Monitoring process

Surveillance objectives, main surveillance functions and activities

Role of the ASF

The Financial Supervisory Authority (ASF) contributes to the strengthening of an integrated framework for the functioning and supervision of non-bank financial markets, participants and operations in these markets and has the following objectives:

• to ensure the stability, competitiveness and smooth functioning of financial instruments markets, to promote confidence in these markets and in investments in financial instruments, and to ensure the protection of operators and investors against unfair, abusive and fraudulent practices;
• promoting stability of insurance business and protecting policyholders' rights;
• ensuring the efficient operation of the private pension system and protecting the interests of participants and beneficiaries.

Prudential supervision of the business and financial situation of insurance and reinsurance undertakings has the following objectives:

1. ensuring prudential supervision and control based on risk identification, prevention and management;
2. align risk supervision with international best practice;
3. developing a system for adequate risk quantification and risk profiling of supervised entities;
4. promoting the use of modern actuarial techniques to protect the interests of policyholders. 

More details on the ASF mission can be found at HERE

ASF Strategy for the years 2021 - 2023

The main achievements of the ASF, as well as the main lines of action supporting the ASF's objectives, both in the short and long term, for the three markets - insurance, capital markets and private pensions - can be found at HERE

Purpose of disclosure

One of the objectives set out in the ASF strategy is to increase consumer confidence: transparency, accessibility and fairness.

Thus, based on the provisions of Article 8(2)(b) of Law 237/2015 on the authorisation and supervision of insurance and reinsurance activities, the ASF publishes below information on the criteria, methods and tools used in the supervisory process.

European context

With the entry into force on 01.01.2016 of the new Solvency II supervisory regime at European level, the aim is to develop a common supervisory culture within the EU and consistent supervisory practices addressed by Member States' authorities. 

Supervisory process implemented within the ASF

In accordance with the duties set out in Article 34(2) of Law no. 237/2015, the ASF shall analyse and assess how companies comply with the requirements of the regulations in force regarding:

(a) the governance system; 
(b) the way in which the ORSA is carried out and its results are used;
(c) the ability of companies to estimate the risks according to the environment in which they operate; 
(d) known or potential risks;
(e) technical reserves; 
(f) solvency capital requirements (SCR and MCR); 
(g) investments; 
(h) quality and quantity of own funds; 
(i) internal models used by insurance and/or reinsurance undertakings; 
(j) the way in which the general insurance and life insurance activities are managed separately; 
(k) other items laid down by law.

With the transition to the new solvency regime - Solvency II, the ASF has implemented an internal risk assessment process for insurance companies and supervisory measures appropriate to the risk profile of the companies. Part of this implemented process is the company classification system, which provides for the grouping of companies into 4 supervisory categories, taking into account the nature, risk profile and complexity of the business. The classification system is based on a two-dimensional matrix using on the one hand the impact at insurance market level and on the other hand the individual risks presented by the company, assessed according to the value and evolution of certain prudential indicators. This first assessment takes place on a regular basis, using data reported by companies in their annual reports, and is reviewed quarterly if the data submitted in the quarterly reports show a deterioration in the value of the prudential indicators. In addition, depending on the data available from off-site or on-site supervisory activity (resulting from audits carried out at the premises of companies, the measures implemented as a result, the quality of governance, etc.), the classification may be revised by placing the companies concerned in a different supervisory class.

The ASF has also developed a unified framework for the assessment of ORSA reports and certain functions within the governance system of insurance companies. In addition to internal assessments, based on the framework developed at the institutional level, the ASF has participated in risk assessments carried out at the level of insurance groups within the supervisory colleges where it is a member.

In 2018 -2019, the ASF continued the development of sector risk indicators and risk dashboard for the insurance market and benefited from a consultancy project from EIOPA under the EU-funded technical assistance programme on strengthening the insurance market supervisory function. The outcome of the project was the development of a supervisory manual adapted to the structure of the Romanian supervisory authority, based on the supervisory manual developed at EIOPA level for the harmonisation of supervisory practices at European level, and the extension of the risk matrix to the framework already implemented.

Thus, in 2020 at the level of prudential supervision structures, internal procedural tools were developed with the aim of organizing and describing the supervisory process (SRP) of insurance and/or reinsurance companies authorized in Romania, provided for in Part I of Law 237/2015 on the authorization and supervision of insurance and reinsurance activity, definition of the methodology for the assessment and classification of insurance and/or reinsurance companies (RAF - risk assessment framework), according to the risks and their impact on the insurance market, clear establishment of the working methods and responsibilities of the structures involved in the supervision process, respecting the specific competences and responsibilities, ensuring:

• improving and developing the risk-based supervision framework;
• regular assessment of insurance and/or reinsurance companies according to the risks and the impact/damage that their bankruptcy could cause to policyholders and/or beneficiaries of insurance contracts, to the stability of the insurance market in Romania and other EU countries where they operate;
• drawing up and updating the plan for the supervision of companies, allocating resources to areas of high risk and significant impact and initiating supervisory actions;
• applying supervisory actions/measures in a consistent, proportionate and objective manner;
• ensure consistent and fair treatment of insurance and reinsurance companies by aligning supervisory activity with international best practices;
• allocating resources proportionately and objectively to the supervisory activities carried out and ensuring the transparency of the supervisory process;
• ensuring the application of the EIOPA requirements on the supervisory process, the provisions on the implementation of the Solvency II regime by Member States' supervisory authorities.

Thus, the new Risk Assessment Framework (RAF) is based on an extensive set of quantitative and qualitative indicators (142 indicators) on the basis of which companies are classified into 4 supervisory categories as follows: Category 1 - Basic Supervision; Category 2 - Standard Supervision Category 3 - Enhanced Supervision; Category 4 - Intensive Supervision.

The Risk Assessment Framework (RAF) is developed to cover the main risks that may affect the business of insurance and reinsurance companies, with risk analysis focusing on distinct risk modules related to the company's strategy/business model, macroeconomic indicators, corporate governance, investment activity, counterparties to which companies have exposures, underwriting activity, claims and technical reserves management, capital and solvency, conduct of business and other operational risks.

Depending on the supervisory category in which companies are placed, supervisory activities appropriate to the supervisory category and risk profile of the companies are determined and the annual supervisory plan is drawn up. The frequency and intensity of supervisory activities for each company shall be set out in the supervision plan, thus expressing the risk profile of the company. The supervisory plan should be proportionate to the nature, scale and complexity of the company, with planned supervisory activities covering various assessments of companies' methodologies for calculating technical reserves/capital requirements, implementation of the ORSA process, investment activity, quality of governance etc.