animals electrocution as supplementary risk with an increase of the risk premium according to the risk covered. Contract duration: The insurance contract might be concluded all year round for a one year period. The amount insured is represented by the value declared by the insured for each good insured as recorded in the household accounting book and in the insurance declaration. 6. Coverage in the last years. This paragraph summarises the information given in the tables by type of product and describes the evolution in the last years. The information is partly redundant with paragraph 5, but this paragraph focuses on the time trend. If possible figures should be given year by year over a period of 5 years. Alternatively data for one date around 5 years before the last available. Number and % of farms covered Total area insured by group of crops and % Total number of animals covered by type of animal and % Production value covered and % 550

Total amount of premiums Compensation payments to farmers (indemnities) Subsidies Table 19: Total written premiums and paid indemnities (euros) 2000 2001 2002 2003 2004 2005 Total gross written premium 1716973 4789424 9459933 7988527 10661558 14018611 Paid indemnities 619856 2279379 1765680 2020314 4817833 4390146 Table 20: Paid subsidies according to Law 381/2002 and the subsequent governmental decisions (euros) Year Paid subsidies 2003 18040511 2004 13573418 2005 23699550 2006 1507911 Total 56821390 551

Table 21: Cultivated area, insured area, production value covered by crops Crop/year 2000 2001 2002 2003 2004 2005 Wheat Cultivated area - ha 1675400 1940200 2546300 2297500 1735200 2295900 % 7% 8% 11% 12% 13% 15% Insurance area -ha 117278 155216 280093 275700 225576 344385 Insurance value -euro 29385617,64 41747175,9 72767722,28 67458588,7 55653804,4 104647376 % 5,0 4,7 16,9 20,1 5,2 10,3 Production value (euro) 590389437 891524381 430851329 336226108 1065830523 1014679583 Corn Cultivated area - ha 3049400 2970000 2894500 3199600 3274100 3684800 % 5% 6% 6% 7% 8% 8% Insurance area -ha 152470 178200 173670 223972 261928 294784 Insurance value (euro) 42023804 48613694 45563718 57849245 67207421 96089812 % 5,4 3,0 4,5 3,5 2,9 4,9 Production value (euro) 785237751 1613446516 1022490462 1659073854 2357004607 1973284760 Barley Cultivated area - ha 411900 528800 578800 329600 424500 450690 % 4% 5% 5% 6% 7% 8% Insurance area -ha 16476 26440 28940 19776 29715 36055,2 Insurance value -euro 4128289 7111350 7518567 4838814 7331244 10956000 % 3,3 2,9 5,7 5,2 3,4 4,6 Production value (euro) 125787392,1 248896429,8 131419841,5 92698691,3 212640793 240000000 Sun flower Cultivated area - ha 876800 800300 906200 1180000 977000 1100000 % 6% 7% 8% 8% 9% 9,50% Insurance area -ha 52608 56021 72496 94400 87930 104500 Insurance value -euro 14763458 15282760 19715757 25086194 23429488 34640884 % 11,5 10,3 9,3 10,4 7,9 11,0 Production value (euro) 128713113 148583100 212589974 242189655 295401616 316158000 Vineyards Cultivated area - ha 247500 244400 242900 238300 191800 189100 % 8% 8,50% 9% 9% 9,50% 10% Insurance area -ha 19800 20774 21861 21447 18221 18910 Insurance value -euro 7722000 8517340 9290925 9651150 8673196 9417180 % 1,3 1,6 1,8 1,7 1,6 1,7 Production value (euros) 589361500 527199000 527583000 562224000 551460000 556730400 Orchards Cultivated area - ha 195000 195900 188900 191900 192900 192500 % 4% 5% 5% 6% 6,50% 7% Insurance area -ha 7800 9795 9445 11514 12538,5 13475 Insurance value -euro 1404000 1910025 1870110 2417940 2695777,5 2951025 % 0,4 0,7 1,1 0,7 0,8 0,8 Production value (euros) 336732648,5 264854376,4 165189569,7 368180003 324151288 352045041 552

Table 22: Total number of animals covered by type of animal and % Cows 2000 2001 2002 2003 2004 2005 Number 1775000 1746000 1759000 1757000 1755000 1767000 % 6% 7% 7% 6% 7% 8% Number of cows insured 106500 122220 123130 105420 122850 141360 Insurance value -euro 42600000 54999000 59102400 51655800 62653500 77748000 Production value covered % 17,8 13,8 12,8 12,6 15,5 n.a Production value (euros) 238751024,6 398507889,3 463502675,6 409440122 404976704 n.a Pigs n.a Number 4797000 4447000 5058000 5145000 6495000 n.a % 15% 17% 17% 18% 19% n.a Number of pigs insured 719550 755990 859860 926100 1234050 n.a Insurance value -euro 179887500 201849330 232162200 259308000 357874500 na Production value covered % 31,5 20,8 28,1 41,9 66,9 n.a Production value (euros) 570620678 970766042 825056590 619144224 534616135 n.a Poultry Number 70076000 71413000 77379000 76616000 87014000 n.a % 14% 15% 17% 19% 21% n.a Number of poultry insured 9810640 10711950 13154430 14557040 18272940 n.a Insurance value (euro) 210228000 249945500 286302300 298802400 348056000 n.a Production value covered % 38,1 31,9 31,1 32,4 46,0 n.a Production value (euro) 552226082 784748773 921163645 921029389 756837875 n.a Table 23: Production value covered and % Crop/year 2000 2001 2002 2003 2004 2005 Plant production (wheat, corn, barley, sun-flower) Total inurance value 90301168 112754980 145565764 155232842 153621958 246334072 Total production value 163012769 2 328106632 7 211234463 2 265022265 4 418693592 3 378469474 3 % 5,5 3,4 6,9 5,9 3,7 6,5 Livestock production (cow, pigs, poultry) Total inurance value Total production value 432715500 506793830 577566900 609766200 768584000 n.a 136159778 5 215402270 5 220972291 1 194961373 5 169643071 4 n.a % 31,8 23,5 26,1 31,3 45,3 n.a 553

7. Reinsurance Private or public Reinsurance is private. For instance, the risks covered by Agras, i.e. standard risks, Agras is able to cover the losses incurred, especially because, on the one hand these standard risks are spread on a small area and on the other hand because AGRAS has a very good reinsurance program, thus, when there is the case, re-insurance companies participate together with Agras in covering the losses. Agras s main re-insurances are: Swiss Re Frankona, AAIC-American Agricultural Insurance CO-Columbus, Odyssey America Reinsurance Corporation. All other insurance companies which offer agricultural insurances have private re-insurers. For instance, Asirom main re-insurance are: SWISS RE, Germany (rating AA); Munich Re, Germany (rating A+); Ge Frankona Re, Germany (rating A); New Re, Swiseerland (rating A+); Hannover Re, Germany (rating AA-); Partner Re, Swiseerland (rating AA-) Mapfre, Spain (rating AA-); Xl Re, France (rating A+); Gen Re, Austria (rating AAA) Transatlantic, France (rating AA); Lloyd s, United Kingdom(rating A); Sirius, Germany (rating A-) Table 24: The amount ceded and accepted in insurance for agricultural insurance (euros) 2000 2001 2002 2003 2004 2005 Ceded in re-insurance 720766 1959922 5976284 3980867 3405586 4843058 Accepted in re-insurance 28025 325500 73042 0 2914 Source: The Insurance Supervisory Company 8. Alternative risk management tools Ad-hoc measures (extraordinary disasters): average expenditure in the last 10 years, delay to pay. Calamity funds regularly fed. average expenditure in the last 10 years, delay to pay. Mutual funds, Non monetary tools 554

The state expenditures for paying indemnities to agricultural producers affected by calamities in the last 5 years amounted 56821390 euros. The indemnities were paid in the year when the calamities took place or immediately, when the possibility of staring a new production cycle was possible. At present no mutual funds are available and farmers are not yet willing to act in this direction. In order to improve the system, there is a need for attracting representatives from similar fields to the agricultural insurance system: agricultural extension, veterinary fields, seeds and fertilizers suppliers, equipment suppliers. At the same time, at present, the banking system is not willing to take on risks in agriculture, although there is a very high financial liquidity on the market. Lack of agricultural specialists working in the banking system who could better understand the agriculture and the huge amount of documentations required by the banks hinder the agriculture producers to get credits and to insure their crops, renouncing their financial plans. The new risks, such as the avian flu, will also contribute to the change of attitude of agricultural producers towards the agricultural insurances. The new EU restrictions which are going to be imposed will also contribute towards the change of behaviour of agricultural producers. The prospects of developing the local agriculture, especially after January 2007, will contribute to the increase of the agricultural insurances premiums. For instance, in the western part of the country, where the Italian investors bought important areas of agricultural land, the demand for agricultural insurances increased significantly. Non monetary tools Several Government agencies and ministries in Romania have responsibilities related to agri-food safety and quality as well as food importation. Most of the relevant norms and regulations were harmonized with the European Union (EU) legislation. The most relevant provisions are set out within the following general framework: a) Veterinary Order 148/2005 regarding the surveillance, prevention and control of animal diseases, the ones transmissible to humans, animal protection and environment protection b) Government Ordinance 42/2004 regarding the organization of veterinary activity c) Government Emergency Ordinance 97/2001 regarding food production, distribution and commercialization, with the latest amendment Order 551/2004 regarding standard methods for analysis of alcoholic drinks d) Law 214/2002 amending Government (GOR) Ordinance 49/2000 on obtaining, testing, utilization, and commercialization of genetically modified organisms (GMOs), as well as products derived from GMOs. e) Law 244/2002 on wine and vine-yards with the latest amendment through Minister of Agriculture Order 645/2005 on including the Romanian vineyard regions in the European Union regions. f) Order 234/2001 concerning the import of products of animal origin; 555

g) Government Decision 106/2002 concerning food labeling; h) Government Ordinance 34/2000 concerning organic food; i) Government Emergency Ordinance 97/2001 regarding food production, distribution and commercialization, with the latest amendment Order 551/2004 regarding standard methods for analysis of alcoholic drinks; The Ministry of Agriculture, Forests and Rural Development The Ministry of Agriculture, Forests and Rural Development (MAFRD) is the specialized body of the central public administration being under governmental jurisdiction. It applies the Government s strategy in the field of agriculture, food processing, as well as rural development and forests. The Ministry of Environment and Waters Management (MEWM) Ministry of Environment and Waters Management is the main body conducting environmental risk assessment (including for GMOs) and monitoring activities that might harm human health and the environment. The Veterinary and Food Safety National Authority (VFSNA) The institution was established in January 2004 and it is the main body for sanitaryveterinary and food-safety activities. Before that moment, the Veterinary Agency was subordinated to Ministry of Agriculture. Currently, the Agency performs activities related to animal health and foodstuffs of animal origin, as well as food safety. Its activity was significantly broadened to all aspects generally encompassed by food safety regulating and monitoring. VFSNA organizes and coordinates all sanitary-veterinary activities, elaborates national norms and regulations, including the use of animal medical drugs. It is responsible for negotiating health certificates with international veterinary authorities for animals and products of animal origin for Romanian imports, in order to ensure conformity with the national veterinary requirements. It issues health certificates for live animals and livestock products exported from Romania. VFSNA is responsible for monitoring and controlling the animal health status nation-wide. The Ministry of Health (MH) The Ministry of Health is responsible for overseeing the production and registration of drugs, food additives, and medical equipments. It is also responsible for the public health as it relates to food and contaminants. 556

8.1. Phytosanitary regulations The main legal provision regulations in this field are GOR Ordinance 136/2000 (approved through Law 214/2001) and G.D. 1030/2001 (changed by G.D. 1619/2003). The methodological norms of the latest provide a full list of organisms considered harmful on the Romanian territory and which are forbidden for importation. Also, agricultural products contaminated with the specified organisms are forbidden for importation. Every year Ministry of Agriculture updates the Official Catalogue of registered varieties of plants for cultivation in Romania (Order 727/2005), which includes all varieties tested by the State Institute for Varieties Testing and Registration. The MAFDR recently approved rules concerning the testing and registration of agricultural plant varieties of beet, fodder plants, cereals, potatoes, seeds of oil and fiber plants (Order 1348/2005) and vegetables (Order 1349/2005). Specific marketing and technical rules were approved this year by the MAFDR for cereals seeds production (Order 1262/2005), fodder plants (Order 1263/2005), vegetables propagating and planting material, other than seeds (Order 1269/2005), potato seeds (Order 1266/2005), oil and fiber plants seeds (Order 1269/2005), beet seeds (Order 1265/2005), propagating material of ornamental plants (Order 1268/2005). All these regulations define types of seeds (basic seeds, certified seeds, commercial seeds etc.) for each of the plant varieties. Clear procedures for seed testing, labeling, marking, and packaging are provided further for each of the plant varieties and for each seed type. Import requirements for seeds originating from third countries are also provided, specifically for each seed type and its multiplication process. 8.2. Veterinary regulations The Veterinary Order no. 148/2005, in effect since January 2006, regulates the activities of surveillance, prevention and control of animal diseases, the ones transmissible to humans, animal protection and environmental protection. This regulation provides for each disease a set of rules regarding surveillance, sample testing, risk areas, and inspection frequency. Sanitary and veterinary surveillance in farms, food processing establishments, cold storage, and stores is also provided by this regulation. 9. Changes undergoing the system. The agricultural insurances at the moment are optional. Due to huge losses a year ago and this year, the Romanian Government ruled that, beginning with 2007, the house insurances would become mandatory. There is a likelihood, that in the future, the same decision could be taken in case of agricultural insurance (i.e. it will become mandatory). The Romanian agricultural insurance system covers only 12% of the cultivated area. Among the causes which led to these situations are: land fragmentation, lack of financial resources, lack of information from insurance companies and lack of trust in the insurance companies. 557

A positive influence on the agricultural insurance market might be represented by the increase of the agricultural credits granted by banks to the agricultural producers. According to the legislation, the persons who want to get a credit for developing an agricultural activity have to insure its activity during the whole credit reimbursement period. Also, according to the renting law 16/1994 and the Government Ordinance no. 74/2003, regarding the completion of the renting law, the people who rent in land are obliged to insure their crops during the whole period of the renting contract. The legislative framework of the insurance market is mainly aligned to the UE directives. Recently, the Insurance Supervisory Commission proposed a project regarding the modifications of the minimum limit of the social capital subscribed; thus, the social capital of the insurance companies must increase from 160 mld lei (4415742 euros) to 240 mld lei (6623613 euros) in June 2006. Through the modifications brought to the law 32/2000, the insurers are allowed to carry out concomitantly both life and general insurances on condition they separate the management of both activities. The purpose is to protect the interest of holders of life insurance policies and non-life insurance policies, so that the possibility of using the profit of one activity to improve the profitability of the other is eliminated. The Ministry of Agriculture paid indemnities of about 24 mil euros last year (2005) to the insured agricultural farmers. Due to the fact that, according to Law 381/2002, the Ministry has to pay indemnities to the farmers, in case of calamities, the Ministry of Agriculture tries to find solutions in order not to pay these indemnities alone any longer. Thus, the Ministry of Agriculture tries to find solutions and to modify the Law 381. The purpose is to decrease the level of the subsidies paid from the budget. Officially, the law was issued and enforced in order to stimulate the farmers to insure their crops and animals. The insurance companies pay indemnities for general risks (storm, hail, early autumn frost, land or fall erosion), while the state pays indemnities in case of calamities (excessive droughts, floods or strong frost). The Ministry of Agriculture indemnifies the farmers who have lost their crops or livestock, but only those who signed an insurance policy with a company accredited by the Ministry of Agriculture, even though the respective policy does not cover the risk in case of calamities. So far, the Ministry of Agriculture has elaborated two projects for the modifications of Law 381/2002, but both of them were rejected by the Ministry of Finance. The creation was proposed of an extra-budgetary fund which was supposed to get funds from the state (public funds), insurance companies and farmers. The fund was supposed to be used for paying the indemnities in case of calamities. The Ministry of Finance rejected this option motivating that the International Monetary Fund does not allow the use of extra-budgetary funds for this kind of cases. 5 A second attempt to change the Law 381/2002 consisted in eliminating the condition of paying indemnities only in case of the standard risks which do not cover risks in case of calamities. The Ministry of Finance did not agree to this because the state budgetary effort would have been too high. Table 6. 5 Representative of Ministry of Agriculture 558

The modifications proposed divided the agricultural insurance market in two sides. While some of the insurers admit that the Ministry of Agriculture cannot be the only one bearing the costs, some others assert that a higher amount of indemnities paid by the insurance companies would lead them to bankruptcy. This is the reason why, in case the participation of the insurance companies would become mandatory, some of the insurance companies will give up offering agricultural insurances. It was argued that the social capitals of all insurance companies accredited by the Ministry of Agriculture would not be enough to cover the indemnities paid by state in the years 2004 and 2005. 6 The insuring brokers admit that, in case of calamities, besides the state, the insurance companies should participate in paying the indemnities in case of damage, as well. Thus, the system could be improved and the farmers would be stimulated to insure against risks. The state intervention so far has left the farmers in a relaxing situation; the farmers know that in case of calamity, they will be compensated anyway. The state must encourage the agricultural producers to insure, through the contribution to the premium, and not by paying all the losses 7. Thus, in case of damages caused by catastrophic natural phenomena the agricultural producers will be safely compensated for the loss. Special Funds The creation of a national Fund for paying indemnities to farmers in case of calamities is a solution agreed by some of the insurers. Among other solutions proposed are: granting the subsidies directly to the agricultural producers through the agricultural departments for rural development as well as the extension of granting subsidies for premiums for some other products such as (corn, vegetables, pork, and poultry). Table 7. 6 Representative of Generali Asigurari Table 8. 7 Representative of National Assemble of Intermediary, Consulting, and Insurance Companies from Romania 559

10. Annex: Technical Form (detail of paragraph 5) One table per product or group of similar products. Product covered (crop type, livestock, income): wheat Peril/damage covered (or Multi-peril). Is it a insurance on yield? Is there a list of specific perils covered? Multi-peril damage: standard risks: late spring frost, heavy rains, storm, land erosion or reduced standard risks: hail, direct effects of torrential rains, storm Technicalities: Index-based? (computed on meteo data, satellite images, etc.) Can a farmer insure only part of the fields? Yes No Loss estimation per field or per farm? Per filed Triggers: which is the minimum loss above which the farmer is compensated? 10% Method to calculate the reimbursement: The amount of the compensation is set according to the % of damage *the insured amount - franchise Compulsory for the farmer? Yes No Is there a bonus-malus system? Yes No Time from the harvest/damage until payment of indemnity (specify if it is maximum or average) : maximum 30 days for Agras; maximum 15 days for Asirom Geographic detail used by companies to determine tariffs. Geographical location of the field; the structure of crops; Franchise (10-15%). Does it coincide with the trigger? yes Public involvement (subsidies to premiums, re-insurance, regulations):yes: subsidies to premiums according to Law 381/2002; re-insurance is private Coverage in area, number of farms or value (specify and give all values if possible) Sources: Ministry of Agriculture and interviews with insurance companies representatives Table 25: Coverage in area and value: wheat Crop/year 2000 2001 2002 2003 2004 2005 Wheat Cultivated area - ha 1675400 1940200 2546300 2297500 1735200 2295900 % 7% 8% 11% 12% 13% 18% Insurance area -ha 117278 155216 280093 275700 225576 413262 Insurance value -euro 29385617,64 41747175,9 72767722,28 67458588,7 55653804,4 125576581 % 5,0 4,7 16,9 20,1 5,2 12.4 Production value covered 590389437 891524381 430851329 336226108 1065830523 1014679583 560

Product covered (crop type, livestock, income): Corn Peril/damage covered (or Multi-peril). Is it a insurance on yield? Is there a list of specific perils covered? Multi-peril damage: standard risks: late spring frost, heavy rains, storm, land erosion or reduced standard risks: hail, direct effects of torrential rains, storm Technicalities: Index-based? (computed on meteo data, satellite images, etc.) Can a farmer insure only part of the fields? Yes No Loss estimation per field or per farm? Per filed Triggers: which is the minimum loss above which the farmer is compensated? 10% Method to calculate the reimbursement: The amount of the compensation is set according to the % of damage *the insured amount - franchise Compulsory for the farmer? Yes No Is there a bonus-malus system? Yes No Time from the harvest/damage until payment of indemnity (specify if it is maximum or average) : maximum 30 days for Agras; maximum 15 days for Asirom Geographic detail used by companies to determine tariffs. Geographical location of the field; the structure of crops; Franchise (10-15%). Does it coincide with the trigger? yes Public involvement (subsidies to premiums, re-insurance, regulations):yes: subsidies to premiums according to Law 381/2002; re-insurance is private Coverage in area, number of farms or value (specify and give all values if possible) Sources: Ministry of Agriculture and own estimations based on interviews with insurance companies representatives Table 26: Coverage in area and value: corn Corn /year 2000 2001 2002 2003 2004 2005 Cultivated area - ha 3049400 2970000 2894500 3199600 3274100 3684800 % 5% 6% 6% 7% 8% 8% Insurance area -ha 152470 178200 173670 223972 261928 350056 Insurance value -euro 42023804 48613694 45563718 57849245 67207421 114106652 % 5,4 3,0 4,5 3,5 2,9 5.8 Production value covered 785237751 1613446516 1022490462 1659073854 2357004607 1973284760 561

Product covered (crop type, livestock, income): Barley Peril/damage covered (or Multi-peril). Is it a insurance on yield? Is there a list of specific perils covered? Multi-peril damage: standard risks: late spring frost, heavy rains, storm, land erosion or reduced standard risks: hail, direct effects of torrential rains, storm Technicalities: Index-based? (computed on meteo data, satellite images, etc.) Can a farmer insure only part of the fields? Yes No Loss estimation per field or per farm? Per filed Triggers: which is the minimum loss above which the farmer is compensated? 10% Method to calculate the reimbursement: The amount of the compensation is set according to the % of damage *the insured amount - franchise Compulsory for the farmer? Yes No Is there a bonus-malus system? Yes No Time from the harvest/damage until payment of indemnity (specify if it is maximum or average) : maximum 30 days for Agras; maximum 15 days for Asirom Geographic detail used by companies to determine tariffs. Geographical location of the field; the structure of crops; Franchise (10-15%). Does it coincide with the trigger? yes Public involvement (subsidies to premiums, re-insurance, regulations):yes: subsidies to premiums according to Law 381/2002; re-insurance is private Coverage in area, number of farms or value (specify and give all values if possible) Sources: Ministry of Agriculture and own estimations based on interviews with insurance companies representatives Table 27: Coverage in area and value: barley Barley 2000 2001 2002 2003 2004 2005 Cultivated area - ha 411900 528800 578800 329600 424500 450690 % 4% 5% 5% 6% 7% 9% Insurance area -ha 16476 26440 28940 19776 29715 40562.1 Insurance value -euro 4128289 7111350 7518567 4838814 7331244 12325500 % 3,3 2,9 5,7 5,2 3,4 5.1 Production value covered 125787392,1 248896429,8 131419841,5 92698691,3 212640793 240000000 562

Product covered (crop type, livestock, income): Sun-flower Peril/damage covered (or Multi-peril). Is it a insurance on yield? Is there a list of specific perils covered? Multi-peril damage: standard risks: late spring frost, heavy rains, storm, land erosion or reduced standard risks: hail, direct effects of torrential rains, storm Technicalities: Index-based? (computed on meteo data, satellite images, etc.) Can a farmer insure only part of the fields? Yes No Loss estimation per field or per farm? Per filed Triggers: which is the minimum loss above which the farmer is compensated? 10% Method to calculate the reimbursement: The amount of the compensation is set according to the % of damage multiplied by the insured amount minus franchise Compulsory for the farmer? Yes No Is there a bonus-malus system? Yes No Time from the harvest/damage until payment of indemnity (specify if it is maximum or average) : maximum 30 days for Agras; maximum 15 days for Asirom Geographic detail used by companies to determine tariffs. Geographical location of the field; the structure of crops; Franchise (10-15%). Does it coincide with the trigger? yes Public involvement (subsidies to premiums, re-insurance, regulations):yes: subsidies to premiums according to Law 381/2002; re-insurance is private Coverage in area, number of farms or value (specify and give all values if possible) Sources: Ministry of Agriculture and own estimations based on interviews with insurance companies representatives Table 28: Coverage in area and value: sun flower Sun flower 2000 2001 2002 2003 2004 2005 Cultivated area - ha 876800 800300 906200 1180000 977000 1100000 % 6% 7% 8% 8% 9% 12% Insurance area -ha 52608 56021 72496 94400 87930 132000 Insurance value -euro 14763458 15282760 19715757 25086194 23429488 43756906 % 11.5 10.3 9.3 10.4 7.9 13.8 Production value covered 128713113 148583100 212589974 242189655 295401616 316158000 563

Product covered (crop type, livestock, income): Vineyards Peril/damage covered (or Multi-peril). Is it a insurance on yield? Is there a list of specific perils covered? Multi-peril damage: standard risks: late spring frost, heavy rains, storm, land erosion or reduced standard risks: hail, direct effects of torrential rains, storm Technicalities: Index-based? (computed on meteo data, satellite images, etc.) Can a farmer insure only part of the fields? Yes No Loss estimation per field or per farm? Per filed Triggers: which is the minimum loss above which the farmer is compensated? 10% Method to calculate the reimbursement: The amount of the compensation is set according to the % of damage multiplied by the insured amount minus franchise Compulsory for the farmer? Yes No Is there a bonus-malus system? Yes No Time from the harvest/damage until payment of indemnity (specify if it is maximum or average) : maximum 30 days for Agras; maximum 15 days for Asirom Geographic detail used by companies to determine tariffs. Geographical location; Franchise (10-15%). Does it coincide with the trigger? yes Public involvement (subsidies to premiums, re-insurance, regulations):yes: subsidies to premiums according to Law 381/2002; re-insurance is private Coverage in area, number of farms or value (specify and give all values if possible) Sources: Ministry of Agriculture and own estimations based on interviews with insurance companies representatives Table 29 Vineyards 2000 2001 2002 2003 2004 2005 Cultivated area - ha 247500 244400 242900 238300 191800 189100 % 8% 8,50% 9% 9% 9,50% 10% Insurance area -ha 19800 20774 21861 21447 18221 18910 Insurance value -euro 7722000 8517340 9290925 9651150 8673196 9417180 % 1,3 1,6 1,8 1,7 1,6 1,7 Production value (euros) 589361500 527199000 527583000 562224000 551460000 556730400 564

Product covered (crop type, livestock, income): Orchards Peril/damage covered (or Multi-peril). Is it a insurance on yield? Is there a list of specific perils covered? Multi-peril damage: standard risks: late spring frost, heavy rains, storm, land erosion or reduced standard risks: hail, direct effects of torrential rains, storm Technicalities: Index-based? (computed on meteo data, satellite images, etc.) Can a farmer insure only part of the fields? Yes No Loss estimation per field or per farm? Per filed Triggers: which is the minimum loss above which the farmer is compensated? 10% Method to calculate the reimbursement: The amount of the compensation is set according to the % of damage multiplied by the insured amount minus franchise Compulsory for the farmer? Yes No Is there a bonus-malus system? Yes No Time from the harvest/damage until payment of indemnity (specify if it is maximum or average) : maximum 30 days for Agras; maximum 15 days for Asirom Geographic detail used by companies to determine tariffs. Geographical location of the orchards; Franchise (10-15%). Does it coincide with the trigger? yes Public involvement (subsidies to premiums, re-insurance, regulations):yes: subsidies to premiums according to Law 381/2002; re-insurance is private Coverage in area, number of farms or value (specify and give all values if possible) Sources: Ministry of Agriculture and own estimations based on interviews with insurance companies representatives Table 30: Coverage in area and value, orchards Orchards 2000 2001 2002 2003 2004 2005 Cultivated area - ha 195000 195900 188900 191900 192900 192500 % 4% 5% 5% 6% 6,50% 7% Insurance area -ha 7800 9795 9445 11514 12538,5 13475 Insurance value -euro 1404000 1910025 1870110 2417940 2695777,5 2951025 % 0,4 0,7 1,1 0,7 0,8 0,8 Production value (euros) 336732648,5 264854376,4 165189569,7 368180003 324151288 352045041 565

Product covered (crop type, livestock, income): Cows Peril/damage covered (or Multi-peril). Is it a insurance on yield? Is there a list of specific perils covered? diseases: surgeries, obstetrics and medical; accidents caused by: fire following natural electric discharges (thunder), and accidental damage of electrical installations in stables; thunder, earth quake, storm, avalanche, land slide and land erosion; floods; wild animals attack, snake bite, venomous insect bite; animal acute swelling due to fodder upon veterinary assistance; sun stroke, asphyxia, accidental falls of objects on animals: trees, ice or snow blocks, boulders castration effected by vets Technicalities: Index-based? (computed on meteo data, satellite images, etc.) Can a farmer insure only part of the fields? Yes No Loss estimation per field or per farm? Per animal Triggers: which is the minimum loss above which the farmer is compensated? 10% Method to calculate the reimbursement: market value of an animal in the same species, without exceeding the real value of the respective animal. Compulsory for the farmer? Yes No Is there a bonus-malus system? Yes No Time from the harvest/damage until payment of indemnity (specify if it is maximum or average) : maximum 30 days for Agras; maximum 15 days for Asirom Geographic detail used by companies to determine tariffs. The safety conditions in stables; the geographical location. Franchise (10-15%). Does it coincide with the trigger? yes Public involvement (subsidies to premiums, re-insurance, regulations):yes: subsidies to premiums according to Law 381/2002; re-insurance is private Coverage in area, number of farms or value (specify and give all values if possible) Sources: Ministry of Agriculture and own estimations based on interviews with insurance companies representatives Table 31: Coverage in area and value, cows Cows 2000 2001 2002 2003 2004 2005 Number 1775000 1746000 1759000 1757000 1755000 1767000 % 6% 7% 7% 6% 7% 8% Number of cows insured 106500 122220 123130 105420 122850 141360 Insurance value -euro 42600000 54999000 59102400 51655800 62653500 77748000 Production value covered % 17,8 13,8 12,8 12,6 15,5 n.a Production value (euros) 238751024,6 398507889,3 463502675,6 409440122 404976704 n.a 566

567

Product covered (crop type, livestock, income): Pigs Peril/damage covered (or Multi-peril). Is it a insurance on yield? Is there a list of specific perils covered? Covered diseases: surgeries, obstetrics and medical; accidents caused by: fire following natural electric discharges (thunder), and accidental damage of electrical installations in stables; thunder, earth quake, storm, avalanche, land slide and land erosion; floods; wild animals attack, snake bite, venomous insect bite; animal acute swelling due to fodder upon veterinary assistance; sun stroke, asphyxia, accidental falls of objects on animals: trees, ice or snow blocks, boulders castration effected by vets Technicalities: Index-based? (computed on meteo data, satellite images, etc.) Can a farmer insure only part of the fields? Yes No Loss estimation per field or per farm? Per animal Triggers: which is the minimum loss above which the farmer is compensated? 10% Method to calculate the reimbursement: market value of an animal in the same species, without exceeding the real value of the respective animal. Compulsory for the farmer? Yes No Is there a bonus-malus system? Yes No Time from the harvest/damage until payment of indemnity (specify if it is maximum or average) : maximum 30 days for Agras; maximum 15 days for Asirom Geographic detail used by companies to determine tariffs. The safety conditions in stables; the geographical location. Franchise (10-15%). Does it coincide with the trigger? yes Public involvement (subsidies to premiums, re-insurance, regulations):yes: subsidies to premiums according to Law 381/2002; re-insurance is private Coverage in area, number of farms or value (specify and give all values if possible) Sources: Ministry of Agriculture and own estimations based on interviews with insurance companies representatives Tabele 32 : Coverage in area and value, pigs Pigs 2000 2001 2002 2003 2004 2005 Number 4797000 4447000 5058000 5145000 6495000 n.a % 15% 17% 17% 18% 19% n.a Number of pigs insured 719550 755990 859860 926100 1234050 n.a Insurance value -euro 179887500 201849330 232162200 259308000 357874500 na Production value covered % 31,5 20,8 28,1 41,9 66,9 n.a Production value (euros) 570620678 970766042 825056590 619144224 534616135 n.a 568

Product covered (crop type, livestock, income): Poultries Peril/damage covered (or Multi-peril). Is it a insurance on yield? Is there a list of specific perils covered? Covered diseases: fire, explosion, thunder, electrocution, asphyxia caused by fire, accidental mechanical asphyxia o o Building collapsing or a part of building where the insured fowls are sheltered caused by: storm, heavy snow, earthquake, land erosion/land slide. Low temperatures in the stables due to building collapsing or a part of building where the insured fowls are sheltered caused by: storm, heavy snow, earthquake, land erosion/land slide Technicalities: Index-based? (computed on meteo data, satellite images, etc.) Can a farmer insure only part of the fields? Yes No Loss estimation per field or per farm? Per animal Triggers: which is the minimum loss above which the farmer is compensated? 10% Method to calculate the reimbursement: market value of an animal in the same species, without exceeding the real value of the respective animal. Compulsory for the farmer? Yes No Is there a bonus-malus system? Yes No Time from the harvest/damage until payment of indemnity (specify if it is maximum or average) : maximum 30 days for Agras; maximum 15 days for Asirom Geographic detail used by companies to determine tariffs. The safety conditions in shelters and cages; the geographical location. Franchise (10-15%). Does it coincide with the trigger? yes Public involvement (subsidies to premiums, re-insurance, regulations):yes: subsidies to premiums according to Law 381/2002; re-insurance is private Coverage in area, number of farms or value (specify and give all values if possible) Sources: Ministry of Agriculture and own estimations based on interviews with insurance companies representatives Table 33: Coverage in area and value, poultry Poultry 2000 2001 2002 2003 2004 2005 Number 70076000 71413000 77379000 76616000 87014000 n.a % 14% 15% 17% 19% 21% n.a Number of poultry insured 9810640 10711950 13154430 14557040 18272940 n.a Insurance value (euro) 210228000 249945500 286302300 298802400 348056000 n.a Production value covered % 38,1 31,9 31,1 32,4 46,0 n.a Production value (euro) 552226082 784748773 921163645 921029389 756837875 n.a 569