1. 1 M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Working Group for Chapter 9 – Financial Services Bilateral screening: Chapter 9 PRESENTATION OF MONTENEGRO Brussels, 10-11 June 2013

2. 2 Financial Services M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Financial services Insurance Supervision Agency of Montenegro – Institutional and Administrative Capacities Biljana Pantovic Insurance Supervision Agency biljana.pantovic@ano.co.me

3. 3 Financial Services M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Financial Services CONTENT 1. Implemented sources of EU law 2. Montenegrin legislation in insurance – an overview 3. Insurance market characteristics 4. Insurance Supervision Agency – status, organization, functioning 5. Supervisory practice (20011-2012) 6. Supervisory measures

4. 4 Financial Services M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Financial Services IMPLEMENTED SOURCES OF EUROPEAN LAW Following group of directives: a)73/239/EEC and amending directives b)2002/83/EEC c)2002/92/EEC d)2005/68/EEC e)2007/44/EEC implemented (to a significant extent) by the Insurance Law (OG of MNE, No.78/06, 19/07, 45/12) Directive 2009/103/EEC implemented by the Law on Compulsory Insurance in Transport (OG of MNE, no.44/12) Directive 2001/17/EEC implemented by the Law on Bankruptcy and Liquidation of Insurance Companies (OG of MNE, No.46/07)

5. 5 Financial Services M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Financial Services Montenegrin legislation in insurance – an overview The Insurance Law (OJ of MNE nos. 78/07, 19/07 and 45/12) – a basic legal act comprising most of elements defined by the Solvency I regime - licensing of insurance market players, governance requirements, main features of insurance business (capital requirements, technical provisions, risk management, etc.), reporting requirements, intermediation in insurance, AND supervisory authority and its functioning, as well as powers and types of supervisory decisions at disposal of this authority. Other laws (partially applicable) – Company Law, Bankruptcy Law, Law on General Administrative Procedure Insurance Contracts – regulated by Law on Obligations

6. 6 Financial Services M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Financial Services In 2012, Montenegrin market had 11 insurance companies performing insurance business, whereof 6 companies were in life insurance business and 5 companies in non- life insurance business. Insurance agency activities and insurance brokerage activities in 2012 were conducted by 28 legal and natural entities (19 companies for agency activities, 6 brokerage companies and 2 agents-entrepreneurs). INSURANCE MARKET PARTICIPANTS General indicators200720082009201020112012 Number of insurance companies 611 12 11 Number of companies for insurance agency 9914 1519 Number of companies for insurance brokerage 333356 Number of employees 386639643703814786

7. 7 Financial Services M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Financial Services Slight growth tendency of gross written premium, which had started in 2011., continued in 2012. By the end of December 2012, insurance companies had total gross written premium in the amount of 66,922 mil€, which is 3,29% higher than in 2011, when it amounted to 64,792 mil€. In 2012 the market has characterized by growth of gross written premiums in life, for 4,62%, and non-life, for 3,07% insurance. GROSS WRITTEN PREMIUM 200720082009201020112012 Gross written premium (mil.€) 51.01760.57865.57062.18664.79266.922 Gross written premium life (mil.€) 5.9077.2468.0878.3679.0579.474 Gross written premium non-life (mil.€) 45.11053.33257.48353.81955.73557.448

8. 8 Economic and Monetary Policy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Chapter 9: Financial Services Share of gross written premium in GDP is one of main indicators for valuation of insurance market development. Since 2002, this indicator has recorded growth tendency, starting with 1,68%, as it was in 2002, to 2,18% in 2009. After a slight decline of this indicator in 2012 and 2011, caused by the impact of economic-financial crisis, a slight growth was realized in 2012 when the share of gross written premiums in GDP amounted to 1,92%. In 2012, share of gross written premiums od non-life insurance amounted to 1,65%, while share of life insurance premiums in GDP was at the same level and amounted to 0,27%. In 2012, gross written premiums per capita in Montenegro amounted to 106,99€, which is still significantly below the average of EU member states. INSURANCE DENSITY AND SHARE IN GDP 200720082009201020112012 Insurance density (€) 82,2697,67104,3599,45103,62109,93 Insurance density life(€) 9,5211,6812,8713,3814,4815,28 Insurance density non-life(€) 72,7485,9991,4886,0789,1492,65 Share of GWP in GDP (%) 1,821,812,182,051,971,92 Share of GWP life in GDP (%) 0,210,220,27 Share of GWP non-life in GDP (%) 1,611,591,911,781,71,65

9. 9 Financial Services M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Financial Services Value of assets at the market level shows constant growth since 2007. Value of assets at the level of all insurance companies on the date 31 December 2012 amounted to 142,152,967€, which represents a growth of 4,99 % to the 31 December 2011 when it amounted to 135,388,324€. Gross technical reserves have shown growth since 2007, which since 2009 has been faster that growth of gross written premiums, thereby indicating that companies are more reslistic in assestment of technical reserves. Value of gross technical reserves at the level of all insurance companies on the date 31 December 2012 amounted 84,925,685€. Which indicates a growth of GTR for 3,23% in comparison to the end of 2011 when they amounted to 82,270 mil.€. Gross technical reserves represent the biggest category in liabilities of insurance companies and their share in total liabilities amount to 59,30%. ASSETS AND TECHNICAL RESERVES 200720082009201020112012 Values of assets (mil.€) 77.85698.819105.298121.929135.338142.153 Amount of gross technical reserves(mil.€) 35.69850.58166.56376.19682.27084.926

10. 10 Financial Services M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Financial Services In 2012, insurance companies achieved high level of efficiency in processing claims with 91,66%. Efficiency level in processing claims for life insurance companies amounted to 90,12% and for non-life insurance amounted to 91,75%. The gross claim ratio, in respect to the entire insurance sector of Montenegro, on the date 31 December 2012 amounted 48,27% and it is necessary to point out that it is lower than in 2011 when it amounted to 51,73%. Cost ratio at the level of insurance sector amounted to 46,43%, showing a decrease in comparison to 2011 when it amounted 48,50%. Combined ratio at the sectorial level in 2012 amounted to 94,7%, which indicates that losses of insurance companies on the basis of claims, costs for insurance implementation and other costs, contributions and reservations arising from insurance operations, were lower for 5,3% than applicable premiums. OPERATING INDICATORS 200720082009201020112012 Efficiency in processing claims (%) 86,9385,5694,3189,1491,66 Solvency (%) 144126,14150,72153,14175,28 Claim ratio (%) 69,8173,3160,451,7348,27 Cost ratio (%) 51,7645,1443,8948,546,43 Combined ratio 121,57112,37104,09100,3594,7

11. 11 Financial Services M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Financial Services -Established in January 2008, under the Insurance Law (O.G. of MNE, no.78/06) - An independent organization with the legal personality, performing regulatory and supervisory function. -Primary goal - to protect interests of insured persons and other insurance beneficiaries, provide stability and development on the insurance business, based on sound competition and equal operating conditions. -Carries out supervision over the implementation of the Insurance Law (O.G. of MNE, no.78/06, 19/07 and 45/12) and Law on Compulsory Insurance in Transport (O.G. of MNE, no. 44/12) -First inspections started only three months upon establishment (march 2008) -Within the first year (end of 2008), 90% of rules prescribed by the Law, defining the manner of operation of insurance companies, were adopted and entered into force. INSURANCE SUPERVISION AGENCY

12. 12 Financial Services M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Financial Services INSURANCE SUPERVISION AGENCY – Organizational structure

13. 13 Financial Services M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Financial Services -Council of the ISA: 3 members, nominated for period of five years by the Parliament of Montenegro, with the possibility of re-election -Widest responsibilities, varying from adoption of the secondary legislation, to bringing decisions upon requests of insurance market players, and decision-making regarding internal organization of the ISA. -Director of the ISA: appointed by the Council for period of four years. -Director represents the ISA, executes decisions of the Council,, proposes regular reports, plans and other documents. -Conditions for election for the Council and the Director: Art. 181 of the Insurance Law, prohibition of conflict of interest as defined by Art.182 -Conditions for dismissal: Ceasing to fulfil previous conditions, end of mandate.. INSURANCE SUPERVISION AGENCY – Organizational structure

14. 14 Financial Services M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Financial Services -Internal organization of the ISA: a)Dept. for insurance market supervision b) Dept. for research, development and cooperation c) Dept. for regulation, licencing and general affairs INSURANCE SUPERVISION AGENCY – Organizational structure

15. 15 Financial Services M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Chapter 19 Financial Services The ISA exercises supervision according to the Insurance Law and Core Principles for Efficient Insurance Supervision. Subjects of the supervision: - Insurance/reinsurance companies established in Montenegro, -Insurance brokerage companies, -Insurance agency companies, -Entrepreneurs-insurance agents, -Ancillary insurance service providers -National Association of Insurers Manner of supervision: collecting, monitoring and analysing reports, data and notices that the insurance company is obliged to submit to the regulatory authority by operation of law; on-site examination of the operations of the insurance company; follow-up of measures imposed in accordance with this Law and by bringing charges to competent authorities in case of reasonable doubt in existence of a criminal offence, commercial violation or minor offence. SUPERVISORY PRACTICE AND MEASURES

16. 16 Financial Services M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Financial Services Mandate of supervisors Inspectors shall have the right to: 1)inspect general acts, business policies and procedures acts and business books of the company, as well as to inspect all other acts, documentation and data relating to the company’s operations; 2)demand from members of the board of directors. internal auditor, authorised actuary and person with special authorizations to give information and explanations within their scope of work regarding operations of the company; 3)temporarily revoke documents that indicate the existence of actions having the characteristics of a criminal offence, commercial violation or minor offence. SUPERVISORY PRACTICE AND MEASURES

17. 17 Financial Services M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Financial Services Inspections - generally performed according to annual Inspection plan, prepared at the begining of each year containing: - Identification of subject which will be inspected - Indications of objectives of the planned inspections - Inspection timing and - Names of authorized inspectors for each inspection Off site inspections – performed annualy and quarterly by analyzing reports, data and notices that the insurance company is obliged to submit to regulatory authority On–site inspections – performed by direct insight to books, contracts, internal statistics and other documentation and data relating to the company’s operations: - comprehensive (full scope inspections) – normally performed every three years - targeted inspections – based on off-site findings Exceptionally, inspections can also be performed in other cases, solo or with other regulators/institutions. SUPERVISORY PRACTICE AND MEASURES

18. 18 Financial Services M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Financial Services Inspections conducted in 2011/2012 SUPERVISORY PRACTICE AND MEASURES Insurance undertakings Insurance agencies Insurance brokers 20118155 2012741

19. 19 Financial Services M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Financial Services Measures which are at disposal of the ISA in supervision process: Written warning to the insurance company with request for irregularities established in operation to be corrected within a specified deadline; Decisions: a)ordering measures to correct illegalities and irregularities; b)ordering special measures against responsible persons in the company; c)ordering transfer of insurance portfolio to the another insurance company; d)introducing interim administration in the company; e)revoking a license for pursuit of specific or all insurance activities. (Possibility of conditional revoking of licence – if the company does not make a new breach which could be a reason for license revocation in a period not shorter than six months nor longer than one year) SUPERVISORY PRACTICE AND MEASURES

20. 20 Financial Services M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Financial Services Examples of specific decisions that could be imposed: Prohibition to enter of new insurance contracts for specific or all classes of insurance; Ordering termination of insurance contract, insurance brokerage or insurance agency contract; Limitation of risk level to be assumed by the company; Prohibition of execution of certain payments; Prohibition of transactions with specific shareholders, members of managing bodies of the company, related parties or other legal persons; Ordering appointment of an adviser for segment of operations where illegalities and irregularities are established; Ordering change of organisation of work; Ordering collection of receivables; Prohibition or limitation of temporarily disposal of assets; Other measures with aim of stabilization of the company`s operations. SUPERVISORY PRACTICE AND MEASURES

21. 21 Thank you for your attention! QUESTIONS