Банкеръ Weekly



The Social Insurance Code - the future name of the hybrid between the Obligatory Social Insurance Code and the Additional Voluntary Insurance Act - is moving to the plenary hall, but at a very low pace. And that is the place where laws - both good and bad - are voted and passed.Three sessions of the parliamentary Social Commission have already passed, but only a quarter of all proposed amendments were approved at second hearing. Meanwhile, the conflicts in 2002 between the three leaders in the branch - Doverie, Allianz and Saglasie, and the four smaller companies on the local pension insurance market, heve almost been forgotten. The first three raised objections to most of the proposals made by the Government of Simeon Saxe-Coburg-Gotha. They criticized the restrictions to investments, the rights of the depositar-bank, and the minimum yield requirement. And the little companies in the pension branch insisted on a compromise in order to pass the amendments before the start of 2003. They hoped to avoid in that way the problem connected with the nonfulfilment of the legal requirements to them: under the effective Obligatory Social Insurance Code, by end-2002 the minimum number of ensured people in professional funds had to reach 15,000, and the number of people ensured in universal pension funds (set up for those born after 1959) had to reach 30,000. This requirement will be eliminated after the amendments are passed, but for the time being the four small companies (LUKoil Garant, Sila, ING and Rodina) cannot meet the legislative requirements. The Social Insurance Code got stuck so deep in Parliament that nobody can already tell when it would come out. Just a few paragraphs were approved at the latest session of the Social Commission, the controversial provision about the trustee bank among them. That was one of the main points, objected by the pension funds. The draft stipulates that the funds' money should be kept at one bank only, which in addition to depositary functions should have a controlling role as well. (For example, the trustee bank is obliged to stop an order for making an invesmtent if it is not in compliance with the legislative requirements according to it.) The restrictions for keeping the money in just one bank is not in compliance with the possibilities for control provided by the new information technologies, claims Grigor Dimitrov, Executive Director of Saglasie. Its assets, for instance, are presently kept at six banks. However, the big companies succeeded to win over a concession on another arguable matter. It was decided that the trustee could be a person, connected with the pension company.The relations between the insurers and their intermediaries also caused a lot of arguments. The problem was who would suffer sanctions in case of frauds (faked applications for the choice of a fund). The frauds, according to the companies, are made by the intermediaries. The draft projected that the company should bear the responsibility for the operation of its intermediary, and if sanctioned by the Commission for Financial Supervision it could seek its money from the broker. The other important and contoversial amendment - the so-called expansion of the insurance funds' investment opportunities - has not been discussed at the Social Commission yet. Currently, at least 50% of their assets should be invested in government securities or bank deposits. The draft stipulates a reduction of the lower threshhold (at least 30%) of investments in government securities for voluntary insurance funds. But investments in bank deposits will be limited at the same time. According to initial projections, they shouldn't exceed 20%, and the ceiling in the present draft is 25 per cent. Some of the funds do not agree with that restriction, as according to them they could not have another expedient investment alternative in a certain short period. The proposed ban on investments in real estates also provoked heated debates. Finally, the Cabinet proposed that the complete ban should concern only the office premises of the pension companies, and not the real estates they keep as a source of income. The promised expansion of opportunities for investments abroad caused skeptic smiles. The funds had not dared to undertake such steps by the end of last year. The other controversial point was the requirement for a minimum yield from the management of money in the pension funds. This provoked objections from most of the insurance companies, which are anyway sure that the yield they announce is their major advertisement. The draft introduces regulations according to previous performance, obliging the companies that lag behind to compensate their lower profits from their reserve funds. The Government's initial idea was to set a lower threshhold (60% of the average yield for the last two years). The amendments are expected to settle two grave problems that pension funds face. The first one regards the installments from military men in universal funds - they are not banned, but are practically impossible due to the stipulations of the Act on Classified Information. Pension funds insisted that the question concerning their access to data of the military authorities should be regulated by law in order to let them get their installments. The second problem is the fixation of the installment for universal funds, which is currently 2% and promises have been given for raising it to 5 per cent. However, it is doubtful if that promise would be kept, as the increase of that installment should be made at the expense of proceeds to the main Pensions fund, and the National Insurance Institute would hardly manage to operate with less money. The Association of Pension Insurance Companies insists that the mechanism for the future increase of the installment for a second pension should be included in the Social Insurance Code. The companies have suggested that the installment for universal funds should be fixed at 50% of the personal installment for the Pensions fund (at the present parameters it makes 4.2%).An essential novelty in the draft is that the minimum required capital of pension companies shall be raised from BGN3MN to BGN5MN. The draft regulates in a new way the operation of funds for additional insurance against unemployement (which have not been set up yet). Their minimum capital is projected at BGN500,000, up from the currently required BGN200,000.

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