THE INTERNATIONAL INSURANCE FORUM, IIF 2014 APRIL , ISTANBUL, TURKEY PROS AND CONS FOR THE MTPL TARIFFS LIBERALIZATION IN THE CHALLENGING ENVIRONMENT OF A SOFT PRICING AND HIGHLY COMPETITIVE MARKET Mr. Klime Poposki Republic of Macedonia

MTPL market in Non EU SEE countries Share of MTPL premium in total GWP Macedonia46.97% Montenegro45.52% Serbia31.45% Bosnia and Herzegovina48.39% Albania45.29% Macedonia Serbia Montenegro Bosnia and Herzegovina Kosovo Albania MTPL regulation is at different levels in compliance with the EU MID Continually increasing of the minimum insurance sum limits

MTPL market in Macedonia Average premium Average Claim paid Population of 2.06 million 155 motor vehicles per 1000 people HHI Intermediation in sales 55,37% Regulated tariff for MTPL Bonus-Malus implemented in 2006 Single premium for green card

MTPL market in Montenegro Average premium Average Claim paid Population of 0.62 million 309 motor vehicles per 1000 people HHI Intermediation in sales 54.93% Regulated tariff for MTPL No Bonus-Malus implemented

MTPL market in BiH Average premium Average Claim paid Population of 3.88 million 132 motor vehicles per 1000 people HHI Intermediation in sales N/A Regulated tariff for MTPL Inappropriately implemented Bonus-Malus

MTPL market in Albania Average premium Average Claim paid Population of 3.2 million 120 motor vehicles per 1000 people HHI Intermediation in sales 50.9% Liberalized tariff for MTPL Single premium for green card

MTPL market in Serbia Average premium Average Claim paid Population of 7.43 million 252 motor vehicles per 1000 people HHI Intermediation in sales N/A Regulated tariff for MTPL Bonus-Malus implemented

Major challenges of the MTPL insurance market Reserving Inadequate claims payment and reserving practices among a sizeable part of insurance companies Undermine these companies claims paying capacity and solvency May, upon their potentially insolvency, transfer the costs to better market players Pricing MTPL tariff setting system that does not provide for actuarial risk pricing Conducive for concealing unsustainably high insurers expenses Premium discounts and high intermediary commissions through non-transparent accounting practices Reinsurance Lack of proper regulatory requirements to reinsurance of unlimited green card liabilities May inflict large financial losses on the insurance market Can adversely affect the standing of the NIBM as a member of the Council of Bureaus Other Insufficient & inaccurate industry data High level of uninsured vehicles Lack of standardized approach by courts to bodily injury claims awards Limited control by insurance companies over their production costs due to unfair price competition

MTPL premium tariff system Nine main tariff groups: (i) Passenger vehicles, (ii) Goods vehicles; (iii) Buses, (iv) Towing vehicles, (v) Special vehicles, (vi) Motorcycles, (vii) Trailers, (viii) vehicles with foreign registration, and (ix) Operating vehicles. Four age groups for vehicle owners; Type of vehicle use (e.g. taxi, rent-a-car, transportation of hazardous goods, etc.); Claims history: a bonus-malus system comprising eighteen classes; Period of coverage: normally one year. Less than one year periods can apply to specific conditions; Limits: Minimum country limits as set by the Law; Vehicle fleets.

Given the current stage of MTPL market development: Immediate and unprepared liberalization is likely to lead to market instability, reduced claims paying capacity and profitability and may have a negative social and economic impact. IS THE MARKET READY TO LIBERALIZE NOW? ProsCons 10Istanbul, March 2013 Motor Insurance Conference

Goal of the liberalization of MTPL tariff MTPL tariffs liberalization Allowing insurers to price MTPL insurance coverage based on the underlying risk characteristics of local drivers and their vehicles rather than setting premium rates by administrative fiat Bringing the Macedonian insurance market in compliance with the EU Directive

Roadmap for MTPL tariff liberalization Claims paying capacity Enhanced solvency Profitability Confidence Proper claims payment and reserving standards Risk based actuarial pricing Proper risk control and transfer Proper information and DATA processing

Main phases of MTPL market liberalization Current situation Regulated Tariffs ISA Rulebook (insufficient actuarial input) Inadequate claims reserving from some insurers and Guarantee Fund. Insufficient supervision of reserves under lack of market benchmarks Potential high risk under lack of Green card reinsurance criteria Transitional period Regulated tariffs based on actuarial risk prices developed by the project Proper actuarial standards on claims reserving based on actuarial methodologies for insurers and Guarantee Fund Minimum criteria for Green Card reinsurance Liberalized! Liberalized Premium Rates Insurers price MTPL risk individually Actuarial pricing guidelines available for insurers Maintain Minimum requirements (benchmarks) on claims reserving based on actuarial methodologies for insurers and Guarantee Fund Maintain minimum criteria for Green card reinsurance/ Impose minimum criteria for MTPL reinsurance if country limits increase further

Statutory requirements for Green Card Reinsurance Amount of Reinsurance Coverage Accepted Quality of Reinsurance Cover Maximum net retained exposure from Insurer Set up maximum threshold for net insurers exposure Ensures proper and timely payment of loses from reinsurers Maintains insurers and market financial stability

THANK YOU! Klime Poposki The President of the Council of Experts Insurance Supervision Agency of the Republic of Macedonia