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 Law, the Financial and Capital Market Commission shall review:
1) the operational strategy thereof;
2) the organisational processes thereof;
3) the system of the exchange of internal information;
4) the system of appraising major risks for the activity, to which it is exposed or may be exposed;
5) the ability to assess risks in the environment in which it operates;
6) the compliance of the system of governance, including compliance of the established self-assessment of risks and solvency with the requirements laid down in Chapter VII and Chapter VIII of the Law;
7) the compliance of the creation of technical provisions with the requirements laid down in Chapter XIII of the Law;
8) compliance with the capital requirement laid down in Chapter XIV and Chapter XV of the Law;
9) the compliance of the investing activity with the requirements laid down in Chapter XVI of the Law;
10) the compliance of own funds to the requirements laid down in Section 116 of the Law;
11) continuous compliance of the partial or full internal model with the requirements laid down in Sections 121, 122, 123, 124, 125, 126, 127, 128 and Section 129 of the Law, if the insurance or reinsurance company uses a partial or full internal model for the calculation of the solvency capital requirement;
12) the appropriateness of the methods and procedure used for the performance of stress tests;
13) the ability to continue the activity pursuant to the requirements of the law upon the occurrence of an unfavorable event or a change to market conditions assessed in the stress test.
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 Article 36 of Solvency II Directive 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.