26 January 2022

National Bank of Slovakia issues new conclusion on violations by NOVIS and temporarily restricts distribution of company assets

The Central Bank of Iceland Financial Supervisory Authority (FSA Iceland) makes reference to previous press releases concerning the National Bank of Slovakia’s (Národná banka Slovenska, NBS) decisions on NOVIS Versicherungsgesellschaft, NOVIS Compagnia di Assicurazioni, NOVIS Poisťovňa a.s. (NOVIS), most recently on 28 April 2021.

On 17 January 2022, NBS published its decision, together with some of the demands for remedial action due to violations by the insurance company NOVIS.

The results of NBS’ investigation are that during the period from 30 June 2021 through 17 August 2021, NOVIS has not conducted its activities in a prudent manner – i.e., it has not taken steps to mitigate risks stemming from risk factors that could have a detrimental effect on the company’s financial position – nor has it maintained sufficient own funds eligible to cover the solvency capital requirement as defined in the Solvency II Directive.

In the grounds for the NBS decision, it is noted in particular that the assumptions underlying the company’s calculation of technical provisions were unrealistic, specifically to include underestimating the probability of contract termination by policyholders in Iceland and Italy and underestimating the cost of settling obligations. Furthermore, the assumptions underlying the calculation of own funds were determined in an inconsistent and groundless manner, which led to the incorrect conclusion that the company had satisfied the solvency capital requirement with sufficient own funds.

In its decision, NBS sets forth demands for remedial action in three parts and publishes information on the third of them, which NOVIS must satisfy immediately. NOVIS is immediately subjected to temporary restrictions on the distribution of company assets and on all measures that could erode asset values. Furthermore, payments of claims to parties closely connected to NOVIS are prohibited, as is further collection of debt apart from that required by the company’s regular operations.

What are eligible own funds to cover the solvency capital requirement?
The funds that an insurance company must have in order to absorb losses deriving from events that lead to unfavourable results from the operation of insurance policies, investments, or other aspects of insurance company activities.

What is the solvency capital requirement?
The solvency capital requirement is a measure of all of an insurance company’s risks and is used to estimate its possible losses for the coming twelve months with 99.5% certainty. The solvency capital requirement is calculated according to standardised rules or in-house models, and it takes into account whether the insurance company’s operations are risky as regards its activities, investments, and other factors.

What are technical provisions?
Technical provisions are an insurance company’s obligations stemming from the insurance contracts it has made. They are an estimate of the cost the company expects to incur in paying the compensation it has pledged to pay to claimants or policyholders.

FSA Iceland has worked closely with NBS, the European Insurance and Occupational Pensions Authority (EIOPA), and other competent authorities via a special cooperation forum focusing on matters relating to the monitoring of prudence and business conduct by NOVIS.

NBS has repeatedly involved itself in NOVIS’ activities in the recent term. Its decisions during the period from September 2020 to the present day have entailed the following actions:

  • In September 2020, NBS temporarily prohibited NOVIS from selling new unit-linked insurance contracts and required that NOVIS invest all premiums received from existing insurance contracts for the benefit of policyholders, in accordance with the terms and conditions in the insurance contracts.
  • On 5 November 2020, NBS temporarily restricted the distribution of NOVIS’ company assets.
  • The Board of NBS lifted the prohibition on new sales on 12 February 2021, but the part of the decision obliging NOVIS to invest all premiums for the benefit of policyholders, in accordance with contractual terms and conditions, remained in place.
  • On 27 April 2021, NBS again published a decision on its website pertaining to the company’s failure to invest premiums in accordance with contractual terms and conditions. Among other things, NBS reiterated the requirement that NOVIS invest all premiums in accordance with contractual provisions.
  • With its most recent decision, dated 14 January 2022, NBS once again fines NOVIS in violation. NBS has demanded remedial action in three parts but has only published one of them thus far. With this item, NBS once again restricts distribution of company assets, this time through 15 March 2022.

Previous press releases from FSA Iceland on NOVIS

Previous press releases published by NBS concerning NOVIS