Impact Story

Armenia: Strengthening Supervision and Development of Insurance Sector Strategy

FIRST has implemented three technical assistance (TA) projects in the insurance sector in Armenia:

Project 1: Review and recommendations on draft Insurance Law; policy recommendations for organisation of insurance regulator and for regulations

Project 2: Key regulations and related reporting formats including financial statements

Project 3: Policy objectives to attract a leading foreign insurer to establish in Armenia

Each of these three projects built on each other and represent a good example of how FIRST was able to work with a reform oriented Government and progress with one TA project following on from a previous one. The first project was in 2003; the second in 2004/5 and the third in 2006.

The policy recommendations and draft regulations, whilst tailored to the circumstances prevailing in Armenia, contain many elements that apply to countries where the insurance sector is still in an early stage of development. Lessons can be learned from the reports selected, which could apply to other countries with embryonic insurance sectors:

The key issues involved in regulations; regulatory structures and organisation and legislation
Some core regulations covering solvency, reserving, reporting
Some challenges to facilitate growth and stability in the insurance sector so that foreign companies could be attracted to invest in it.

Since the completion of the third of the projects listed, Armenia has moved from insurance regulation as a department within the Ministry of Finance to insurance being regulated by its independent Central Bank (from January 2006). One of the key recommendations from the initial project was to establish the regulator as an entity independent of any Ministry, with ultimate accountability to the Parliament. This has been achieved by centralising regulation in the Central Bank of Armenia (CBA). Secondly, the Government has adopted plans and legislation for the establishment of a private pensions sector.

The first project was delivered by the Government Actuaries Department (GAD) of the UK, and provided a thorough review of the state of regulation and supervision of the insurance sector in Armenia. It included many recommendations, some of which were incorporated into the Insurance Law and many of which related to policies for the direction of regulation. The second project was delivered by Bearing Point who advised on drafting a set of nine core regulations based on the GAD recommendations together with some formats to facilitate establishment of premium levels, solvency margins and reserve levels. During the implementation of the second project, the Government of Armenia decided in principle to unify financial sector regulation by empowering the Central Bank of Armenia to be the unified regulator. This followed the World Bank’s recommendation that unification of financial sector regulation be a pre-condition for its Structural Adjustment Credit to Armenia. A regulatory expert provided strategic advice to the CBA for the establishment of unified regulation of the financial sector in the last quarter of 2005 and the CBA became the unified regulator with effect from January 1, 2006. The CBA was very impressed with the expert advice, and requested FIRST to further advise on steps needed to prepare the market for introduction of a foreign insurance investor in the sector. The CBA believed that attracting a major foreign insurer would help to grow the market and set standards for domestic insurance companies to follow.

The insurance market has grown since the last of these projects but remains small. Compulsory insurance classes have not been introduced yet, but legislation has been passed to permit the development of a private pensions sector. The market is now poised for substantial growth from a small base.

Reports:

Reports that are recommended for wider dissemination and probable benefit for further TA funded by FIRST and for countries looking for assistance in development of their insurance sector and strengthening of their regulation and supervision are:

The Government Actuaries Department Report from November 2003 (about 150 pages long). This report has a section that describes the state of the Armenian market. This is worthy study: for benchmarking comparison with markets in a similar early stage of development; a section that describes and makes recommendations for the organization and structure of regulation & supervision; a section commenting on the Insurance Law in Armenia (many of the comments can equally apply to legislation in other countries at a similar stage; recommendations on ways to develop the insurance sector: and, a summary of the key recommendations).
Key regulations and report forms. The regulations deal with: