The 1.3 million insurance contracts closed by local insurer Carpatica Asig, which lost its operating license and will go bankrupt, will remain in force until they expire, according to the Financial Supervisory Authority (ASF).

Of the total contracts, over 936,000 are mandatory car insurance (RCA) policies. All the claims will be covered by the Policyholders Guarantee Fund, according to ASF.

The Policyholders Guarantee Fund (FGA) has the obligation to protect the customers if an insurer enters insolvency and compensate the policyholders in case the insured risks occur with up to EUR 100,000 per customer.

Following the bankruptcy of Carpatica Asig, the Policyholders Guarantee Fund will need to cover up to EUR 140 million worth of potential claims arising from the insurer’s clients, based on ASF estimates.

The ASF decided on July 27 to revoke Carpatica Asig’s operating license and ask for the company’s bankruptcy due to financial problems. The company had negative equity of minus EUR 137 million at the end of June this year.

Carpatica Asig needed some EUR 200 million worth of fresh capital to cover the negative equity and meet the minimum capital requirement (MCR) and solvency capital requirement (SCR), according to ASF.

According to all ASF evaluations, the insurance market can absorb the implications of Carpatica Asig's exit from the industry without affecting the stability and functionality of the system, with solid premises that 2016 will mark the recovery of this sector on profits.

Carpatica Asig was the seventh biggest insurer in Romania, in 2015, with gross premiums underwritten of over EUR 130 million and a market share of 6.7%. The company recorded losses of EUR 46 million last year.

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editor@romania-insider.com