Issues and Challenges for the Romanian Insurance Market: Risk and Return Analysis

Romanian insurance industry has a competitive market, having, however, a deep character of heterogeneity, which has had an impact on different financial ratios that define it. In an international framework, non-life insurance market in Romania was a different pattern as compared to similar markets from Central and Eastern Europe and in relation to similar markets from 42 countries in the world, with a growing trend, even in the year 2009, when this sector stagnate or even decreases. In Romania, within the class of non-life insurance, motor third party liability insurance ranks second, as a source of income and expenses, even since 1990. Peculiarities of this type of insurance motivated a detailed analysis based on its compulsory character, together with public availability of the financial information. In order to better understand the developments for this class of insurance, for 2005-2008 a wide range of financial indicators was used such as gross written premiums, gross claims payable, loss ratio, coverage rate, solvency ratio, etc. Even if the risk management had no major problems, nevertheless this insurance class faced some difficulties, especially regarding the growing trend for the loss ratio, the solvency margin, the casualty and coverage ratios and for the outstanding claims reserve adequacy. In addition, correlations between different financial indicators specific to the sector, analyzed over a period of four years, provided additional findings for a deeper understanding of the characteristics of this insurance class. Overall, some correlations between indicators had normal levels and directions, but some of the results revealed some anomalies, which can be attributed to the fact that non-life insurance market, as a whole, is still growing.