CC BY
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References:
1. Akimov V., Lesnikh V., Radaev N. MCHS Rossii - Riski v prirode, tehnosfere, obshchestve i ekonomike [EMER-COM Russia - Risks in nature, techno sphere, society and economy] M.: Delovoj Express, 2004.
2. Gabrin K., Meshkova T. Emissij a i kvotirovanie negentropii kak mekhanizmi effektivnogo regulirivanij a bezopas-nosti stroitelnih obektov na vseh etapah investitsionnogo tsikla [Emission and negentropy quotas assignment as effective mechanisms of safety regulation of construction projects at all stages of the investment cycle] Bulletin of the South Ural State University, Economics and management. - Chelyabinsk: SUSU, 2009.
3. Ignateva M., Ekonomika prirodopolzovanija [Economics of nature use] - Ural State Mining University. - Yekaterinburg: USMU, 2009.
4. Kutlakhmedov U., Matveeva I., Rodina V, Nadezhnost ekologicheskih sistem. Teorija, modeli I prakticheskije rezultati [Reliability of ecological systems. Theory, models and practical results] - Saarbrücken: Palmarium Academic Publishing, 2013.
5. Lijv E., Infodinamika. Obobshchennaja entropija i negentropija. [Infodynamics. General entropy and negentropy] - Tallinn, 1998. -200 p.
6. Maslov N. Gradostroitelnaja ekologija [Urban planning ecology] - M.: Higher school, 2003.
7. Prangishvili I. Entropijnije I drugie sistemnie zakonomernosti: Voprosi upravlenija slozhnimi sistemami [Entropy and other system laws: Problems of management of complex systems] Institute for Management Problems n. a. Trapeznikov V. - M.: Science, 2003.
8. Shadrina A. Modelirovanije ekologo-gradostroitelnoj bezopasnosti goroda Yekaterinburga [Modeling of urban ecological building safety in Yekaterinburg] “Architecton: izvestija vuzov" № 22 - Appendix, 2008.
Nesterova Daria Sergeevna, Taras Shevchenko National University of Kyiv,
postgraduate student, the Faculty of Economics E-mail: [email protected]
Measures to improve the efficiency of state regulation of investment activity of insurance companies in Ukraine
Abstract: The article defines the features of state regulation of investment activities of insurance companies in Ukraine. The study highlights the main problems and constraints of the domestic insurance market. The measures of improving the investment performance of insurers at the state level are proposed.
Keywords: investment activity of insurance companies, government regulation of investment activities of insurers, insurance reserves, the assets of insurance companies, the government control.
The need of state regulation of investment operations of insurers can be explained by the fact that insurance is a necessary element of social and market economy, and protect the interests of each insurer should the government that monitors compliance with the balance of interests of all market economy. Investment approach to insurance in Ukraine is still underdeveloped. However, the importance of the proper investing is becoming increasingly obvious to most domestic companies.
A significant contribution to the study of problems of formation and regulation of the insurance market, including the investment of insurance companies have made such scholars as V. D. Bazylevych, A. I. Baranovski, A. V. Vasilenko, O. A. Hamankova, S. S. Osadets,
A. A. Slyusarenko, V. M. Furman and others. The features of insurance asset management companies were brought up in papers of scientists such as S. V. Berezina, N. M. Nikulina, A. A. Suprun and N. V. Tkachenko.
In view of the possible manifestations of economic instability in the future, it is necessary to pay great attention to the development of the insurance market in Ukraine, especially in investment activity of insurers, because it is an effective recipient of risk and a mean of accumulation and allocation of financial resources.
In order to protect policyholders from the failure by the insurer of its obligations there is established state control over the investment activities. The role of investment activity of insurance companies, which is
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due to a large concentration of capital, involves the need of state regulation of insurance companies in micro and macro-level.
In Ukraine the state Regulation of financial services markets up to November 2011, was performed by the State Commission for Regulation of Financial Services Markets of Ukraine, which was established in 11.12.2002 in accordance with the Decree of the President of Ukraine and in accordance with the Law of Ukraine “On Financial Services and State Regulation of Financial Services", that was adopted in 12.07.2001. At present, the function of the regulator of the insurance market provides the National Commission for the State Regulation of Financial Services Markets, which was established in 23.11.2011 in accordance with the Decree of the President of Ukraine [7].
Restrictions on the maximum amount of each category ofassets, quality requirements ofsuch assets, and the requirement of the credit rating of certain categories of assets and/or banks and issuers of securities in which the funds of insurance reserves are placed, are established by the authorized institute (the National Commission for State regulation of Financial Services Markets of Ukraine) [2, 94].
Placement of insurance reserves is made in accordance with Article 31 of the Law of Ukraine “On Insurance”, which contains a list of assets for the relevant categories. The requirements regarding the placement of insurance reserves by insurance other than life insurance and insurance reserves for life insurance are established by different legal documents, and that is why there is some difference in total assets, which are represented the insurance reserves and their sizes of regulatory restrictions. The concept of “investment assets”, according to the Law of Ukraine “On Insurance”, includes: cash on the current account; bank deposits (deposits); currency investments; real estate; shares, bonds, mortgage certificates; securities that are issued by the government; right to claims to reinsurers; investments in the economy of Ukraine in the areas that are defined by the Cabinet of Ministers of Ukraine; bank metals; loans to the policyholders — individuals who have signed contracts of life insurance within the redemption amount at the moment of given credit and secured redemption amount; cash on hand in the cash balance volume limits which is established by the National Bank of Ukraine [3].
The regulation of investment activity of insurance organizations is based on:
— establishing principles of investment;
— determining the permitted assets taken to cover obligations and restrictions on them;
— establishing the structural relations of assets and reserves (thresholds values for the investments in certain assets);
— the regular reports on the composition and structure of the investment [4, 167].
Due to the legislative requirements, insurance companies must carry out its investment activity, first of all, ensuring the safety of assets and protect them from impairment due to the influence of inflation, which increases in Ukraine recently. The insurer has to be guided by providing the financial security of investments.
As of the 31.03.2014 the amount of the total assets of insurance companies amounted to 64 771.2 million. UAH, that on 4.3% higher to compared with the corresponding figure at the end of the first quarter of 2013 [6].
As of the 31.03.2014 the amount of assets that are allowed for submission of insurance reserves amounted to 36 516.4 million. UAH (2 336,3 million UAH more than on the same date in 2013) of which the amount of 14 672,5 million UAH is used to represent the insurance reserve funds [6].
In the structure of insurance reserves in Ukraine the bulk of the investment portfolio of insurers take bank deposits, shares and rights claims to insurers, and their share as of the 31.03.2014 in the amount is almost 70%. Taking into account the low profitability of this financial instrument, we can say that the low investment income is provided by placing available funds on deposits.
Portfolio of the asset allocation of insurer’s needs an improvement, and the potential of the stock market is using less than 45% [7].
However, the main problem for insurers is the insufficient of liquidity of financial instruments for an effective policy of investing funds in connection with the appointment of an temporary administration in banks, in which are open deposits of insurers, and increasing the risk of default by the reinsurers-residents.
Investment activity demonstrates the insufficient feasibility of investment function of insurance, which manifests itself in the structural features and return on investments. It is caused by the internal factors, which include insufficient of resource base, high profitability of insurance operations, and external factors such as inflation, underdevelopment ofdomestic financial markets, and inadequate system of state regulation of the investment activity of insurance companies.
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Government regulation of investment activity of insurance companies has be built in a hierarchical manner, be aimed at socio-economic development of society and the insurance market.
The analyses of tendencies of investment activity of insurance companies in Ukraine and practice of its state regulation has shown that at the present stage of development of the insurance market diversification of investments in the main areas must be provided by the state sufficient incentives that will balance the existing system of constraints. This will allow not only to stimulate investment activity of Ukrainian insurers, but also to ensure the growth of liquidity, safety and profitability of investment operations.
In Ukraine, the centralization of state regulation of investment activity of insurance companies in the placement of insurance reserves is quite high. It is advisable to place part of insurance reserves on the informal securities markets and give local communities the authority to independently establish standards of accommodation of reserves in sectors of economy according to their needs.
It is needed to expand the investment priorities of insurance companies at the through the government securities by:
— increasing their profitability, which should not have significant discrepancies in inflation expectations;
— ensuring the transparency of the government securities market;
— introduction of additional guarantees for the implementation of state obligations under its own securities during the debt restructuring [5, 9].
Another direction of stimulating the diversification of investments of insurance companies is to provide public financial support.
The national economy requires considerable investments in priority sectors, which are accompanied by investment risk, that forcing insurance companies to be sensitive to such assets during the placement of insurance reserves.
In order to strengthen the competitiveness of domestic insurance companies, sustainability and investment attractiveness of the insurance market in Ukraine, National Commission for State Regulation of Financial Services Markets plans to introduce the following measures:
1. Introduction of prudential supervision based on risk assessment and international standards of corporate governance.
2. Increasing the level of capitalization of insurance companies, the introduction of the principles
of insurance supervision in accordance with the standards of the International Association of Insurance Supervisors through the harmonization of legal acts on the regulation of insurance companies’ activity to Directive 2009/138/EC “Solvency II”, especially by establishing requirements for paying ability, reporting and information disclosure, management of insurance companies review powers of National Commission for State Regulation of Financial Services Markets by:
— development and adoption of the new Law of Ukraine “On Insurance”;
— assessment of the insurer’s assets at fair value;
— strengthening the role of actuaries in assessing the solvency of the insurer;
— introduction the system of risk-management for insurers.
3. Establishment the EU standards of risk classification in insurance;
4. Improving the procedure for licensing of insurers;
5. Ensuring the development of long term life insurance;
6. Increasing the level of consumer rights protection of insurance services (including appropriately control of the insurers obligations under concluded contracts of insurance and reinsurance);
7. Increased transparency of the insurance market, including through the introduction of reporting on international financial reporting standards (IFRS);
8. The introduction of stress testing;
9. Improvement of legal regulation of insurance intermediaries activity and independent experts on risk assessment and determine the amount of damages caused to the insured persons [7].
To concretize the offers of National Commission for State Regulation of Financial Services Markets, and to improve the quality of insurance services and increase the investment potential of insurers it can be offer the implementation of such legal, organizational and technical information activities:
— adapt the Ukrainian insurance market to the international requirements of financial regulation and supervision, carrying out active cooperation with European and international organizations;
— create the legal conditions for full implementation of investment and pension insurance;
— implement international standards of accounting and analytics of insurance companies;
— create a unified self-regulating organization, whose members should be all insurance companies
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for protecting the rights of insurance consumers, and ensuring fair competition in the market;
— create a centralized database of fraud in the insurance market, of which will have access all policyholders, insurers etc.;
— ensure the formation of investment instruments to accommodate long-term insurance reserves through government guarantees;
— improve monitoring of insurers and strengthen control over compliance with requirements of insurance companies to ensure solvency, financial stability, net assets, share capital and persons with a significant share of insurers capital;
— develop a regulatory framework that enables a collaborative insurance companies and asset management companies in the asset management of insurance companies;
— develop and implement incentives for insurers to voluntarily adhere to its standards of transparency and increased requirements for solvency and implementation of international financial reporting standards;
— introduce a stimulating tax policy for the development of life insurance, long term life insurance, including investment, participating insurers in the private pension system, obligatory health insurance through
the use part of contributions of these types of insurance on the gross charges of legal persons and improving personal income tax [5, 10-11].
Implementation of these recommendations is to preserve and strengthen the medium-term financial potential of the insurance market of Ukraine, which, in turn, will create a favorable background for enhancing the investment activity of insurance companies during the post-crisis recovery.
Thus, the expansion of investment activity of insurance companies is important for the economy and also for specific insurance company. Because an effectively organized investment activity to a certain extent provides the quality of insurance services and determines market position of the insurer and financial resources that are accumulated in the form of insurance reserves, are a significant source of investment in the economy.
Therefore, the government should strive to develop the insurance sector and the expansion of investment activity of insurer, which will increase the strength of the mechanism of economic stabilization by insurance companies during the periods of economic instability. And the proposed measures of enhance the investment activity of insurance companies in modern management practices will improve their financial situation, and to ensure their financial security and development.
References:
1. Nikulina N. The investment policy of insurance organizations. Theory and practice: tutorial for students/N. Nikulina, S. Berezina. - Moscow: Unity - DANA, 2013. - 511 p.
2. Stashkevich Y. Theoretical and applied aspects of investment of insurance companies in Ukraine today/Stashkevich J.//Bulletin of Kyiv National Taras Shevchenko University. Series “Economics”. - 2007. -№ 94-95. - P. 91-93
3. Law of Ukraine “On Insurance” dated March 07, 1996 № 85/96 - VR: Supreme Council of Ukraine [electronic resource]. Access: http://zakon4.rada.gov.ua/laws/show/85/96-% D0% B2% D1% 80
4. Povoroznyk V. Investment activity ofinsurance companies during the economic crisis/V A. Povoroznyk//Strategic priorities. Social and economic policy. - 2009. - № 3 (12). - P. 165-171.
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