Safe Bank

Work is underway to adopt the IRR Directive, which will establish a crisis management system in the insurance sector in the European Union. These solutions will have to be implemented in all Member States. Preparations for this task have already been undertaken in Poland, with the Bank Guarantee Fund (BFG) entrusting the main role in this respect. The aim of the article is to analyze the main problem areas accompanying the creation of a resolution system for insurers in Poland. The article was prepared on the basis of practical analyzes and considerations conducted in the course of BFG's work in the field of building competence in the resolution of the insurance sector.

The article discusses the issue of national regulatory demands that emerged in relation to the proposed EU solutions in the field of crisis management and resolution and resolution of insurance and reinsurance companies. The article contains an original reference to the consequences of the implementation into national law of the draft provisions of the Directive of the European Parliament and of the Council establishing a framework for recovery proceedings and restructuring and liquidation of insurance and reinsurance undertakings, amending Directives 2002/47/EC, 2004/25/EC, 2009/138/EC, (EU) 2017/1132 and Regulations (EU) No 1094/2010 and (EU) No 648/2012. This Directive introduces a prudential framework for insurance and reinsurance services. The solutions designed in the IRRD will, after their entry into force, i.e. in the perspective of several years, make it necessary to amend the law in force in Poland, including in particular the Act of 11 September 2015 on insurance and reinsurance activity, the Act of 21 July 2006 on the supervision of the financial market and the act on compulsory insurance, the Insurance Guarantee Fund and the Polish Motor Insurers' Bureau.

The authors of this paper aimed at the analysis of the issue of resolution as a new concept of protection against the insolvency of an insurance company in the context of the consequences for its customers. Authors discuss selected issues related to the insolvency of insurance companies in the light of current and planned legal regulations, both national and European. Particular attention was paid to the currently applicable mechanisms of customer protection in the event of the insolvency of the insurance company. The issue of consistency of the resolution regime's assumptions with the values protected by the Polish legislator was also discussed. The authors also attempted to compare resolution and other insurance company insolvency scenarios, in particular from the point of view of the legitimacy of maintaining the continuity of insurance protection.

The implementation of the IRR Directive, which is currently being worked on, should take into account the specificity of insurance markets in the Member States. In particular, the manner and scope of operation of the local guarantee fund should be taken into account, as there is no minimum harmonization of such structures in EU countries. The aim of the article is to assess the scope of activity of the Insurance Guarantee Fund in Poland in the context of the implementation of the resolution mechanism for the insurance market and to identify the factors necessary to be taken into account in further work and reforms of the financial safety net in the context of the insurance sector. The basis for the preparation of the article was the analysis of the activities of the Insurance Guarantee Fund since its inception, with particular emphasis on the costs of bankruptcy of Polish insurance undertakings, as well as the previous experience of the Bank Guarantee Fund regarding the analysis of the insurance market in the context of future resolution processes in this sector.

The article presents theoretical background of ruin theory and the description of the classical model for the insurer’s surplus. Analytical calculation of the ruin probability are presented for special cases of the single loss distribution (exponential, gamma and mixture of exponential distributions). The main focus is on the analysis of available methods for approximation of the ruin probability in infinite horizon in continuous-time model. The quality of approximation is tested by comparing the approximated ruin probability with the probability determined analytically (if possible) or estimated numerically with use of Pollaczek-Khinchin formula. The approximation errors (in both absolute and relative terms) are shown for selected light-tailed distributions (mixture of exponential distributions, gamma) and heavy-tailed distributions (Pareto, lognormal, Weibull and Burr). The goal of the article is the assessment of the possibilities to use the approximation methods for ruin probability by insurance companies, including areas such as pricing or solvency, especially in the context of Solvency II regime. The analyses performed show that in most cases approximation results are quite satisfying (relative error not exceeding 5%) and the lowest errors are observed for Cramer-Lundberg and de Vylder approximations in case of light-tailed distributions and for Beekman-Bowers and de Vylder approximations in case of heavy-tailed distributions. The approximation quality in general deteriorates in line with the decreasing assumed ruin probability, especially for heavy-tailed distributions.

The paper treats on loss absorbing capacity of issuers’ RT1, Tier 2 and Tier 3 subordinated debt.  The Solvency II loss absorbing capacity of RT1 CoCos (contingent convertibles) varies from that of IRRD proposal. The main objective was to set the insurer’s point of non-viability (PONV) and then compare it to RT1’s contractual trigger event in various scenarios of breaching Solvency II capital requirements. It turns out that contractual trigger is activated prior to reaching the PONV, so one may conclude that RT1s absorb losses on a going concern basis.