“Supported by a European Union project, the appropriate IT system necessary for off-site supervision has been set up in 2010 and 2011. Now there are MoUs with other supervisors in the financial sector and with foreign insurance supervisors. Cooperation with the German supervisor BAFIN and the German Insurance Association is excellent. The law on compulsory third party liabilities provision in the insurance for motor vehicles authorizes the ministry of finance to set the premiums. These provisions create an effective barrier for competition between insurance companies. The proportion of uninsured vehicles has decreased from 30% to 17%.
“According to an implemented legislation, adopted by the ministry of interior, as from July 2010 all vehicles registered in the country will be obliged to carry stickers once they have passed the regular technical inspection.”
Until October 2009, the sector for the financial system within the ministry of finance was the competent body for conducting supervision over the operations of the insurance companies and insurance brokerage companies. The capacity of the ministry of finance for the proper regulation and supervision of the insurance sector was poor. There was neither proper regulation nor proper supervision of the insurance market.
The insurance market
The Macedonian insurance market comprises 13 insurance companies, 12 insurance brokerage companies and five insurance representative companies. The insurance sector (without pension insurance) accounted for 4.24% of the financial sector and around 2% of the country’s GDP in 2008. Total share capital by foreign legal entities is 80.6%: with 0.2% owned by foreign natural persons, 8% by domestic legal entities, 8.9% by domestic natural persons, and 3.6% by the state.
There is an upward trend in the share of the insurance sector within the financial sector, as well as of the share of non-domestic capital in the insurance companies. The existing insurance companies underwrite conventional business, not specifically Islamic or Takaful business. Insiders are expecting this to change soon. The purchasing power of the predominantly Islamic Albanian population is on the rise. In 2010 it was approximately EUR1,000 (US$1,336) per annum. Takaful entities will come from neighbouring Albania or Turkey.
Two insurance undertakings perform life insurance activities, while the others perform non-life insurance activities. Insurance brokerage companies perform insurance brokerage activities within all classes of insurance. Insurance agents, as licensed entities on the insurance market, carry out activities related to insurance representation on behalf of the insurance companies. Some of the necessary legislation is missing, however: in particular any legislation on risk management, licensing and reporting by insurance companies.
Council of Experts
In August 2009 the parliament appointed five members to the Council of Experts of the ISA, of whom three will be full-time employees of the ISA. The agency effectively developed its operations during 2010. At present the ISA employs 14 employees (together with the three members of the Council of Experts).
The ISA has developed seven pieces of implementing legislation (by-laws) in the areas of accounting and financial reporting, in accordance with the International Financial Reporting Standards. The proposed new accounting and financial reporting framework is based on rules aligned with international accounting standards and a prudential return derived from the statutory financial statements.
Implementing risk-based supervision in Macedonia
Since 2010, an EU project has been underway to introduce risk-based supervision for the Macedonian insurance market. Within the EU, the new risk-based supervision regime requires the implementation of risk management and Solvency II within companies, which enables the regulator to control the risk situation much better than before. Unlike in Germany, France and Austria, it is evident that it will not be possible to implement a highly sophisticated level of risk-based supervision in Macedonia as early as 2012 or 2013.
Risk-based supervision has to be implemented step by step following the development of the market and even following the development of specific competence within the supervisory authority. It has to take into account the national Macedonian situation. A transition period must be implemented in order to develop the full range of solvency requirements.
Dr Gerd Kloewer is an insurance and financial markets regulation expert to EU projects and he can be contacted at