The supervisory review process

Insurance activities are laid down in and regulated by Insurance and Reinsurance Law (hereinafter – the Law), regulations issued in accordance with the mentioned law, Insurance Contract Law, the Law On the Compulsory Insurance against Civil Liability in Respect of Motor Vehicles, Activities of Insurance and Reinsurance Intermediaries Law, other laws and regulations that regulate commercial activity and directly applicable European Union legislation.

The goal of supervision of insurance market participants is to timely detect in their activities possible breach of laws or causes of problems, according to the competence of Financial and Capital Market Commission (hereinafter – the Commission) performs mitigation measures for these causes and perform accordingly to minimize the influence of problems of insurance market participants on the overall financial and capital market. To fulfill this goal, the Commission carries out future-orientated and risk assessment-based supervision of the insurance activity, applying supervisory measures in a timely manner and taking into account the proportionality principle.

The Commission implements continuous and comprehensive supervision of insurance activity by:

• off-site analysis of market participants performance indicators, constantly paying attention to quantitative and qualitative changes of financial indicators and fulfillment of regulative requirements to identify and assess the existing and future risks inherent in the business of insurance undertakings;
• on-site and off-site reviews according to review plans, which are developed taking into account the results of risk score determination process for each insurance undertaking, performed within the frames of risk assessment process;
• imposing supervisory measures on insurance undertakings, if in the risk assessment or detailed review process failures, existing or possible deficiencies or non-compliances in activities of insurance undertakings are identified, which threaten or may threaten in the future the stability of financial position of these market participants and negatively influence their ability to meet the obligations under the insurance or reinsurance contracts.

Future-orientated and risk assessment-based supervisory review process is carried out in several stages – analysis of the information reflected in reports, risk assessment and determination of risk score, planning of supervisory process, performing of on-site and off-site reviews and imposing of supervisory measures.

Risk assessment process is a tool to identify, analyze and assess risks inherent in the business of insurance undertakings and assess the quality, sufficiency and adequacy compliance with the nature, scale and complexity of their business of methods used by insurance undertaking to manage those risks. Within the risk assessment process, on the basis of the results of the analysis of received information, impact assessment and risk and risk management system assessment and consequently determining for each insurance undertaking a risk score within the limits from “1” to “4”.

The result of risk assessment process (risk score) is used to carry out effective supervision of insurance undertakings, including priorities and intensity of supervisory measures, plan on-site and off-site reviews and scope, goal and frequency of those reviews.

In carrying out supervision of the insurance and reinsurance activity, in order to ascertain the compliance of the insurance company with the requirements laid down in the Insurance and Reinsurance Law, the Financial and Capital Market Commission shall review the elements representing the operation of an insurance undertaking mentioned in the Section 44 of the Insurance and Reinsurance Law.

Minimum frequency of mentioned  regular reviews and evaluations as well as the volume of resources necessary for applying of the supervisory measures to insurance undertaking according to individually determined risk score is laid down in the “Procedure for minimum frequency for regular review of elements laid down in Section 44 of the Insurance and Reinsurance Law and performing inspections”.

Should situations occur, which threaten financial position of insurance undertakings and negatively influence their ability to meet the obligations under the insurance or reinsurance contracts, the Financial and Capital Market Commission may impose supervisory measures on insurance undertakings, to prevent such situations.