Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1698058547850.pdf (Georgia)
INSURANCE STATE SUPERVISION SERVICE OF GEORGIA ANNUAL REPORT 2019 WWW.INSURANCE.GOV.GE Dear readers, Insurance State Supervision Service of Georgia is a supervisory body of insurance business through- out the country and one of its main functions is the implementation of the insurance state policy.

In 2019, significant amendments were made to the Law of Georgia on Insurance, and ten orders of the Chairman of ISSSG were issued.
The amend- ments expanded the regulatory framework for insurance intermediaries and established the on- and off-site supervisory approaches for insurance brokers; To ensure their financial stability, the obligation has been determined to own capital/ guarantee fund, reporting standards have been expanded; Insurance brokers have been required to submit annual audited financial reports of the previous year; eligibility criteria were established for the administrators and founders of insurance brokers, a sanctioning system was introduced, and approaches were determined for better customer protection.
Apart from that, “a rule of margin ratio between the Insurer’s net exposure and regula- tory capital” was approved, ensuring that major losses would not have a significant negative im- pact on the Insurers’ solvency.

2019 was notable for increasing international ac- tivities, which is vital to the development of the industry and serves to promote the implementa- tion of international standards.
To this end, ISSSG actively cooperated with international organiza- tions, received a great amount of expert assis- tance, participated in international conferences and trainings, and was familiarized with modern approaches to supervision.
As a result of intensive work, ISSSG had the fol- lowing achievements in international relations: ► First elected as a member of the Assessment and Implementation Committee (AIC) of the International Association of Insurance Super- visors (IAIS) during its membership; ► Participated by special invitation as a non-member country in the First Forum of In- surance Supervisors of the Western Balkans, organized by EIOPA; For the first time, joined the International Organization of Pension Supervisors (IOPS), preceded by intensive negotiations; ISSSG was first invited to various events with- in the Central, Eastern and South-Eastern Eu- rope (CESEE) region; ► ► The reporting period was also remarkable by oth- er significant events: ► ► ISSSG participated in a number of meetings held by the IAIS, including the 26th Annual International Conference held in Abu Dhabi, United Arab Emirates, which, given its scale, played an important role in deepening of in- ternational relations.
ISSSG launched the EU-funded 2-year TWIN- NING project, which aims to get closer to the 1 ► European insurance standards, in accordance with the Association Agreement signed with the EU; For the first time in our region, the conference was held in Tbilisi under the auspices of the International Actuarial Association (ASTIN); within the framework of the program “Govern- ing for Growth (G4G) in Georgia” carried out by the United States Agency for International Development (USAID), acting actuaries/future actuaries have been re-trained/certified in accordance with the European standards.
► As a result of close cooperation with XPRIMM (Reinsurance and Insurance Market Media Promotion), an international insurance con- ference took place in Tbilisi; ► Being invited by ISSSG, the international ex- perts from Northern Macedonia and the Slo- vak Republic visited Tbilisi and conducted a seminar for the employees on current issues in insurance industry.

I am pleased to present the detailed report of 2019 on the activities carried out by the LEPL Insurance State Supervision Service of Georgia.
David Onoprishvili Chairman 2 Insurance State Supervision Service of GeorgiaANNUAL REPORT 2019 CONTENT 1.

LICENSING/REGISTRATION 2.

LEGISLATIVE PROCESS 3. INTERNATIONAL RELATIONS 3.1.

TWINNING PROJECT 4.

CONSUMERS’ RIGHTS 5.

SUPERVISORY ACTIVITIES 4 6 10 16 18 20 6.

ANTI-MONEY LAUNDERING ACTIVITIES 7.

ECONOMY OF GEORGIA AND INSURANCE SECTOR 8.

GEORGIAN INSURANCE MARKET AND SUPERVISORY SYSTEM 8.1 MARKET CONCENTRATION 8.2.

ACTIVITY DYNAMICS 8.3.

THE STRUCTURE OF INSURERS’ ASSETS AND LIABILITIES 8.4.
ENSURING THE FINANCIAL SOUNDNESS OF THE SECTOR 8.5.

INSURANCE BROKERS 22 23 26 30 31 34 35 38 3 1.

Licensing/Registration According to the 2019 data, out of 17 licensed in- 3, 2019, the Parliament of Georgia amended the surance companies operating in Georgia, 16 pos- Law of Georgia “on Insurance”.

The amendments sess both non-life and life insurance licenses and clarified the basic distinguishing principles of in- 1 – only non-life insurance license.
surance broker’s and insurance agent’s activities, defining the scope of brokerage activities in the Under the law of Georgia “On Insurance”, the ap- field of insurance, conditions for registration as an pointment/replacement of the Insurer’s Adminis- insurance broker, provision of mandatory infor- trator (Supervisory Board member, Director) and mation to the customers, instruments for financial internal audit is a subject of preliminary approval stability, sanctions system.
Also, to use the phrase by ISSSG in order to ensure the candidate’s com- “insurance broker” or other combination of those pliance with eligibility criteria established by the words in brokers brand name was determined as law.

In 2019, ISSSG reviewed 13 candidates nomi- necessary, in order to identify the activity of the nated for the position of administrator, with 11 of entity from its name.
Therefore in 2019, 15 insur- them approved and 2 rejected, based on the doc- ance brokers changed their names, and ISSSG car- uments/information examined to ensure compli- ried out relevant administrative procedures con- ance with eligibility criteria.

Also, one candidate cerning these changes in the individual legal acts for an internal audit position was reviewed and on registration.

Relevant changes were also made the appointment was approved.

in the register of insurance brokers.


According to the Law of Georgia “on Insurance”, a During 2019, the registration of the following 8 in- change of shareholders with a significant share in surance brokers was cancelled: an insurance company is also subject to prior re- view by ISSSG.

In 2019, ISSSG reviewed the changes ► MMA GEORGIA LLC; to be made in the shareholding of JSC “Insurance Company Euroins Georgia” and approved them.
As of 2019, there were 4 non-state pension schemes registered in ISSSG - 3 of them founded by insur- ► ► ► ► TRUST BROKER LLC; Financial Risks Resolution LLC; Insurance Broker Wise LLC; London Prime International Brokers LLC; ance companies, and one - by a non-insurance le- ► Global Insurance Broker LLC; gal entity for its own employees.

These are: ► DGlab LLC; ► Darabi LLC.

1.

2.

3.


JSC Insurance Company ALDAGI; JSC Insurance Company GPI Holding; 3 new insurance brokers were registered during JSC International Insurance Company IRAO; the reporting period: 4.

Sakaeronavigatsia LLC.

In order to expand the regulatory framework for insurance intermediary activities, on September ► ► ► “Insurance Broker Compare” LLC; “Insurance Broker Brokers Hub” LLC; “Insurance brokerage firm Geo Ins” LLC.
4 Insurance State Supervision Service of GeorgiaANNUAL REPORT 2019 Considering the above changes, by the end of 2019, 16.

Insurance Brokerage IG Company LLC the following 20 insurance brokers were listed in 17.

Georgian Insurance Alliance – Insurance Bro- the register of insurance brokers: ker LLC 1.

Insurance Broker MAI Georgia LLC.

19.

Insurance brokerage firm Geo Ins LLC 2.

Resolution Insurance Brokers Georgia LLC 20.

Insurance Broker Brokers Hub LLC 18.

Insurance Broker Compare LLC 3.


Insurance Broker G.S.

LLC 4.

Georgian Reinsurance Brokers LLC As of January 1st 2020, according to the amend- 5.

6.

7.

8.

9.

Insurance Broker Capital Garant LLC ments to the Law of Georgia “on Insurance”, the Insurance Broker Respect LLC insurance brokers are required to have financial Insurance Broker CIB Georgia LLC stability instruments - minimum capital/guaran- Insurance Broker Nikoloz Group LLC tee fund and professional indemnity insurance.
Insurance Broker Geotrust LLC ISSSG studied the documents submitted by the 10.

Insurance Broker Wise LLC insurance brokers in order to confirm the due 11.

Magnus Insurance Broker LLC performance of their obligations under the law, 12.

Insurance Brokerage company IBC Georgia LLC in particular, bank documents certifying owning of 13.

Insurance Brokerage company Calma LLC the minimum capital/guarantee fund, and profes- 14.
Insurance and Reinsurance Broker Arriba LLC sional indemnity insurance policy/agreement.

15.

Insurance and Reisnurance Brokers House Georgia LLC 5 2.

Legislative process During 2019, significant legislative changes were to own a capital/guarantee fund has been estab- made to regulate the issues within the compe- lished for the brokers.

tence of the Insurance State Supervision Service of Georgia.
The draft law “On Amendments to the Based on the amendments to the Law, ISSSG, Law of Georgia On Insurance” and corresponding within its own competencies issued the following draft laws had been prepared, and ten orders of by-laws: the ISSSG Chairman were published in the “Legis- lative Herald of Georgia”.
► “Rules for determining the minimum capi- tal/guarantee fund for insurance brokers at On September 3, 2019, several amendments were each stage of intermediary activities and cor- made to the Law of Georgia “on Insurance”, con- responding requirements” (Order # 34 of the cerning the regulation of insurance intermediaries chairman of ISSSG, dated 25.09.2019) - The aiming to create a legislative instrument of state document states that insurance brokers at all control and supervision that would enable to reg- stages of their intermediary activities must ulate the industry more efficiently.
At this stage, have a minimum capital/guarantee fund considering the priority of the issue, the amend- determined by ISSSG, in the amount of GEL ments were addressed to the insurance brokers 30,000, 100% in cash, continuously deposited only and regulation of insurance agents’ activities at a special account with a licensed banking was planned for the next stage of the reform.

institution.
institution.

The changes made during the reporting peri- ► “Professional indemnity insurance for insur- od in respect of insurance brokers established a ance brokers” (Order # 38 of the chairman of regulatory framework and empowered ISSSG to ISSSG, dated 27.09.2019) – The document es- introduce the rules fully regulating the changes tablishes the liability of insurance brokers to provided by law.
A mechanism of supervision and maintain professional indemnity insurance at both on-site and off-site supervisory approaches all stages of their intermediary activities, un- for insurance brokers have been established, the der the terms and conditions provided by the basics of securing their financial stability have same Order.
This is the basis for ensuring the been determined, reporting standards expanded; financial soundness of a broker and serves the insurance brokers were required to submit au- to compensate material damage caused to a dited financial statements annually; eligibility cri- third party in the course of intermediary ac- teria have been established for the administrators tivities.
and founders of insurance brokers, a sanctioning system has been introduced, terms of registra- ► “Rules for determining and imposing a fine tion and approaches for better protection of the on an insurance broker and/or administrator” consumers’ rights have been adjusted.
In order to (Order # 35the Chairman of ISSSG, 25.09.2019) ensure their financial soundness, the obligation – This document provides the fines/financial 6 Insurance State Supervision Service of GeorgiaANNUAL REPORT 2019 sanctions of insurance brokers for different In addition to the above-mentioned, on Septem- types of violations.
The corresponding by-law ber 3, 2019, the Law of Georgia “on Insurance” was empowers ISSSG to impose a fine on the in- amended in relation to the Insurers, requiring the surance broker and/or administrator in case disclosure of information about their sharehold- of non-compliance by the latter with the re- ers and beneficial owners, which also contributes quirements established by the law.
The docu- to increased transparency and confidence in the ment also introduces the rules of enforcing a financial sector.

During the reporting period, ISSSG corresponding administrative-legal act.

started drafting the relevant by-law.
► “Internal accounting requirements for insur- Amendments were made to the “Rules for mainte- ance brokers” (Order # 36 of the Chairman of nance of statistical reporting forms by the Insur- ISSSG, dated 25.09.2019) determines the data ers and submitting them to LEPL Insurance State related to insurance intermediary activities, Supervision Service of Georgia” approved by the subject to accounting, systematization, reg- Order 303 of the Chairman of ISSSG of Decem- istration, storage and updating.
This require- ber 24, 2013 (Order # 39 of the Chairman of ISSSG, ment is the basis for proper functioning of dated 03.10.2019).

According to these changes, insurance intermediary business.

information on agricultural insurance (including ► “Rules for registration and cancellation of quarterly basis, on separate forms.
The previous state-subsidized) shall be provided to ISSSG on a registration of insurance brokers; eligibili- order provided the submission of monthly, quar- ty criteria of founders and administrators of terly and annual statistical reports to ISSSG, in ac- insurance brokers” (Order # 40 of the Chair- cordance with the accompanying forms.
Data on man of ISSSG, dated 24.12.2019) expands the agricultural insurance was presented within the conditions of registration and the basis for total data on property insurance, which did not cancellation of registration of insurance bro- allow it to be separated and properly systema- kers, adjusts the corresponding procedures, tized.
The above-mentioned amendment will help and establishes eligibility criteria of founders to receive systematized information from the In- and administrators of insurance brokers.

It surers participating in the agricultural insurance also states that insurance intermediary ser- program and to properly and timely process the vices must be stated in the insurance broker’s corresponding statistical data.

charter as its main entrepreneurial activity.


The applicant will be held responsible for the On December 20, 2019, amendments were made correctness of the documentation submitted to the Law of Georgia “on Insurance”, clarifying for registration.

With the legislative changes, some approaches provided by the Law of Geor- the grounds for the cancellation of insurance gia on Financial Collateral, Offsetting and Deriv- broker’s registration were broadened.

The re- atives.
The re- atives.

In particular, they define clearly the issue quirements of the insurance brokers register, of the decision on temporary administration and including forms and register data, have been revocation of an insurance license coming into clarified.

Information on registration, as well force.


In both cases, the individual administrative as cancellation and changes in registration of legal act comes into force from the moment of insurance brokers, shall be published in the its publication on ISSSG website.

In addition, the Legislative Herald of Georgia, and information amendments clarify the right of preemptive and on cancellations shall be published on the of- unconditional satisfaction of the claims, secured ficial website of ISSSG.
by financial collateral, in relation to the Insurer’s 7 other creditors, and add a new article on offset- Amendments were made to the “Rules for deter- ting and final offsetting.
mining, imposing and enforcing fines on Insurers” approved by the Order of the Chairman of the “Margin ratio between the Insurer’s net exposure Insurance State Supervision Service of Georgia and regulatory capital was approved by the Or- of March 17, 2015 (Order # 32 of the Chairman of der #33 of the Chairman of ISSSG, on 06.08.2019.

ISSSG, 08.02.2019).
ISSSG, 08.02.2019).

This normative act had been recommended within the Financial Sector Assessment Program (FSAP) Amendments were also made to the “Instruction carried out by the World Bank/Monetary Fund in on the protection of consumers’ rights in provid- 2014.

It ensures that a single loss shall not have a ing insurance services” approved by the Head of significant negative impact on the Insurer’s sol- the Insurance State Supervision Service of Geor- vency and regulatory capital.
There are different gia of April 3, 2017 (Order # 37 of the Chairman of approaches adopted in international practice to ISSSG, 25.09.2019).

mitigate such risks, including setting the limit of net exposure under one risk in relation to the In- The draft law prepared by ISSSG “On compulso- surer’s regulatory capital, meaning that the risk ry civil liability insurance for the owners of motor exceeding that limit must be reinsured.
The limit vehicles registered in Georgia” and submitted to of the Insurer’s retention was defined as 15% of the Parliament of Georgia in 2018, is still being re- the regulatory capital.

ISSSG also established the viewed by the parliamentary committee, with the criteria of Reinsurers that are eligible to accept participation of the insurance industry and other the excess risk.

Considering the high level of re- stakeholders.


Different stakeholders appeared to liability, 2 criteria were defined - adequate credit have different approaches to the issue, so the dis- rating applied by the selected credit agencies and cussions around the draft law continued during the ratio corresponding to SOLVENCY II.

the reporting period.


Amendments have been made to the “Rules of The draft resolution of the Government of Georgia determining the solvency margin by the Insurers “On terms and conditions for identifying the mass in the course of insurance operations”, approved gathering objects and compulsory third-party li- by the Order #15 of 2016 (Order of the Head of ability insurance for their owners” has been pre- ISSSG # 41 of 30.12.2019).

The existing rules provide pared.


for the loss-based method as one of the possi- ble methods for calculating the solvency mar- To ensure the proper enforcement of the “Terms gin.
Since in practice some insurance policies are and conditions for identifying the mass gathering 100% reinsured, and therefore, in case of a loss, objects and compulsory third-party liability insur- full reimbursement shall be provided by Reinsur- ance for their owners” approved by the Resolution ers, it was considered inappropriate to take such #177 of the Government of Georgia, of March 29, losses into account when calculating the Insurer’s 2019, ISSSG obtained information about the Insur- solvency margin.
Based on the above-mentioned, ers involved in the above-mentioned compulsory the amendments to the existing rules stipulate insurance and submitted this information to the calculating the amount of gross and net incurred LEPL Social Service Agency.

Also, on the basis of losses, the losses 100% reimbursable by Reinsur- the request of the LEPL Social Service Agency, ers with adequate credit rating, will not be taken ISSSG, within its competence, provided by the Law into account (shall be deducted).
of Georgia “On Insurance”, reviewed and shared 8 Insurance State Supervision Service of GeorgiaANNUAL REPORT 2019 considerations on the draft agreement prepared agement, cybersecurity of insurance organiza- by the Agency.

Since the participating insurance tions and specific measures regarding “Suptech” companies are the parties to this agreement, the (supervision by regulatory authorities using in- draft was also sent to them for consideration and novative technologies).
The presentation, as well response.
as the changes regarding electronic sales made in 2019 to the “Instruction on the protection of During the reporting period, ISSSG reviewed the consumers’ rights in providing insurance services”, questions brought up by the Revenue Service approved by order of the Head of ISSSG # 18 dated concerning the “Terms and conditions for identi- April 3, 2017, reflects the latest information on dig- fying the mass gathering objects and compulso- italization from the Vienna Conference on Motor ry third-party liability insurance for their owners” Insurance and the Property Insurance Forum.
approved by the Resolution #177 of the Govern- ment of Georgia.

A working group on digitalization processes was established within ISSSG and studied the writ- A framework project has been prepared on the ten information submitted by the Insurers about main stages of the claims management process, the state of their cybersecurity and information based on the relevant OECD recommendations systems.

Related Meetings were held with 14 in- and the standards set out in the Insurance Core surance companies.
The group reviewed IT out- Principles (ICP).

sourcing agreements presented by 11 insurance companies and prepared a brief description of In 2019, ISSSG continued to work on the challenges outsourcing practices adopted in this area.

of digitalization in the insurance industry.

During the reporting period “Digital Future and Insurance In order to create a regulatory framework for the Sector” presentation was held.
The presentation digitalization process based on the principle of focused on the following issues: the challenges proportionality, 5 draft documents were prepared and trends in the digitalization process of the in- during the reporting year on e-sales, minimum surance sector, the need to develop new super- requirements for information systems, internal visory approaches and frameworks; creation of a accounting, requirements for outsourcing agree- solid legal basis for regulation of electronic data ments in the field of information technology and exchange, innovations in the supply chain man- cybersecurity.
9 3. International relations In 2019, ISSSG significantly increased cooperation In 2019 ISSSG participated in the following global with international organizations, received a great events arranged by the Association: deal of expert assistance to improve the existing regulatory and legal system in the field of insur- ► ance, participated in international conferences 26th international conference held in Abu Dhabi, UAE.

This is a large-scale event attend- and trainings, got acquainted with modern trends.
ed by insurance supervisors and regulators As a result of intensive work, ISSSG became a (members of the Association), as well as by member of the International Organization of Pen- business representatives and other stake- sion Supervisors (IOPS) and also, as a member of holders, which makes the conference im- the International Association of Insurance Super- portant in terms of deepening international visors (IAIS), ISSSG was first elected as a member relations.
Considering the factors influenc- of the Assessment and Implementation Commit- ing digital technology in the modern world, tee of the Association.

the main topic of this year’s conference was “Supervision in the digital era”.
Among other In 2019, ISSSG continued cooperation with the In- topics discussed at the conference, were the ternational Association of Insurance Supervisors issues of artificial intelligence in insurance, (IAIS), an umbrella organization representing more its role in insurance supervision and the lat- than 150 regulatory bodies.
IAIS is an internation- est approaches to big data systematization, al authority establishing insurance supervisory digital technologies in the rapidly developing standards and thus Georgian insurance system/ global insurance sector and their impact on legislation should be gradually in compliance the market structure and efficient superviso- with their insurance core principles (ICPs), which ry approaches, relation of the data collection, is also envisaged in the EU-Georgia Association analytical capabilities and artificial intelli- Agreement.
gence to the insurance sector, cybersecurity and challenges related to digital technologies Like the previous years, in 2019, ISSSG was in- in insurance.

Special attention was brought volved in the Association’s online self-assessment to the cyber risks in the developing business, program aimed to determine compliance with var- and underwriting approaches and challenges.

ious Insurance Core Principles (ICPs).


One of the important outcomes of this annu- In 2019, an online training course (FIRST ONE PRO- al conference was ISSSG being elected as a GRAM), based on the Insurance Core Principles member of the Association’s Evaluation and (ICP), was held again under the auspices of the Implementation Committee for the first time, International Association of Insurance Supervi- to be represented by the ISSSG Chairman, in sors and the Financial Stability Institute (FSI).
As voting and other activities.

Committee mem- previously, the employees of ISSSG took part in bership provides an opportunity for ISSSG to the program, which allowed them to improve their be more actively involved in the work of the professional level and qualifications.
organization and is an important step for- 10 Insurance State Supervision Service of GeorgiaANNUAL REPORT 2019 ward, both in acquiring new visions and ap- dum, will ensure the development of the agricul- proaches and in strengthening international tural insurance sector following the best practices involvement.

and international experience in the field of insur- ance.

► 12th annual global workshop in Buenos Aires, Argentina.
Participation in this event was im- Georgia is a member of the Regional Committee portant for the development of international for Central, Eastern Europe and Transcaucasian supervising standards and the strengthening Region (CEET), which mainly deals with current of cooperation.

The discussion at the meet- insurance sector issues in a regional context.
An- ing raised many important issues, including other significant development in 2019 was Geor- the strategic plan of the Association for 2020- gia expressing readiness to host an international 2024, the holistic framework of systemic risk meeting to be held in 2021 within the framework in the insurance sector, the role of insurance of this committee.

in economic development and sustainable in- vestments in infrastructure.
In 2019, in order to improve the commercial (non- state) pension regulatory framework and conduct In 2019, cooperation with the World Bank contin- the relevant processes following internationally ued.

In particular, working on the “Strengthening recognized standards, ISSSG decided to join the and Involvement of the Georgian Financial Sector” International Organization of Pension Supervi- project was completed and cooperation contin- sors (IOPS) and started relevant negotiations.
As ued within the framework of the three-year (2019- a result, at the end of 2019, the Executive Commit- 2022) EU-funded project “Economic governance tee of IOPS decided to grant the Insurance State and fiscal accountability”.

The EU-funded project Supervision Service of Georgia membership.
This provides technical assistance to ISSSG, and the organization is an independent body established development/implementation of new insurance in 2004 at the initiative of the Organization for products, such as compulsory medical malprac- Economic Co-operation and Development (OECD) tice insurance, compulsory professional indemni- and the International Network of Pension Regu- ty insurance for architects and engineers, as well lators and Supervisors (INPRS) (headquartered as preparatory works for the development of life in Paris, France).
Currently, the organization has insurance products and index-based agricultural 87 members, including our neighboring Armenia, insurance.

Within the framework of this project, Turkey, Russia, Ukraine, Kazakhstan and others.
on December 20, 2019, a Memorandum of Under- The organization works closely with international standing was signed between the LEPL Insurance organizations in many countries around the world State Supervision Service of Georgia and the NNLP and is involved in the development of pension Agricultural and Rural Development Agency, which supervision policies.
It is noteworthy that the or- envisages reviewing the existing agricultural in- ganization sets international standards for pen- surance program and developing relevant recom- sion supervision, and also provides assistance mendations, sharing knowledge and international to pension supervision authorities, especially in experience related to the development perspec- countries with emerging economies.
Membership tive of index-based agricultural insurance, review- in the organization allows the ISSSG to establish ing of the current legislation, development of the a partnership with similar authorities around the new laws and offering alternative agricultural in- world, share their experiences and practices, par- surance products.

ISSSG, as the main party of the ticipate in international events, and apply for as- insurance component defined by the Memoran- sistance in resolving specific issues.
11 In 2019, ISSSG was for the first time invited to the on key issues in the field of insurance.

The meet- following events held within the region of Central, ing discussed modern approaches to supervision Eastern and South-Eastern Europe (CESEE): and the related issues, a new digital age in the ► “Insurance Supervisors Initiative” (17th event) – held in Skopje, North Macedonia, attended owner’s compulsory liability insurance.
The meet- ing discussed the issues of term life insurance, financial sector, new approaches to motor vehicle by insurance supervisors from the countries as well as the practices in different countries, in in the region.

The meeting discussed the lat- particular, the insurance sector of the Western est trends in the insurance market and the Balkans, and practical examples of these coun- challenges of supervisory authorities.

It was tries on the path to European integration.


It is im- mainly designed to discuss the measures of portant for ISSSG to share the experience of such supervision in the insurance market and ex- countries, and to consider them in fulfilling the change information on the process of harmo- commitments of European integration.
nization of legislation; ► “Insurance Supervisors Initiative” (18th event) – held in Prague, Czech Republic, and simi- In 2019, as part of strengthening of international cooperation, ISSSG with a special invitation, as a non-member country, participated in the first fo- larly to the previous event, it was attended by rum of insurance supervisors of Western Balkan, the supervisors of the region to discuss the organized by the European Insurance and Occu- current challenges.
As most of the countries pational Pensions Authority (EIOPA) in Frankfurt, in the region are candidates for EU member- Germany.

This event was very important for Geor- ship, the meeting shared experiences on the gia on its path to European integration.
(EIOPA steps taken towards European integration, was established in 2007-2008 at the initiative of which is a major challenge for Georgia; the European Union - in view of financial crisis, for better supervision of insurance and pension ► “New insurance trends and their impact on funds, in order to better integrate the financial the Central Eastern and Southern region” - market within the EU and mitigate the risks).

held in Vienna, Austria.
The conference, like the above events, was attended by represent- In 2019, close collaboration was established be- atives of the relevant regional insurance su- tween ISSSG and the Media Agency and Public pervisors and insurance associations, where Relations Organization (XPRIMM - Promoting the they spoke about the challenges in the CESEE Reinsurance & Insurance Market by Media), which countries, which are different from the rest of specializes in insurance/reinsurance, insurance Europe.
The main risks discussed at the event intermediation and private pension funds.

In par- were: mandatory pension funds, pricing in ticular: motor owner’s compulsory third-party liability insurance, anti-money laundering measures, ► An international insurance conference, the fight against insurance fraud, implementation first in its scale, was held in Tbilisi, with the of the current legislation, risk-based supervi- official support of the Insurance State Super- sion approaches and Solvency II.
vision Service of Georgia.

The official partners of the event were insurance companies oper- In 2019, international experts from North Macedo- ating in the Georgian market.
The conference nia and the Slovak Republic were invited to Tbilisi was attended by representatives of the insur- to conduct a seminar for the employees of ISSSG ance industry, Georgian Association of Insur- 12 Insurance State Supervision Service of GeorgiaANNUAL REPORT 2019 ance Companies, international reinsurance EU standards, after which it will be possible to companies, Council of the Green Card Bureau, mandatorily implement the actuarial function regulators and guests from the financial/in- in the insurance sector.
surance sector of different countries.
In 2019, to support the development of the actuar- Bank of the Kingdom of Netherlands and ISSSG ial profession, the following activities were carried continued, within the framework of which the rep- In 2019, the cooperation between the National out: resentatives of ISSSG participated in the following conferences held at different times in Amsterdam: ► For the first time in our region, the conference under the auspices of the International Actu- ► “Financial Involvement” - which was attended arial Association (ASTIN) was held in Tbilisi.
by representatives of both EU member states This event is important for the Georgian in- and countries where financial education is surance industry, as ISSSG is currently work- considered a challenge.

The conference high- ing on the implementation of an institutional lighted the importance of technological and reform in the insurance system, such as the digital tools development as the means of in- establishment of a certified actuaries’ body creasing access to financial products.
and determining the basics of regulations for the actuarial business.

Actuaries are experts ► “Supervision of Pension Funds in a Changing in mathematical statistics/insurance mathe- Environment” - which discussed the methods matics, who are responsible for defining the of obtaining and processing information re- methods of calculating insurance rates and, quired for the supervision of pension funds in general, have the knowledge of actuari- in the participating countries.
The conference al calculation theories.

This directly relates discussed the pension system in the Nether- to the modernization of the pricing process lands and focused on the process of invest- both in compulsory and voluntary lines of ing the assets managed by pension funds, as business.

The conference discussed: solvency well as the associated risks.
The discussion systems and management risks, practical is- also covered cyber risks, current challenges sues of motor owners’ civil liability insurance, associated with them and the importance of approaches to reimbursement in agricultural cybersecurity of pension funds.

insurance, and actuarial valuation models.


► As it was planned in 2018, acting actuaries/as- ing between the Financial Stability Institute (FSI) In 2019, ISSSG participated in a working meet- pirants were trained/certified in accordance and the International Monetary Fund (IMF) held with the European standards.
This became in Basel, Switzerland, where they discussed the possible within the USAID program „Govern- problems associated with the introduction of the ing for growth (G4G) in Georgia”, approved in new International Financial Reporting Standard 2018 in favor of the Association of Actuaries (IFRS17) and their possible solutions.
The main and Financial Analysts, with the support of discussion was the process of transition from IFRS ISSSG, and will finally help to establish an 4 to IFRS 17 and the importance of its introduction.
internationally accepted Certified Actuarial The meeting was attended by representatives of Analyst (CAA) group in Georgia, allowing to supervisory authorities, insurance groups, rating develop the role of actuaries, create a corre- agencies, large audit companies and unions of ac- sponding legal framework in accordance with tuaries from Europe, the USA, Canada and other 13 regions.
The results of the meeting showed that Directorate-General for Insurance and Pension prior to the introduction of any new standards, Funds (DGSFP) under the Ministry of Econom- the Standards Foundation, supervisory authorities ic Affairs and Digital Transformation (MINECO) - and rating agencies of various countries actively will assist ISSSG with long- and short-term expert communicate with market representatives, espe- groups with the introduction of the new solvency cially with global insurance groups that operate in standard of insurance companies and the related both life and non-life insurance sectors.
processes.

In 2019, ISSSG participated in the seminar on the The overall objective of the project is to facilitate prevention of money laundering and terrorism financing (intermediate/advanced level AML & CTF), organized by euTHOR - Compliance Servic- es in Limassol, Republic of Cyprus.
The seminar presented the modern approaches and technol- ogies related to money laundering and terrorism financing, planned changes to the Directive (EU) 2015/849 on the prevention of money laundering and terrorism financing, the joint approach of the European Financial Sector Supervisors on ML/TF the fulfilment of Georgia’s obligations under the EU-Georgia Association Agreement to increase the accountability, safety and efficiency of the finan- cial (insurance) sector; while the specific goal is institutional strengthening and capacity building of ISSSG, which will ensure an increase in the effi- ciency of the insurance sector, improve accounta- bility to ISSSG and financial security of the indus- try, as well as develop a legal framework for the implementation of SOLVENCY II standard; issues etc.
3.1.

Twinning project In 2019, the EU-funded Twinning project “Strength- ening Capacity of the Insurance State Supervision Service of Georgia” was launched, which aims to bring insurance legislation closer to European standards, according to the Association Agree- ment between Georgia and EU.
The project is bi- ennial and provides the harmonization of Geor- gian legislation with the Directive of the European Parliament and the Council of Europe 25/2009/138 / EC of November 25, 2009, on the initiation and implementation of insurance and reinsurance activities (SOLVENCY II); the total budget is EUR 1,200,000.
Within the framework of the project, a grant agreement was signed in October 2019, ac- cording to it, a similar public administrative body in the EU Member State, Kingdom of Spain - The Solvency II is a risk-based system operating in the territory of the European Union, which regulates all stages of the insurance business and its su- pervision.

It is dynamic and changes with the risk profile.


Solvency II mainly refers to the ability of Insurers to efficiently fulfil their obligations to the Insured and helps to strengthen the financial sta- bility of the companies, proper risk identification and management, the implementation of internal management standards, protection of consumers’ rights, proper and timely supervision by ISSSG, which ultimately ensures the flawless functioning of the system and increases its reliability.
The project consists of two components: the de- velopment of a new legislative/regulatory frame- work and strengthening the capacity of institu- tional and human resources.
14 Insurance State Supervision Service of GeorgiaANNUAL REPORT 2019 Components of the project I Component Development of a new legislative framework for implementation of SOLVENCY II Changes in the current legislation/ elaboration of a new legislation following SOLVENCY II standard implementation of the risk-based supervision The transition of the insurance system and supervising approaches to SOLVENCY II II Component Capacity building For implementation of SOLVENCY II capacity building of ISSSG staff Raising Insurers’ awareness Institutional cooperation between stakeholders The first component primarily intended to famil- ments of ISSSG and EU experts, both long- and iarize the Georgian side with this system, since short-term, based on the specifics of the issue.
Solvency II as comprehensive approach unifies all stages of the insurance business and its super- In parallel, the existing legislative framework will vision.

It is not static but a risk-based, dynamic be analyzed and further measures will be de- system that changes with the risk profile and re- signed to develop it in a new form.

Since, as men- quires a completely new understanding and ap- tioned, the system provides a completely different propriate regulation.
approach, it will be necessary to create a new leg- islative framework so that the Spanish experts will The project involves an introductory/training ac- be directly involved.

tivity.
The seminars on each issue are going to be sequentially planned by EU experts, with the in- In general, this system consists of the following volvement of representatives of relevant depart- three pillars: Pillar 1 Capital requirements Pillar 2 Governance and Supervision ► Solvency capital requirements (SCR) ► Minimum capital requirements (MCR) ► Assessment of assets and liabilities; ► Calculation of technical provisions; ► Calculation of own funds; ► Internal models; Corporate governance: ► Actuarial function; ► Compliance function; ► Internal audit function; ► Internal control function; ► Outsourcing; ► Risk management, implementation of the Own Risk and Solvency Assessment (ORSA) process; ► Process of supervision.
Pillar 3 Reporting and transparency (disclosure) Reporting: ► Solvency/ Financial Condition Reporting (SFCR); ► Regular Supervising Reporting (RSR); ► Quantitative Reporting Templates (QRT); ► Own Risk and Solvency Assessment (ORSA); Transparency: ► Public reporting (including interim, quarterly and annual audited financial statements, financial condition reporting) 15 The first component includes financial require- ⦁ Non-life insurance - 18 classes ments to Insurers, such as minimum capital, sol- ⦁ Life insurance - 9 classes vency, assessment of assets and liabilities, techni- ⦁ Reinsurance.
cal provisions, own funds, as well as approaches, standard formulas, specific parameters and in- All the above-mentioned requires accurate ap- ternal models used in calculations of the above.
proaches (step-by-step, unified), maximum mo- Implementation of this component is quite a big bilization of resources, proper planning of the challenge for the insurance sector (as it was pre- relevant legislative process, with proper analysis viously with EU countries), therefore, in future, the of its implementation periods (if necessary, tran- stages of implementation, possibilities and exist- sitional), which is fully realized by both European ing (local) environment shall be analyzed in detail.
and Georgian sides.

The second component is based on the govern- The second component of the project is related ance system and supervision issues and includes to the creation of an appropriate human and in- quality requirements, such as internal governance stitutional base for the implementation of the system of insurance undertakings and its main above-mentioned system.
Stakeholders (includ- functions – actuarial, internal audit, internal con- ing both private and public institutions) involve- trol and compliance, risk management, which in- ment will be necessary to assess the readiness of cludes implementation of Own Risk and Solvency the market/Insurers and to study the essential Assessment (ORSA) process, which is a completely basics for the implementation process.
It will also new approach, and finally a full supervising frame- be necessary to agree on certain issues with the work for the process.

This is also a challenge both insurance market and analyze possible scenarios, for the industry, as the companies should imple- to make the process smooth and at the same time ment a totally new governance system, and for the not interfere with the European integration pro- Supervision, as the new system requires new su- cess.

pervising approaches.


The third component includes the Insurer’s ac- project involves working meetings with the insur- countability in the above 2 components, including ance industry and all stakeholders.

Educational various reporting forms, public reporting, enforce- programs and training activities are planned both ment of market discipline, transparency and pub- within the country and abroad.

During the report- It should also be noted that the above-mentioned licity.
ing period, a Steering Committee meeting was held as part of the project, during which a plan of Licensing approaches in SOLVENCY II are also dif- future activities, a work plan and a project budget ferent from the current Georgian legislation.

In were approved and signed.


Strengthening the in- particular: stitutional and human capacity of ISSSG will in- crease the efficiency of the insurance sector, and ► Current Georgian legislation provides three improve accountability to ISSSG and the financial types of license: ⦁ Life insurance, ⦁ Non-life insurance, ⦁ Reinsurance.

security of the industry.


Within the framework of the project, and with the participation of the EU experts, the possible ► Harmonization requires licensing according scenarios for implementation of the above-men- to classes (groups of classes): tioned new approaches were reviewed, with 16 Insurance State Supervision Service of GeorgiaANNUAL REPORT 2019 consideration of both step-by-step and unified ► The transitional process will be carried out approach.

The benefits and challenges of each step-by-step.


At an initial stage the priority scenario were thoroughly analyzed.

The review of will be given to Pillar-2 and Pillar-3; the possible scenarios showed that: ► Prior to implementing Pillar-1, it will be nec- essary to assess the market and the Insurers’ ► Implementation of the Directive will take sev- readiness.
eral years; ► It requires the development of a new legisla- Training programs that are planned to improve tive base corresponding to SOLVENCY II; the knowledge and experience of the staff are ► According to the above-mentioned Directive, described in detail in the contract and work plan it may happen that not all the companies will signed by the parties and includes topics, sched- need to implement the new system.

In such ule and methodology.

case, different regulatory approaches will be needed; 17 4.
Consumers’ rights ISSSG supervises compliance of the Insurers ac- tivities with the requirements established for consumers rights protection, issues regulations, reviews consumers’ claims and participates in the processes directly related to consumers’ rights protection or indirectly help to improve the con- ISSSG has participated in litigation related to the fine imposed on an Insurer within the framework of off-site monitoring, concerning the protection of consumers rights.
The dispute ended in favor of ISSSG and the Insurer fulfilled the order of the ISSSG Chairman and paid the imposed fine.

sumer market.

During the reporting period, ISSSG took intensive measures in order to efficiently implement the amendments made in 2018 to the “Instruction on the protection of consumers’ rights in providing insurance services” approved by the Order #18 of Head of ISSSG of Georgia on April 3, 2017, as well as to support the amendments to the Law of Georgia “on Insurance”.
In particular: 1.

Based on the remarks issued in 2018, ISSSG cooperated with the Insurers and completed a revision of the procedures for receiving and reviewing insurers’ claims; 2.

An amendment was made to the procedure for imposing a fine on the Insurer in case of violation of the consumer’s rights; 3.
Amendments to the “Instruction on the pro- tection of consumers’ rights while providing insurance services” was elaborated and came into force insuring the compliance with the amendments made to the law of Georgia “On Insurance”, adjustment of the information to be provided to consumers at a pre-contractu- al and contractual stages and its forms, reg- ulation of the use of digital technologies in insurance relations, publication of consum- ers’ claims settlement procedures entered in force.
ISSSG worked closely with insurance undertakings and presented the essence and purpose of these changes.

Within the consumer rights protection activities, in 2019, ISSSG carried out an on-site inspection of one insurance undertaking.

The inspection did not reveal any violations being a danger to consum- ers’ interests.

Relevant recommendations were issued.


ISSSG actively cooperated with the National Bank of Georgia to identify the problems in the field of banking insurance products and the ways to solve them.

ISSSG participated in finalizing the amend- ment initiated by the National Bank of Georgia.

At the next stage, a number of meetings were held between the institutions, with the participation of working groups, as well as the managers of ISSSG and the National Bank of Georgia.
In order to im- prove the consumer market in terms of banking and insurance products, it was decided that the National Bank of Georgia will ensure that the amendments initiated by ISSSG would be reflect- ed in the supervisory normative acts.

Therefore, the National Bank prepared a new version of the relevant legal drafts.

Work between the agencies is still ongoing.


Considering its functions, ISSSG took part in the preparation of amendments to the draft law “On Consumers Rights Protection” initiated by the Par- liament of Georgia.

According to the Law of Georgia “On Insurance”, at the end of November 2019, the Insurers submit- 18 Insurance State Supervision Service of GeorgiaANNUAL REPORT 2019 ted to ISSSG their internal policies on consumers In 2019, ISSSG took part in high-profile interna- rights protection.
The revision of these policies tional conferences and working groups held in was planned accordingly.

cooperation with the Ministry of Finance of the Kingdom of the Netherlands and the International In 2019, 61 claims were submitted to ISSSG.

ISSSG Network for Financial Education at the Organiza- reviewed and finalized 48 claims and 13 claims are tion for Economic Cooperation and Development still being processed.

(OECD / INFE).
(OECD / INFE).

ISSSG also participated in the ses- sion of the Committee for National Strategy of Fi- Within the framework of the agricultural insur- nancial Education, where ISSSG Chairman gave a ance project, ISSSG actively participated in the presentation.

process of reimbursement for the damage in Gori area.

Five consumers applied to ISSSG directly, but In 2019 ISSSG actively worked on the promotion of the issue was studied in relation to the entire re- financial education.
For this purpose, ISSSG: gion and as a result, 672 out of 723 claims were fully settled.

1.

Translated and prepared the “Consumer Guide”, which is planned to be published in Throughout the reporting period, ISSSG received the first half of 2020; monthly reports from Insurers on consumers’ 2.

Prepared material for the board game - “More claims and audited them.
fun and less risk”, which aims to encourage young people to start a business, contributes During off-site monitoring of consumers rights to their knowledge, and at the same time, protection, various types of violations were de- helps them to identify and assess the possi- tected, and, considering their severity, 19 (nine- ble risks, avoid or efficiently resolve them.
teen) sanctions were applied, in particular, 6 (six) written notice, 7 (seven) written instructions and By 2020 ISSSG plans to inspect the way the con- 6 (six) fines.

sumers’ rights are protected by the Insurers through mystery shoppers, for that reason in 2019 During the reporting period, ISSSG website did not ISSSG studied the corresponding local and inter- contain information intended for consumers, so a national practices in this area.
ISSSG also met lot of work was done to collect information for the with a representative of the Savings Bank Fund website that would greatly help the consumers to for International Cooperation (SBFIC) to ensure easily find the necessary information.

their support in the projects of mystery shopping, ISSSG participated in the meetings on financial operation in the field of financial education will education, held at the National Bank of Georgia, continue in 2020. board game and publication of the brochure.
Co- and, as planned, prepared comprehensive infor- mation on insurance for the Special Financial Ed- ucation website and provided it to the National Bank of Georgia.

19 5.

Supervisory activities One of the main objectives of ISSSG is to ensure ing institutions and account statements, thereby and oversight the financial stability/solvency of confirming that there is sufficient available cash Insurers, founders of non-state pension schemes to cover capital and reserve requirements.
Due to and insurance brokers, as well as monitoring an- this approach, currently, the largest part of Insur- ti-money laundering and counter-terrorism fi- ers’ non-insurance assets are available in cash, nancing activities.

receivables from banking institutions and other highly liquid assets.
Direct supervision of undertakings is carried out by studying/analyzing their monthly and quarter- In addition, in order to continuously improve effi- ly reporting forms approved by ISSSG, additional cient supervision and regulatory processes, coor- information, documents and other detailed data dinated cooperation is maintained with relevant obtained during off-site or on-site inspections.
public and private entities and international or- ganizations in Georgia and abroad, for timely ex- Annual supervisory reports submitted by under- change of experience and important information.

takings are reviewed in combination with the audited annual financial statements prepared In 2019, ISSSG carried out the following activities in accordance with the International Accounting for the improvement of supervisory processes: Standards (IAS) and International Financial Re- porting Standards (IFRS).
It should be noted that ► Based on the recommendation and materials only auditors of the first and second categories provided by the World Bank, a new analytical issued by the Accounting, Reporting and Audit system was implemented, enabling to com- Supervision Service of Georgia (SARAS), are enti- pare the financial performance of Insurers tled to audit financial statements of the Insurers, with the similar data of the previous periods, which are considered as Public Interest Entities, and to automatically calculate multiple ratios; and this guarantees preparation of high-quality ► As a result of joint work with the World Bank audited reports and contributes to the transpar- Mission, guidelines were developed for the ency of the sector.
supervision of reserves and reinsurance in non-health and non-life products; Certain differences between the audited and su- ► In order to develop a digital supervision strat- pervisory reports are due to more conservative egy in the insurance sector, a working group and clearly defined supervisory approaches.
But was created, meetings were organized with those logical differences are taken into account companies and according to their results, by the Financial Reporting and Analysis Division elaboration of several by-laws was initiated; of ISSSG during the review of the annual reports.
► ISSSG started to work on the introduction of modern supervising technologies (SupTech), In addition to financial and statistical reports, including reporting portal and an integrated Insurers also submit monthly reports from bank- analytical system.
20 Insurance State Supervision Service of GeorgiaANNUAL REPORT 2019 To increase the efficiency of supervisory processes Audited reports for 2018 were compared with the and to meet modern requirements, the introduc- financial reporting data provided by the insurance tion of appropriate technological infrastructure companies.

and software is becoming increasingly important.


In order to get efficient and prompt results in this On the basis of the reporting forms submitted to direction, in 2019 ISSSG also hired a dedicated ISSSG by the insurance companies and founders supervising technologies (SupTech) specialist.
In of the non-state pension scheme, ISSSG prepared future, it is planned to strengthen the direction of statistical and financial reports of the insurance supervisory technologies in order to gradually in- market, which are published on the official web- crease the efficiency of supervisory processes and site of ISSSG.

integrate them into a unified system.


Part of insurance market statistical, financial and In the area of financial reporting and analysis, other information is subject to information ex- during 2019, ISSSG reviewed financial and statisti- change across various organizations (including cal reporting forms and other additional informa- relevant international organizations, National tion received from insurance undertakings.
Bank of Georgia, National Statistics Office, Compe- tition Agency, Accounting, Reporting and Auditing The information provided by insurance companies Supervision Service, Social Service Agency).
from the banking institutions about their bank accounts and any collateral measures applied The approval of the margin ratio between the In- to such accounts (if any), was compared with the surer’s net exposure and regulatory capital and data submitted in the financial and statistical re- the corresponding annexes/reporting forms made porting forms for the same period.
it possible to obtain better information on the largest risks accepted by the Insurers and corre- Within the regular supervisory process, ISSSG also sponding reinsurance contracts.

receives and processes reporting forms submitted by insurance brokers.

21 6.
21 6.

Anti-money laundering activities The fulfilment of obligations under the law by substantial efforts at the preparatory phase of the insurance companies and non-state pension visit, which included several meetings, completing schemes concerning anti-money laundering and the questionnaire, or providing additional infor- terrorism financing is carried out by a special mation to the representatives of the evaluation structural unit of ISSSG (Division) through on-site mission.

and off-site inspections.


In order to determine the type and frequency of inspections, the Division As for the National Money Laundering and Terror- estimates the nature and scope of operations of the undertaking, and the related risk of money laundering and terrorism financing.

At the same time, the Division develops appropriate instruc- tions and guidelines for the undertakings.
During the reporting period, the new Law of Geor- gia on Facilitating the Suppression of Money Laun- dering and Terrorism Financing came into force.

The purpose of the law is to bring the legislation in line with the recommendations of the Financial Action Task Force on Money Laundering (FATF) and bringing the Georgian Legislation closer to the cur- rent EU legislation on anti-money laundering and terrorism financing.
ISSSG actively participated in the development of the draft law, held numerous meetings with representatives of the insurance sector, other supervisory authorities and the Fi- nancial Monitoring Service of Georgia.
As a result, in the near future, following the recommendations of ISSSG, the Financial Monitoring Service of Geor- gia plans to issue by-laws, which will ensure the implementation of regulations proportional to the level of money laundering and terrorism financing risks in the insurance sector of Georgia.
It should be noted that in 2019, the fifth-round evaluation mission of the Moneyval Committee of the Council of Europe visited Georgia and held meetings with representatives of ISSSG and as- sessed the efficacy of ISSSG in combating money ism Financing Risk Assessment, it should be noted that during the reporting period ISSSG was actively involved in the preparation of the National Money Laundering and Terrorism Financing Risk Assess- ment (NRA) report.
ISSSG representatives partic- ipated in a number of working meetings on this topic and successfully completed the identifica- tion of money laundering and terrorism financing risks in the insurance sector, which contributed to the preparation of the National Money Laundering and Terrorism Financing Risk Assessment Report.

As a result, on November 30, 2019, the Government of Georgia approved the Action Plan for 2019-2020, which aimed the achieving priority goals.
One of the priorities was to strengthen the supervision of accountable subjects defined by the Law of Georgia on Facilitating the Suppression of Money Laundering and Terrorism Financing, including: ► Updating the existing remote reporting forms and/or developing new forms for the above-mentioned entities; ► Increasing fines for violation of the law and appropriate by-laws; ► Developing guidelines and recommendations for raising awareness and improving practical skills of accountable entities, in order to fa- cilitate proper fulfillment of their obligations set by the legislation of Georgia in the field of prevention, detection and suppression of laundering and terrorism financing.
ISSSG made money laundering and terrorism financing.

22 Insurance State Supervision Service of GeorgiaANNUAL REPORT 2019 7.

Economy of Georgia and the insurance sector The Georgian economy continues to grow steadily, diversify, and promote direct foreign investment and by 2019 the economic growth of the country in various sectors of the economy and stimulate was 5.0%.

exports.
exports.

The goal is fast integration with the EU and global economic system, which in turn shall Maintaining growth is the top priority for the secure stable development of the country in the country.

Constant efforts are made to develop, medium and long-term perspective.
Economic growth% economic growth forecast 2019-2024 (IMF) Georgia საქარ- თველო სომხეთი თურქეთი უკრაინა Armenia Turkey Ukraine Azerbaijan რუსეთი Russia აზერბა- იჯანი 4.6 6.0 4.6 5.0 4.0 3.0 2.0 1.0 0.0 2014 2014 6.0 5.0 4.0 3.0 2.0 1.0 0.0 6.0 4.6 4.8 4.7 5.0 According to the reports of the International Mon- As a result of successful economic, fiscal, politi- etary Fund, in the coming years, the Georgian cal and social reforms carried out in recent years, economy will maintain the economic growth rate Georgia with its sixth place is among the top ten 3.5% 3.3% 2.4% 1.8% and in 2019-2024 it will remain 5% on average, successful countries in the World Bank Doing 5.2% 4.5% which is significantly higher than other countries Business rating.
6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 5.0 4.0 3.0 2.0 1.0 1 ახალი ზელანდია 2.8 1 New Zealand 2.9 2 სინგაპური 2 Singapore 3 დანია 4 ჰონგ კონგი, ჩინეთი 3 Denmark 0.0 4 Hong Kong SAR, China 5 სამხრეთ კორეა in the region.
2016 2015 2014 5 Korea, Rep 6 საქართველო 2017 2018 2019 Georgia Armenia Turkey Ukraine Azerbaijan Russia 6 Georgia 7 ნორვეგია 7 Norway 8 აშშ Doing Business rating 9 გაერთიანებული სამეფო 8 United States (top 10) 10 მაკედონია 9 United Kingdom 1 New Zealand 10 Macedonia, FYR 2 Singapore 3 Denmark 4 Hong Kong SAR, China 5 Korea, Rep 6 Georgia 7 Norway 8 United States სასტუმრო და რესტორნები , 4.6% Hotels and restaurants, სახ.
4.6% მმართველობა და თავდაცვა , 7.50% 9 United Kingdom დაზღვევა, 1.3% State governance and defence, 7.50% 10 Macedonia, FYR Insurance, 1.3% საფინანსო სექტორი (დაზღვევის გარეშე), 4.8% სხვა სექტორები, 10.3% წარმოება, 14.8% Other sectors, 10.3% Industry, 14.8% ვაჭრობა , 13.9% Trade, 13.9% განათლება, 4.5% Financial sector (other than insurance), 4.8% ჯანდაცვა , 4.2% Hotels and Education, 4.5% restaurants, 4.6% Public Health, 4.2% State governance and defence, 7.50% Insurance, 1.3% Financial sector (other than insurance), 4.8% Education, 4.5% Public Health, 4.2% 1.1% 1.1% 2015 2016 2017 1.1% 1.1% უძრავი ქონება, 11.7% ტრანსპორტი და დასაწყობება , 6.3% მშენებლობა, 8.3% Transportation and warehousing, 6.3% 23 სოფ.
მეურნეობა, Other sectors, Real estate, 10.3% 11.7% 7.8% Industry, 14.8% Construction, 8.3% Agriculture, 7.8% Trade, 13.9% 1.3% Real estate, 1.2% 11.7% Agriculture, 2019 1.3% 7.8% 2018 1.2% 13% Transportation and warehousing, 6.3% 13% 87% Construction, 8.3% სადაზღვევო სექტორში დასაქმებულების წილი 87% 2016 2017 2018 2019 1.1% 1.1% 1.3% 1.3% 2016 1.4% 2017 1.9% 8.9% 7.7% 1.3% 8.9% 2019 7.7% 1.2% 3.6% 2018 Share of insurance in ﬁnancial 13.1% sector employment 11.3% 13% 10.5% 10.6% 13.1% 87% 10.5% 10.6% 11.3% საქარ- თურქეთი რუსეთი ლიეტუვა ესტონეთი იტალია OECD თველო Share of insurance in ﬁnancial საფრან- sector employment გ. სამეფო აშშ სამხ.
კორეა გეთი 1 $4,698 $9,127 $11,585 $19,602 $33,228 $39,486 $31,846 $40,494 $65,298 $42,330 $23,723 3.6% 1.3% 1.3% 1.4% 1.9% 13.1% UK 11.3% USA Georgia Turkey Russia Lithuania Estonia Italy OECD South Korea 10.5% 10.6% France დაზღვევის წილი მშპ–ში 1.30% 0.85% 0.75% 8.9% GDP per მშპ 1 სულზე $4,698 capita 8% $9,127 $11,585 $4,698 $19,602 $4,794 $4,623 $23,723 $33,228 7.7% $39,486 $31,846 $40,494 $65,298 $42,330 1.3% 1.3% 1.4% Share of insurance in GDP 1.30% 0.85% 0.75% 3.6% 1.9% GDP per capita Georgia Turkey Russia $4,698 Lithuania $4,794 $4,623 Estonia Italy OECD South Korea France USA UK GDP per capita $4,698 $9,127 $11,585 $19,602 $23,723 $33,228 $39,486 $31,846 $40,494 $65,298 $ Share of insurance in GDP 1.30% 0.85% 0.75% GDP per capita $4,698 $4,794 $ Georgia Armenia Turkey Ukraine Azerbaijan Russia 1 New Zealand 2 Singapore 3 Denmark 4 Hong Kong SAR, China 5 Korea, Rep One of the important contributing factors to the 6 Georgia eralization with the Schengen area have created above-mentioned is the fact that Georgia is par- 7 Norway great prospects for tourism, business and foreign ticipating in many international treaties.
The as- 8 United States relations in general, including sharing of interna- sociation with the European Union and visa lib- 9 United Kingdom tional knowledge and experience.
10 Macedonia, FYR Hotels and restaurants, 4.6% State governance and defence, 7.50% Insurance, 1.3% Financial sector (other than insurance), 4.8% Education, 4.5% GDP by sectors - 2019 Other sectors, 10.3% Industry, 14.8% Trade, 13.9% Transportation and warehousing, 6.3% Public Health, 4.2% Real estate, 11.7% Construction, 8.3% Agriculture, 7.8% Despite the fact that the insurance industry repre- Despite the above-mentioned, even under the 1.7% sents a small share of the total economy in Geor- 1.6% gia, it covers almost all sectors, and its importance 1.5% becomes much more remarkable in the event of 1.4% large-scale and catastrophic events.
In addition, 1.3% there is a great potential for the development of 1.2% 1.2% the insurance sector, especially by implementing 1.1% compulsory insurance products, as well as long- 1.1% 1.1% 1.1% 1.0% term life insurance and annuities.

It should be 2018 2016 noted that a number of compulsory insurance 2015 2017 products, which have been long ago introduced current conditions, the share of insurance in the country’s GDP in recent years still showed a small 13% growth tendency.
However, the share of proper- ty, liability and life insurance in GDP stays signifi- 1.3% cantly behind in comparison to the standard per- formance of similar classes in the EU and other 87% developed countries.

2019 At the same time, the insurance sector is constant- Share of insurance in ﬁnancial sector employment ly increasing the variety and quality of products in the EU and many other countries, are still not and, despite its small share in GDP, plays an im- developed in Georgia.
This is especially relevant portant role in the financial sector employment.

for motor vehicle owner’s third-party liability and 14% professional indemnity insurance.
12% 10% 8% 6% 4% 2% 0% 24 1.3% 1.3% 1.4% 3.6% 1.9% 13.1% 10.5% 10.6% 11.3% 8.9% 7.7% Georgia Turkey Russia Lithuania Estonia Italy OECD South Korea France USA UK GDP per capita $4,698 $9,127 $11,585 $19,602 $23,723 $33,228 $39,486 $31,846 $40,494 $65,298 $42,330 Share of insurance in GDP 1.30% 0.85% 0.75% GDP per capita $4,698 $4,794 $4,623 Insurance State Supervision Service of GeorgiaANNUAL REPORT Georgia Armenia Turkey Ukraine Azerbaijan 2014 2015 2016 2017 2018 2019 Georgia Armenia Turkey Ukraine Azerbaijan Russia 5.2% 4.5% 5.2% 4.5% 2.9 2.8 3.5% 4.8 3.5% 3.3% 4.7 3.3% 2.4% 5.0 2.4% 5.2% 4.5% 1.8% 6.0% 5.0% 1.8% 4.0% Russia 3.0% 2.0% 1.0% 0.0% 3.5% 3.3% 2.4% 1.8% 2014 2015 2016 2017 2018 2019 Georgia Armenia Turkey Ukraine Azerbaijan Russia 1 New Zealand 2 Singapore 3 Denmark 4 Hong Kong SAR, China 5 Korea, Rep 6 Georgia 7 Norway 8 United States 9 United Kingdom 10 Macedonia, FYR Other sectors, 10.3% Industry, 14.8% Other sectors, 10.3% Industry, 14.8% Hotels and restaurants, 4.6% 1 New Zealand 2 Singapore 1 New Zealand 3 Denmark 4 Hong Kong SAR, China 2 Singapore 3 Denmark 5 Korea, Rep 4 Hong Kong SAR, China 6 Georgia 5 Korea, Rep 7 Norway 8 United States 6 Georgia 9 United Kingdom 7 Norway 10 Macedonia, FYR 8 United States 9 United Kingdom 10 Macedonia, FYR Hotels and
 restaurants, 4.6% Hotels and restaurants, State governance and 4.6% defence, 7.50% Insurance, 1.3% State governance and defence, 7.50% Financial sector (other Insurance, 1.3% than insurance), 4.8% Financial sector (other than insurance), 4.8% Education, 4.5% Education, 4.5% Public Health, 4.2% Real estate, 11.7% Public Health, 4.2% Real estate, 11.7% Share of insurance sector in GDP Trade, 13.9% State governance and defence, 7.50% Trade, 13.9% Insurance, 1.3% Transportation and Financial sector (other than
 insurance), 4.8% warehousing, 6.3% Other sectors, 10.3% Industry, 14.8% Trade, 13.9% Transportation and warehousing, 6.3% Construction, 8.3% Education, 4.5% Agriculture, 7.8% Agriculture, 7.8% Construction, 8.3% Public Health, 4.2% Real estate, 11.7% Share of insurance in financial sector employment Agriculture, 7.8% Transportation and warehousing, 6.3% Construction, Share of insurance in ﬁnancial 1.1% sector employment 13% 87% 2015 2016 2017 2018 2015 2016 Share of insurance in ﬁnancial sector employment 2018 2017 14% 12% 14% 10% 12% 8% 10% 6% 8% 4% 6% 2% 4% 0% 2% Comparison of Georgian insurance market to other countries (Share of written premium in GDP ) 13.1% 10.5% 10.6% 11.3% 13.1% 10.5% 10.6% 11.3% 14% 8.9% 7.7% 12% 8.9% 7.7% 10% 1.9% 3.6% 3.6% 8% 6% 1.9% Lithuania Estonia Italy 4% OECD South Korea France USA 3.6% UK 1.3% 1.3% 1.4% Georgia 1.3% Turkey 1.3% Russia 1.4% 2019 Share of insurance in ﬁnancial sector employment 13.1% 10.5% 10.6% 11.3% 8.9% 7.7% 0% GDP per capita Georgia $4,698 Turkey $9,127 Russia $11,585 Lithuania $19,602 Estonia $23,723 2% $33,228 1.3% OECD South Korea $39,486 1.3% $31,846 Italy 1.9% 1.4% $40,494 France USA $65,298 $42,330 UK 0% Georgia Turkey Russia Lithuania Estonia Italy OECD South Korea
 France USA UK GDP per capita $4,698 $9,127 $11,585 $19,602 $23,723 $33,228 $39,486 $31,846 $40,494 $65,298 $42,330 GDP per capita $4,698 $9,127 $11,585 $19,602 $23,723 $33,228 $39,486 $31,846 $40,494 $65,298 $42,330 Share of insurance in GDP 1.30% 0.85% 0.75% Main factors contributing to the development of GDP per capita the insurance market: Share of insurance in GDP 1.30% Compulsory insurance products ► $4,698 $4,794 $4,623 0.85% 0.75% ► GDP per capita GDP per capita $4,698 $4,794 $4,623 Share of insurance
 in GDP 1.30% 0.85% 0.75% ► Highly developed capital markets ► Long-term life insurance products GDP per capita $4,698 $4,794 $4,623 It should also be noted that considering GDP per market development.
There are, of course, objec- capita and the lack of compulsory insurance, the tive reasons for this, more detailed information insurance sector in Georgia is significantly ahead on which can be found in the next chapter of this of the other countries in the region in terms of report.

25 8.
25 8.

Georgian insurance market and supervisory system The gross premium written during 2019 amounted also actively developing short-term life insurance, to GEL 625 million, which is 15% more than in 2018. which is often one of the components of health Georgian insurance sector works mostly in the insurance and banking products.
field of non-life insurance; however, the market is Dynamics of gross premium written (million GEL) This diagram above shows the history of the last 22 years of insurance market development.
Of 600 course, there were both an increase and a sharp 500 decrease in the written premium, although these 542 events have a relevant explanation.

Significant 400 growth in 2007-2008 was related to the implemen- 300 tation of social health insurance programs, which 360 303 441 393 were fully funded by the state.

There was a de- 200 crease in 2011, which was a result of a reduction 100 in the financing of certain social programs.
Later, children under 5 included), however, due to high social significance, the management of these pro- grams was transferred to a specialized state agen- cy (Social Service Agency).

At the same time, the popularity of corporate health insurance programs was growing, and over time, undertakings developed comprehen- sive insurance products, which was immediately reflected in premiums written since 2014.
Health in 2012, the number of beneficiaries of social pro- 0 insurance has the largest share in the Georgian 2014 2015 2016 2017 2018 2019 grams increased significantly (retired persons and insurance market today.

250 230 210 190 170 150 130 110 90 70 50 30 10 -10 26 2014 2015 2016 2017 2018 2019 სამედიცინო ქონება სიცოცხლე სხვა სახმ.

ტრანსპ .

ავტო.

პასუხისმგებლობა სხვა პას.

დაზღვ.
Insurance State Supervision Service of GeorgiaANNUAL REPORT Insurance market development -10 2015 250 230 210 190 170 150 130 110 90 70 50 30 10 -10 2016 2017 Dynamics of written premium per lines of business 2018 2019 (million GEL) 2014 2015 2016 2017 2018 2019 2014 2015 სამედიცინო ქონება სიცოცხლე სხვა 2016 2017 სახმ.
ტრანსპ .

ავტო.

პასუხისმგებლობა სხვა პას.

დაზღვ.
2018 2019 Land transport Motor Liability Other liability insurance Health Property Life Other Structure of written premium per lines of business 2019 2018 Other liability 4% Life Motor liability Other Property Land transport Health 7% 9% 10% 14% 18% 5% 7% 8% 9% 16% 16% 37% 40% 150 100 50 - Property Land transport Other liability insurance Aviation Liability insurance Health Life Motor liability Cargo Other Net premium Reinsurance premium Health insurance still is the most popular prod- lines, the Reinsurers’ share remains stable, espe- uct on the Georgian market.
However, it is also the cially in property and liability insurance classes.

least profitable for Insurers, since the frequency In 2019, there was a decrease in property and mo- of claims is much higher compared to other class- tor reinsurance premium.

In the case of motor in- es of insurance.

Over time, there has also been surance this is explained by a relatively small per some growth in the insurance of land transport risk exposure, while with property insurance, the and related liability.
reason is that one of the major international in- vestment projects was completed, which, in turn, NOTE 1: “Other liability insurance” includes pro- resulted in the reduction of subsequent reinsur- fessional indemnity, employers’ liability and gen- 4% სხვა პას .

დაზღვ .

ance premium.

5% eral third-party liability not related to insurance სიცოცხლე 7% of road or any other kind of transport.

ავტო.

პასუხ-ბა 9% სხვა 10% 7% NOTE: Health and life reinsurance premium is not 8% included.
The main reason is that life insurance is 9% NOTE 2: “Other” mainly includes cargo, travel, ma- ქონება rine, aviation, suretyships and financial risks in- 14% 18% სახმ.

ტრანსპ.

surance.

Other liability სამედიცინო 4% Life 7% Reinsurance premium per years Motor liability 9% (million GEL) Other Property 10% 97 130 14% 121 mainly incorporated in health insurance products, 16% as single-year term life insurance cover with spec- 16% ified limit, or is written separately as credit life in- 37% surance.
This is why reinsurance in these lines is 40% 5% not as frequent as in property and liability lines.

It should also be noted that complex reinsurance 8% treaties are becoming increasingly popular, as in- 10% surers are trying to reduce the number of faculta- 14% 12% 16% 7% 9% Land transport 79 83 Health 81 18% tive arrangements.

37% 16% 5% 4% 1% 2014 2015 2016 2017 2018 2019 5% 42% 10% 130 121 14% 12% ქონება სახმ.

ტრანსპ.

სხვა პას.

დაზღვ.

ავიაცია ვალდებ.

შესრ.

დაზ.

სამედიცინო სიცოცხლე ავტო.
პასუხისმგებლობა ტვირთები სხვა 40% 4% Reinsurance premium per lines of business 3% 1% 5% 4% 34% 4% 3% 5% 66% 49% 43% 42% 51% 57% Property Land transport Other liability insurance Aviation Liability insurance Health Life Motor liability Cargo Other 42% 33% 41% 59% 58% 67% 2014 2015 49% 43% 2016 34% 2017 41% 2018 42% 2019 33% 51% 57% 66% 59% 58% 67% 97 81 79 83 100 Reinsurance is one of the most important compo- 400 350 nents of the Insurer’s daily activities and an im- 50 300 portant tool to maintain financial stability.
250 - 200 As we can see, reinsurance naturally follows the 150 development of the insurance business.
In most 100 50 2015 78 2016 66 2018 2014 2019 91 2017 168 126 129 231 119 115 77 103 79 2014 2015 2016 2017 2018 2019 ნეტო პრემია გადაზღვევის პრემია Net premium Reinsurance premium 150 100 50 - 150 400 0 350 300 250 200 150 100 50 0 28 Insurance State Supervision Service of GeorgiaANNUAL REPORT 2019 Other liability 4% Other liability 4% Life Motor liability Other Property Land transport Health 7% 9% 10% Life Motor liability Other Property 14% Land transport 18% Health 5% 7% 7% 9% 10% 14% 8% 9% 18% 16% 16% 5% 7% 8% 9% 16% 16% 37% 37% 40% 40% Property 10% 79 83 81 150 97 100 130 79 50 - 121 83 81 14% 97 10% 130 121 12% 1% 5% 4% 4% 3% 5% 2018 2019 14% Land transport Other liability insurance Aviation Liability insurance Health Life Motor liability Cargo Other 42% Property Land transport Other liability insurance 12% 5% 4% 4% 3% 5% 1% Liability insurance Aviation Health Life Cargo Other Motor liability 2014 2015 2016 2017 2014 2018 2015 2019 2016 42% 2017 Reinsurance premium as part of GWP (million GEL) 41%
- 400 350 300 250 200 150 100 50 0 Net premium Reinsurance premium Net premium Reinsurance premium Due to objective circumstances, the health insurance and reinsurance premium are not included in the above-mentioned data.
Business Lines Health Land transport Property Motor Liability Life Other liability insurance Aviation Liability insurance Cargo Other Total The table above shows the percentage of rein- classes are diversified and distributed through surance premium in the total premium for main reinsurance.
Obviously, the role of reinsurance is lines of insurance.

Reinsurance practices are most insufficient in health insurance, as the per risk ex- common in property, other liability, aviation, and posure is much less in this class, despite much cargo insurance.

Larger risks and limits of these higher frequency.


29 8.1 Market concentration Market share of 5 largest insurers (million GEL) (%) 700 600 500 400 300 200 100 - 93 60 96 130 242 267 297 311 199 181 426 361 2014 2015 2016 2017 2018 2019 700 600 500 18% Largests Others 199 GPI 181 16% ALDAGI 96 In recent years, several strong players have ap- 400 IMEDI L peared on the Georgian insurance market and in 300 turn, it has affected the redistribution of the larg- 200 est players in the market.
Even though the market 100 130 TBC 14% 60 12% 426 267 361 297 311 ARDI 93 10% 242 8% UNISON 2015 2016 2017 2018 2019 IRAO ALFA Largests 26% 24% Others 30% 33% 32% 60% share of the top five insurers remains high, there 50% 40% 30% are also positive trends showing that the share of 80% 74% 76% other relatively small insurers has increased from 70% 67% 68% 20% 20% to 32% since 2014.
10% 0% 2014 IGG 2015 2016 2017 2018 2019 - 6% 2014 4% 2% 0% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Largests Others Largests PSP Market concentration by written premium EUROINS PRIME BENEFITS Others CARTU HUALING TAO GREEN NSURANCE GPI ALDAGI IMEDI L TBC ARDI UNISON IRAO ALFA IGG PSP BENEFITS EUROINS PRIME CARTU HUALING TAO GREEN NSURANCE It is also noteworthy that over the years the number concentration, transparency and risk management of companies with a market share exceeding 10% quality of major players in order to ensure market has decreased and now the risks are more redis- systemic stability.
tributed among insurers.
ISSSG closely monitors the 30 Insurance State Supervision Service of GeorgiaANNUAL REPORT 2019 8.2. საქმიანობის დინამიკა Dynamics of gross premiums 700 600 500 400 300 200 100 0 700 600 500 2014 2015 2016 2017 2018 2019 Gross written premium Gross earned premium In 2014, with the movement of the overall health insurance program to the Social Service Agency, the premiums from health insurance have re- 2015, both written and earned premiums have been growing steadily and almost simultaneously, 533 showing stable development of the market.
duced, but the losses have also decreased.
Since 211 2014 232 2015 2016 2016 249 2017 2017 მოზიდული ბრუტო პრემია გამომუშავებული 302 2018 2018 ბრუტო პრემია 2019 2019 Paid claims (Gross) (million GEL) Paid Claims (Gross) 500 Gross incurred claims 2014 219 2015 Net incurred claims 2016 2017 211 232 249 2018 302 2019 533 450 400 350 300 250 200 150 100 2014 2015 2016 2017 2018 2019 დამდგარი ბრუტო ზარალები დამდგარი ნეტო ზარალები Paid claims (Net) (million GEL) 2014 2015 2016 221 2017 236 2018 2019 Gross written premium 192 Gross earned premium 2016 2017 2018 275 2019 533 Paid claims (Net) 211 232 2016 65% 2014 60% 2015 2014 208 2015 172 249 2016 192 2017 221 302 2018 236 91% 2019 275 2017 2018 2019 Incurred claims gross and net 69% 63% 61% 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019 Gross incurred claims Net incurred claims 70% The tables and charts above show the importance of high-quality reinsurance.
68% 67% 65% 65% 60% 55% 66% 62% 60% 2014 2015 2016 2017 2018 2019 32 Insurance State Supervision Service of GeorgiaANNUAL REPORT Loss Ratio (Gross) 2017 236 236 2018 2018 275 275 2019 2019 91% 91% 63% 63% 2016 2016 61% 2017 61% 2017 Loss Ratio (Net) 66% 66% 2016 67% 67% 2017 69% 69% 2018 2019 2018 2019 62% 2019 62% 60% 2018 60% 2014 2015 2016 2017 2018 2019 Due to the complex reinsurance contracts, the net that insurers are mainly using effective reinsurance loss ratio decreases over time, which also indicates programs.
33 8.3.
The structure of insurers’ assets and liabilities Asset name Amount (million GEL) Cash and cash equivalents and receivables from banking institutions Financial assets Insurance and reinsurance receivables, net* Other insurance assets** Investments in subsidiary and interrelated entities Inventories and investment property Goodwill and other intangible assets, net* Other assets Total 226 17 274 146 20 48 29 39 799 Structure of insurers’ assets 3% 6% 4% 5% 18% 3% 6% 4% 28% 5% 34% 18% 2% Cash and cash equivalents and receivables from banking institutions 28% Financial assets Insurance and reinsurance receivables, net* 34% 2% Other insurance assets** Investments in subsidiary and interrelated entities Cash and cash equivalents and receivables from banking institutions Inventories and investment property Goodwill and other intangible assets, net* Financial assets Insurance and reinsurance receivables, net* Other assets Other insurance assets** Investments in subsidiary and interrelated entities Inventories and investment property * Note 1: Insurance and reinsurance claims are reduced by the provision for bad debts as required by relevant supervisory regulation; ** Note 2: Other insurance assets mainly consist of the reinsurer shares in provisions.
Goodwill and other intangible assets, net* 2.2 1.5 2 2 1 1 Other assets 8 7 6 5 4 3 2 1 0 The structure of total assets of insurers indicates that their largest share is concentrated in liquid di- rections and is mainly related to insurance activities.

It also shows that cash and cash equivalents com- pose 1/3 of liquid assets.
Structure of insurers’ balance 89% sheet liabilities 4% 1% 6% 89% 4% Insurance and reinsurance liabilities 1% Financial liabilities 6% Pension liabilities Other Insurance and reinsurance liabilities Financial liabilities Pension liabilities Other 4.2 4.2 3.4 7.2 7.2 4.8 34 8 7 6 5 4 3 2 1 0 Before 31.12.2016 From 31.12.2016 to 31.12.2018 From 31.12.2018 to 31.12.2021 From 31.12.2021 Life insurance Non-life insurance (all lines) 4.2 Non-life insurance (except compulsory insurance and suretyships) 2.2 4.2 2 2 1.5 1 1 7.2 7.2 4.8 3.4 Before 31.12.2016 From 31.12.2016 to From 31.12.2018 to From 31.12.2021 31.12.2018 31.12.2021 Life insurance Non-life insurance (all lines) Non-life insurance (except compulsory insurance and suretyships) Insurance State Supervision Service of GeorgiaANNUAL REPORT 2019 3% 6% 4% 5% 18% 28% 89% 4% 1% 6% 34% 2% Cash and cash equivalents and receivables from banking institutions As reflected in the structure of balance sheet liabil- Financial assets ities, 89% of them are directly related to insurance Insurance and reinsurance receivables, net* and pension activities.
Insurance reserves are mainly covered by cash.

An insignificant portion of reserves Other insurance assets** Insurance and reinsurance liabilities is invested in real estate or financial assets.

Howev- Financial liabilities er, it should be noted that ISSSG closely monitors the Pension liabilities quality of financial assets as well.

Other Investments in subsidiary and interrelated entities Inventories and investment property 8.4.
Ensuring the financial soundness of the sector Goodwill and other intangible assets, net* Other assets 8 7 6 5 4 3 2 1 0 1.5 1 1 Before 31.12.2016 Minimum capital (million GEL) 2.2 2 2 4.2 4.2 3.4 7.2 7.2 4.8 From 31.12.2016 to 31.12.2018 From 31.12.2018 to 31.12.2021 From 31.12.2021 Life insurance Non-life insurance (all lines) Non-life insurance (except compulsory insurance and suretyships) According to the legislation, the minimum amount of ► Life insurance; the insurer’s capital must be GEL4.2 million in cash ► Non-life insurance; for carrying out all the following lines of business: ► Reinsurance; ► Life insurance; ► Non-life insurance; ► Reinsurance; ► ► Compulsory insurance classes; Suretyships.
And if the insurer carries out activities only in the ► ► Compulsory insurance classes; non-life, except compulsory insurance and surety- Suretyships.

ships, from December 31, 2020, the minimum capital requirement for them shall be GEL4.8 million.

In case the insurer carries out only non-life insur- ance activities, except compulsory insurance and As it is illustrated in the charts above, all current in- suretyship, then the minimum capital requirement is GEL 3.4 million.
surers have some time to meet the capital increase requirements, however, license seekers are required to meet these requirements from the moment they From December 31, 2020, the minimum capital re- apply to ISSSG for a license.
quirements shall be increased to GEL7.2 million, if the insurers operating in all the following lines of Despite the high loss ratio in some lines, the total business: market return on equity (ROE) in Georgia is higher than average compared to most of the EU and East- ern European countries.
35 Equity development dynamics (million GEL) 101 101 2015 2015 136 136 2016 2016 154 154 2017 2017 Annual dynamics of return on equity (ROE) Taking into account the requirements of the Associ- 200 While calculating the supervisory capital, some ation Agreement and all relevant directives, in ad- dition to the minimum capital requirements ISSSG 150 200 has introduced regulatory capital requirements and implemented “Solvency I” supervisory regime.’ 90 90 The implementation of solvency and supervisory capital requirements in 2016 played a crucial role in 2017 the gradual increase of the insurer’s capital.
2016 100 150 50 100 - 50 57 57 specified assets are deducted from the insurers’ bal- ance sheet, since supervisory capital must form the 130 144 part of the insurer’s capital, which mostly consists of liquid assets.

130 144 Due to the above-mentioned, some insurers had to make additional capital injections.

However, at the same time, ISSSG steadily supported the profitability 2018 2019 - 2016 of insurers and the development of the insurance 2017 market in general.
2018 2019 36 Insurance State Supervision Service of GeorgiaANNUAL REPORT Supervisory capital (million GEL) 130 144 90 200 150 100 50 - 57 2016 2017 2018 2019 Solvency and supervisory capital dynamics (million GEL) 160 140 120 100 80 60 40 20 0 57 51 2016 130 80 90 65 144 90 2017 2018 2019 Solvency capital Supervisory capital 250 100% 200 As shown in the charts above the excess of regula- 150 tory capital over solvency ratio has improved signifi- 100 cantly in recent years, indicating the improvement of 50 market financial stability.
0 144 130 90 65 92 79 91 57 42% 58% 80% By the end of 2019, the surplus exceeded 60%, which 60% is a much better result compared to the situation 40% when the new requirements were introduced.
58% 20% 42% 59% 39% 61% 41% 0% 2016 2017 2018 2019 2016 2017 2018 2019 Supervisory capital Discounted assets 5.7% 94.3% Share of brokers Supervisory capital Discounted assets 15% 85% Share of brokers 37 160 140 120 100 80 60 40 20 0 57 51 2016 130 80 90 65 144 90 2017 2018 2019 Solvency capital Supervisory capital Share of supervisory capital in total equity of insurers (million GEL) (% of equity) 79 57 65 90 92 130 91 144 2016 2017 2018 2019 Supervisory capital Discounted assets 90 57 100% 80% 60% 40% 20% 0% 58% 42% 2016 130 80 42% 41% 39% 61% 2019 58% 59% 2017 2018 144 Supervisory capital Discounted assets 90 250 200 150 100 50 0 160 140 120 100 80 60 40 The share of discounted assets from the total assets 5.7% ance and reinsurance.
However, from the available 51 65 of companies has significantly decreased from the 20 moment of introducing the supervisory capital re- 0 statistics, it is clear that a larger share of their activ- 15% ities comes from reinsurance activities.

quirements (since 2016).

2016 2017 2018 2019 8.5.

Insurance brokers 94.3% Solvency capital Supervisory capital Also, it should be noted that insurance brokers’ ac- tivities represent quite an important part of the in- 85% surance business.
It is a high-risk carrier in terms of 250 200 150 100 50 0 At the end of 2019, the half of existing 16 insurance 100% customer funds and the quality of risk placement.

brokers did not show significant activity.


Share of brokers 92 91 80% Regarding the mentioned issues the supervisory 39% 41% 42% Share of brokers 60% framework of insurance intermediaries has been 58% Insurance brokers have the right to carry out inter- 40% strengthened to ensure high quality of the services, mediary activities simultaneously in line with insur- 90 20% 130 144 58% professionalism and reliability in future.
42% 59% 61% 65 79 57 0% 2016 2017 2018 2019 2016 2017 2018 2019 Supervisory capital Participation of brokers in direct insurance Discounted assets business Supervisory capital Participation of brokers in ceded Discounted assets reinsurance 5.7% 15% 94.3% Share of brokers 85% Share of brokers 38 Insurance State Supervision Service of GeorgiaANNUAL REPORT 2019 INSURANCE STATE SUPERVISION SERVICE OF GEORGIA ANNUAL REPORT 2019 WWW.INSURANCE.GOV.GE