Half of the insurance companies on the Romanian market will need to increase their share capital by between one hundred thousand euros and more than one million euros by the end of the year, according to a regulation from the Insurance Supervision Commission (CSA).
In total, insurance companies are in need of 20 million euros. If the deadline for the increase had not been postponed from June to December of this year, however, the insurance market would now be a less crowded place.
Of the 40 companies licensed by the CSA, twenty meet the minimum capital requirements; one has announced it will back out of the market (Provitas); and the other 19 will need to increase their capital. Will the shareholders in insurance companies come up with money to boost their capital? It remains to be seen who will remain on the market and who will be sent packing to make room for those with more cash.
Many of the 19 companies that need to increase their capital will have to merge or be absorbed by bigger companies. The Commission norms require a two-step increase in the share capital of insurance companies. The first stage is to be completed by the end of this year and entails increasing the share capital of all companies involved in general insurance (except for those selling mandatory insurance) to a minimum of 5 million RON (1.4 million euros). General insurance and life insurance operations will each require 8 million RON (2.3 million euros) in share capital.
An insurer planning to underwrite general insurance policies (including mandatory insurance policies) will therefore require at least 16 million RON (4.6 million euros) in share capital by the end of December. The second stage, which is set to take place in the first half of 2006, will force companies that sell general insurance policies (except those that sell mandatory insurance) to have a minimum share capital of at least 8 million RON (2.3 million euros). Any insurer selling general and life insurance must increase their share capital to 12 million RON (3.4 million euros).
Many insurance companies have already announced increases to their capital by the end of the year. "The capital increase is a welcome step for the insurance market, which will ensure a primary selection of companies. After that, it''s all down to the liquidity quotient and the solvency margin of the insurers," said Bogdan Stan, general manager of Asitrans.
Daniel Tudor, the chairman of Roumanie Assurance International (RAI), said the CSA''s norms represent good measures: "Still, it would have been better if the increases had been made after December, after the shareholders collect their dividends. December is not a good time to increase capital."
On the other hand, the general manager of ABC Asigurari, Laurentiu Plosceanu, expressed an opposite view, saying that the level of share capital is not tied to the volume of the company''s business.
"Many people go by the principle that small companies with low share capital are not the healthiest on the market, but this is not true. Business volume does not necessarily depend on capitalisation," he said.
He went on to say that the CSA norms, which are intended to bring insurers into line with European Union share capital requirements, did not come at the right time, with no survey having been conducted to assess the impact on the market.
"We are being forced to increase capital as early as the first half of 2006, even though we don''t know for sure whether we''ll join in 2007," he said.
angela.placinta@zf.ro
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