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CITY INSURANCE SA Insurance – Reinsurance Company
ANNUAL REPORT
for the year ended on 31 December 2016
General information:
a) Insurer’s name and the legal form
CITY INSURANCE S.A. Insurance – Reinsurance Company was founded in 1998 in compliance with
Act no. 32/03.04.2000, by the Decision no. 9/31.10.2001 and is incorporated in the Trade Register under
number J40/3150/1998 and single registration number 10392742.
b) The serial number in the Insurers’ Register
The Company is registered in the Insurers’ Register with registration number RA – 008 of 07.04.2003.
c) Address of insurer’s registered office
The Company has its registered office in Bucharest, 5-7 Constantin Aricescu St, ground floor-semi-
basement, district 1, Bucharest.
d) Presentation of insurer’s shareholders structure and management accompanied by the directors’
brief report
The share capital of the Company on the date of 31.12.2016 was made of 93,284,350 shares, with a nimnal
value of 1 Ron. The shareholders structure on the date of 31 December 2016 was the following:
Shareholder No. of shares Percentage Shares value
% RON
S.C. VIVENDI INTERNATIONAL S.R.L. 79,506,465 85.23023 79,506,465
MUSAT NICOLAE 8,303,308 8.90107 8,303,308
COPPOLA FORTUNA 2,209,689 2.36877 2,209,689
PASCALE CRISTIAN 1,783,709 1.91212 1,783,709
Other shareholders (natural persons and
legal entities) 1,481,179 1.58781 1,481,179
TOTAL 93,284,350 100 93,284,350
The executive management of the company is ensured by Mr. Dan Odobescu as General Manager, Mr.
Epameinondas Papanikolaou as Deputy General Manager.
The Board of Directors of the company was made of 3 members, as follows:
- Dan Odobescu – President
- Pascale Cristian – member
- Ivanov Bogdan – member
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DIRECTORS’ BRIEF REPORT
on the economico-financial results achieved
in the period 01.01.2016 - 31.12.2016
The Management of CITY INSURANCE SA Insurance-Reinsurance Company is convinced that in the
year 2016 pursued and achieved the targets set by the Shareholders General Assembly, offered quality
products and services to all the partners and all the activities carried out were in line with the responsibilities
towards the shareholders, employees and public opinion.
In the period 01.01.2016 – 31.12.2016, the Insurance-Reinsurance Company CITY INSURANCE SA, in
accordance with the resolutions of the Shareholders General Assembly carried out its activity throughout
the territory of Romania, having agencies opened in all the county capital-cities. Given the fact that the
company is not allowed to underwrite new risks in the freedom to provide services regime on the Italian
territory, the weight of the insurance policies isused in freedom to provide services in Italy, in total policies
issued at the company level was 0.49%. In 2016, the Company underwrote also policies in freedom to
provide services in Greece, their weight in the total underwritten insurance premiums being 6.71 %.
The Company revenues from gross premiums are obtained in a proportion of 92.80% on the Romanian
territory, 0.49 % in Italy in freedom to provide services and 6.71% in Greece in freedom to provide services.
Hereunder we are synthetically presenting the financial results of the exercise ended on 31.12.2016:
Indicator 31 December
2015
31 December
2016
Total revenues from gross premiums 522,876,767 789,520,548
Other revenues 277,422,378 416,828,035
Acquisition costs 127,065,489 184,902,385
Administrative costs 49,470,357 68,480,085
Costs regarding damages paid 242,046,396 346,517,936
Net variation of technical reserves 225,161,198 261,292,280
Other costs 161,630,213 379,084,777
The net accounting result at 31.12.2016 = - 37,839,466 Ron
The gross technical reserves of the company are created in accordance with the legal rules in force:
31 December 2015 31 December 2016
Technical reserves for direct insurances 503,916,927 765,209,207
Technical reserve ceded in reinsurance 362,440,127 614,352,381
Financial indicators
In terms of liquidity, on the date of 31.12.2016, CITY INSURANCE SA Insurance-Reinsurance Company
records a liquidity ratio of 0.73. According to the rules in force, issued by the Financial Supervisory
Authority, the liquidity ratio the insurer must have at any time is at least 1.
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The Company complied with the legislative rules that regulate the asset categories accepted to cover the technical reserves, as well as the asset valuation conditions and criteria. The total technical reserves for the activity of general insurances amounts to Ron 765,209,207, and the total assets accepted to cover the technical reserves according to the legal rules amount to Ron 869,763,383.
According to the financial statements, to the balance sheet and to the profit and loss account, on 31.12.2016 the company records a loss amounting to Ron 37,839,466, which is going to be covered from the profit of the next years, according to the Shareholders General Assembly. We specify that the loss recorded is mainly due to the underwriting in a large proportion of RCA (MTPL) policies and to the ban on exercising the class 15 - sureties insurances, as of the date of 18.04.2016, in addition to a high cost of reinsurance for this insurance type, as well as to the recording of some adjustments for the company assets (real estates and receivables). On 18.04.2016, the Financial Supervisory Authority issued the Decision no. 901 dated 18.04.2016, by which the company financial recovery procedure was opened. Consequently to this decision, CITY INSURANCE S.A. conceived a Financial Recovery Plan that was approved by the F.S.A. Decision no. 1458/21.07.2016. On 29.09.2016 the subordinate loan contract between VIVENDI INTERNATIONAL and CITY INSURANCE was concluded, in the amont of Eur 30,000,000. The company invested the funds this way acquired in pass-through corporate bonds issued by Mandarin Fixed Income SARL, secured with a portfolio of rights over some government bonds issued by the governments of Netherlands and Germany, both having AAA rating. Upon the request of FSA, the Company entrusted to the statutory auditor the mission to check the compliance of the financing arrangement with the requirements of Solvency II regime. Following this checking procedure, the auditor found the following: the financing arrangement complies with Solvency II regime requirements, and the assets acquired have the quality of liquid assets, available to be converted in cash at the request of the Company. On 15.03.2017, CITY INSURANCE S.A. submitted to F.S.A. the REPORT ON THE FULFILMENT OF THE FINANCIAL RECOVERY PLAN as at the date of 31.12.2016 for the month of December 2016, requesting the cessation of the recovery procedure based on a plan, given that the measures ordered have been fulfiled, and the external auditor confirmed both the compliance of the financing arrangement with the requirements of Solvency II regime, as well as the performance of balance sheet adjustments. FSA did not express its specific consent with respect to the status of the Loan, circumstance which created a situation of uncertainty in the economic outlook of the Company. Given this situation, the Company requested the Creditor to restructure and supplement the subordinate liability through deposits in cash into the account indicated by the Company, this way changing the form of the Loan from investment in Bonds to liquid cash. Thus, on 31.03.2017 the Company concluded an addendum and a novation of the subordinate loan contract dated 29.09.2016, concluded with the majority shareholder Vivendi International. By this agreement, the parties agreed to amend and comprehensively restructure their agreement with respect to the constitution of a subordinate liability, by changing the form of the loan from investment in bonds to liquid cash and by supplementing the total amount of the loan up to the total amount of Eur 50,000,000, a loan granted in the form of liquid cash, the funds being transferred into the account of the Company. The Company has drawn the financing arrangement by activating the „write-down” clause, so that, from the total amount of the loan of Eur 50,000,000, the amount of Eur 30,000,000 has been acknowledged as own basic ordinary funds, entirely eligible to cover the capital requirements.
We express our conviction that the commitments made in the Shareholders General Assembly by the company management and the Board of Directors have been fulfiled according to the shareholders’wishes to hold a sound company from the economic point of view.
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e) An overview of the insurance categories and classes practised
CITY INSURANCE SA Insurance – Reinsurance Company is authorized to practise insurance and
reinsurance activities by the decision no. 9/31.10.2001 and by the subsequent approvals.
On the Romanian territory, the company practises the following types of products of the classes of general
insurances mentioned below:
Class 1 – Accidents and sickness insurances (work and professional diseases included);
Insurance for personal accidents
Insurance for accidents of persons in the vehicles and their luggage
Sportsmen’optional insurance for accidents
Insurance for accidents and civil liability for sporting hunters and anglers
Class 3 – Insurances for land means of transport (others than the railway ones);
Vehicles optional insurance - CASCO
Class 7 - Insurances of goods/cargo in transit;
Goods/cargo insurance during transport – CARGO
Class 8 - Insurances for fire and natural disasters;
Optional insurance for goods and properties
Optional insurance for houses and goods
Insurance against natural disasters PAD
„All risks” type insurance for the construction-assembly works and constructor’s liability (CAR/EAR)
Insurance for machinery, construction equipment and other special machinery and installations not
subject to registration (CPM)
Insurance for money and other valuables
Insurance of art exhibitions and the participation in exhibiting events
Class 9 - Other insurances of goods;
Agricultural insurances;
Class 10 – Car civil liability
RCA (MTPL) insurances (according to the ISC Order no. 14/2011 – the civil liability mandatory
insurance for prejudices caused by vehicle accidents)
Insurance for transporter’s liability as carrier for the goods transported (CMR)
Class 13 – Civil liability insurances;
Legal civil liability insurance
Insurances for civil professional liability for: insurance agents, insurance brokers, managers for
football players, lawyers, notaries, forwarding agents, accountants/auditors/tax consultants, assessors
and technical experts, judicial receivers, lawcourt experts, liquidators, managers, medical staff
(Malpraxis), security guard companies, car service shops, public nutrition companies, tourism and
hotels companies, services provision, policemen, architects.
Insurance for tenant’s liability towards the landlord
Insurance for landlord’s liability towards the tenant
Insurance for the legal contractual liability of road transport operators (ROTR)
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Tourists’ insurance in case of the insolvency or bankrupty of the tourism agency
Insurance for employer’s liability towards the employees
Class 14 - Insurances for credits/loans;
Commercial credits insurance
Class 15 – Surety insurances;
Guarantee-deposit for the participation in tender
Good performance guarantee
Guarantee for advance reimbursement
Maintenance guarantee
Class 18 – Assistance insurances for persons in need during travels or during absences from home or from
the place of permanent residence.
the complex insurance for trips abroad
Travel Insurance Classic Card
Travel Insurance Corporate Card
Medical assistance insurances for the Romanian workers in E.U.
In accordance with the approval issued by the Insurance Supervisory Commission no. 706/02.10.2007 and
with the approval no. 404/16.05.2008, the Company is authorized to carry out insurance activities on the
basis of the free circulation services principle on the Italian teritory.
Effective from the month of June 2014, the Company underwrites policies also on the Greek territory, in
freedom to provide services regime, on the basis of the FSA Decision no. 392/23.07.2013.
f) General information regarding the insurance products and the deductions provided for by the tax
legislation that apply to the insurance contracts
In 2016 the revenues from premiums (diminished with the insurance premiums cancelled) are represented
by gross underwritten premiums from direct insurance and gross underwritten premiums received in
reinsurance.
Revenues from insurances 31 December
2015
31 December
2016
Personal accidents insurance 2,025,542 1,672,424
CASCO insurances 11,549,904 9,089,994
Optional goods insurances 8,033,108 13,836,175
CAR insurance 3,672,621 1,909,773
Agricultural insurances 0 2,664,316
Luggage insurances 218,875 183,257
RCA (MTPL) insurances 323,571,998 650,397,744
CMR insurances 1,748,882 4,454,109
Civil general liability insurances 3,337,962 5,797,141
Surety insurances 27,419,443 9,353,205
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Touristic assistance insurances 3,233,357 4,316,791
Underwritings in freedom to provide services in
Italy
5,837,954 3,899,947
Underwritings in freedom to provide services in
Greece
72,712,987 52,968,472
Revenues-acceptances reinsurance 59,514,134 28,977,200
Total revenues from gross premiums 522,876,767 789,520,548
The revenues of the Company from gross premiums are obtained in proportion of 92.80 % on the
Romanian territory, 0.49 % in Italy in freedom to provide services and 6.71 % in Greece in freedom to
provide services.
In 2016, the amount of premiums underwritten in total at company level increased by 266,643,781 Lei
compared to year 2015. The increase was recorded on the following insurance lines: RCA(MTPL)
Romania, goods, agricultural, CMR and touristic assistance. Decreases were recorded compared to year
2015 in underwritings in freedom to provide services, both on the Italian territory, as well as on the Greek
territory. The weight of insurance premiums relative to RCA(MTPL) in Romania within the total premiums
underwritten amounts to 82.39 % compared to 61.88 % in 2015. The weight of acceptances in reinsurance
within total premiums underwritten amounts to 3.67 % compared to 13.85 % in 2015.
Tax deductions
According to the tax legislation, the deductibile expenses are the following:
- expenses with health insurance premiums within the limit of the amount of Eur 400 in lei equivalent in
a fiscal year;
- expenses with insurance premiums incurred for assets in the business patrimony;
- assets that serve as a bank guarantee for the credits used in the performance of the activity for which a
tax payer is authorized or used within some renting or leasing contracts;
- persons who obtain revenues from salaries, provided that the amount that represents the insurance
premium is taxed at its beneficiary, at the time of payment by the bearer.
Beside the above, are not taxable revenues in the area of income tax on the income of natural persons, the
amounts collected from insurances of any kind that represent damages, insured amounts, as well as any
other rights, except for the earnings obtained by the insurance companies as a result of the insurance
contract concluded between the parties, on the occasion of depreciation drawdowns.
Insurance and/or reinsurance operations and the provisions of services related to them performed by the
persons that mediate them are VAT exempt.
g) Overview of the network and of the distribution channels of insurance products practised
On 31.12.2016, CITY INSURANCE S.A. Insurance – Reinsurance Company had a number of 41 agencies
located in all the counties. All the information regarding the contact data of territorial agencies are
mentioned on the web address of our company www.cityinsurance.ro.
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Currently, the sales network consists of over 50 agencies spread throughout the entire territory of Romania
and in cooperation with most of the insurance brokers on the market for the mediation of the insurance
products of the Company.
As to the activity in freedom to provide services on the Italian and Greek territory, the insurance products
are distributed through brokers.
h) Overview of agencies in charge with compensations, of the assistance network and of the annual
statements regularized in accordance with the balance sheetl
As to the insurance class 10, the company grants assistance for finding and liquidating the claim files
through the territorial agencies opened in each county of the country.
For class 18 - Assistance insurances for persons in need during travels or absences from home or from the
place of permanent residence, the company has a contract concluded with April International, a company
in charge with taking over the cases 24/24 hours, that haa a network of medical services in all the countries
of the world.
i) General information
On 31.12.2016, CITY INSURANCE S.A. Insurance-Reinsurance Company recorded the following
financial data:
Srl.
No. Indicator name
Value
(RON)
1 Total assets 908,504,140
2 Total liabilities (technical reserves) 765,209,207
3 Total revenues (gross) 1,206,348,583
4 Total expenses 1,240,277,463
5 Total gross underwritten premium 789,520,548
6 Number of contracts in force 1,714,604
7 Gross indemnities paid 346,517,936
j) Investments and their yield
In the previous year, in order to cover the risks assumed and to ensure the liquid cash, CITY INSURANCE
S.A. Insurance – Reinsurance Company invested with caution so that to ensure the company safety. The
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structure of the asset portfolio is correlated with the liabilities assumed, both from the point of view of the
currencies in which they are expressed, as well as from the point of view of the due dates.
In the previous year the company made investments the structure of which represented mostly fixed yield
bank deposits and real estate investments in accordance with the resolutions of the Shareholders General
Assembly.
As a result of the conclusion of the Subordinate Loan Contract dated 29.09.2016, concluded with Vivendi
International SRL and of the Subscription Agreement dated 29.09.2016, on 31.12.2016 the Company held
300 corporate bonds, by the pass-through mechanism, issued by Mandarin Fixed Income SARL. The investment is structured as an issue of pass-through type secured bonds of the asset management company, in accordance with the international practice for holding sovereign rights in terms of securities. These corporate securities (pass-through) are secured by the rights over the government bonds issued by the German state (nominal value of the issue of Eur 20,000,000) and the Dutch government (nominal value of the issue of Eur 10,000,000).
k) The short form of the annual financial statements
Summarized Balance sheet Insurers on the date of: 31.12.2016
Indicator
Line No. Balance on:
01.01.2015
(lei)
31.12.2016
(lei)
B 1 2
ASSET
INTANGIBLE ASSETS 01 805,255 885,462
PLACEMENTS 02 177,819,740 256,452,915
SHARE OF THE TECHNICAL RESERVES
RELATIVE TO CONTRACTS CEDED IN
REINSURANCE
03 362,440,127 614,352,381
RECEIVABLES 04 260,985,102 263,674,895
TANGIBLE FIXED ASSETS 05 2,678,805 1,784,509
STOCKS 06 277,858 138,228
CASH AND ACCOUNTS AT BANKS 07 51,643,053 94,140,622
EXPENSES IN ADVANCE 08 51,882,577 71,228,239
TOTAL ASSET (line 01+02+03+04+05+06+07+08) 908,504,140 1,302,657,251
LIABILITY
SHARE CAPITAL 09 93,284,350 93,284,350
RESERVES FROM REASSESSMENT 10 17,485,942 7,933,012
REZERVES 11 5,486,832 141,719,832
1. Carried forward result that represents
the loss uncovered
Balance C 12 0 0
Balance D 13 30,428,678 35,503,186
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3. The carried forward result from the
switch to the implementation of the
accounting regulations according to the
European Directives
Balance C 14 0 2,762,728
Balance D 15 0 0
RESULT OF THE EXERCISE Balance C 16 0 0
Balance D 17 5,074,508 37,839,466
PROFIT DISTRIBUTION 18 0 0
SUBORDINATE LOAN 19 3,798,318 3,812,253
TECHNICAL RESERVES 20 503,916,927 765,209,207
PROVISIONS 21 121,862 754,208
DEBTS 22 258,947,205 334,659,204
REVENUES IN ADVACE 23 60,965,890 25,865,109
TOTAL LIABILITY 24 908,504,140 1,302,657,251
Summarized technical account of the General Insurance on the date of: 31.12.2016
(lei)
Indicators name Line
No.
Achievements relative to the reporting
period
previous Current
A B 1 2
1.Revenues from premiums, net from reinsurance 01 172,494,965 190,838,842
2. Share of the net revenue (the difference
between the revenues and expenses from
placements) from placements transferred from the
non-technical account (+)
02 0 0
3. Other technical revenues, net from reinsurance
(+)
03 23,779,214 35,100,802
4. Expenses with damages, net from reinsurance 04 103,797,849 76,014,976
5.Variation of other technical reserves, net from
reinsurance
05 5,215,734 -5,698,275
6. Net operating costs 06 88,976,262 91,747,434
7. Other technical costs, net from reinsurance 07 1,048,766 22,512,966
8. Variation of the equalization reserve (+/-) 08 540,036 0
9. Technical result of the general insurance
Profit 09 0 41,362,543
Loss 10 3,304,468 0
Summarized Non-technical Account in: 31.12.2016 (lei)
Indicator name
Line
No.
Achievements relative to the reporting
period
previous current
A B 1 2
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1. Technical result of the general insurance
Profit 01 0 41,362,543
Loss 02 3,304,468 0
2. Revenues from placements 03 23,411,423 3,995,756
3. Costs for placements 04 19,585,670 1,479,571
4. Share of the placement net revenue transferred
in the technical account of general insurances
05 0
5. Other non-technical revenues 06 11,397,667 23,073,354
6. Other non-technical costs, including the
provisions and value adjustments
07 16,993,460 100,880,962
7. Current result
Profit 08 0 0
Loss 09 5,074,508 33,928,880
8. Gross result – profit
Profit 10 0 0
Loss 11 5,074,508 33,928,880
9. Profit tax 12 0 3,910,586
10. Exercise net result
Profit 13 0 0
Loss 14 5,074,508 37,839,466
l) The law applicable to the insurance contract
The laws applicable to the insurance contract are: the Civil Code, Act no. 136/1995 and Act no. 32/2000,
as subsequently amended and supplemented and the rules issued by the Financial Supervisory Authority.
m) Strategies and perspectives for the development of insurer’s business
In 2016 the company continued to diversify the insurance portfolio and adapted its insurance products to
the requirements and needs of its current and potential customers.
The Company intends not only to evolve, but also to inject a constant pace to its evolution. Thus, the main
development directions for 2016 are maintained and consist in: the turnover increase by 15-20%, getting
into Top 5 Insurers on the Romanian market, expanding the involvement in the social area and insurance
portfolio diversification, by underwriting new types of insurance policies.
The Company Management disclosed the plan of the majority shareholder, Vivendi International, to
alienate a part of the shares held to a new investitor. In this respect, Vivendi International signed on
16.12.2016 a Memorandum of Understanding with Dr. Max Roessler, regarding the intention of taking
over a part of the shares representing around 70% of the Company capital. At the time of approval for
issuance of these financial statements, the Company is subjected to a due-diligence process, stage required
to complete the sale of shares transaction.
On 15.03.2017, the Company shareholders decided to change the form of administration of the Company,
by shifting from the one-tier system to the two-tier one and appointed the members of the two statutory
administration bodies, namely the members of the Supervisory Board and the members of the
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Directorate/Managing Board. The shareholders resolution was submitted to the Financial Supervisory
Authority to get approval.
On 31.03.2017, the Company concluded an Addendum and a Novation to the Subordinate Loan Agreement
dated 29.09.2016, concluded with the majority shareholder Vivendi International. By the Subordinate Loan
Agreement amended by the Addendum of the date of 10.03.2017, of a value of Eur 30,000,000 Euro, a
subordinate liability was constituted by the payment by the majority shareholder Vivendi International
SRL, as creditor, to the Company benefit, of the subscription price of 300 «pass-through» corporate bonds
issued by the Luxembourg company Mandarin Fixed Income SARL to Vivendi si secured by an investment
having sovereign securities as underlying asset in the amount of Eur 30,000,000.
By the Agreement dated 31.03.2017, the parties agreed to change and comprehensively restructurate their
agreement with respect to the constitution of the subordinate liability by transferring the 295 bonds issued
by Mandarin Fixed Income SARL to Vivendi International SRL and the constitution of a subordinate
liability in cash, supplementing the value of the loan up to the total amount of Eur 50,000,000.
The Company appealed the financing arrangement by activating the „write-down” clause, so that, out of the total amount of the loan of Eur 50,000,000, the amount of Eur 30,000,000 was acknowledged as own basic ordinary funds, entirely eligible to cover the capital requirements. The solvency indicators on 31.12.2016 stated by the Company are the following:
Indicator on 31 December 2016: Thousand Lei
SCR 118,853
MCR 35,236
Total own basic funds 130,805
Own basic funds eligible to cover MCR 130,805
Own basic funds eligible to cover SCR 130,805
MCR coverage ratio (%) 371.23%
SCR coverage ratio (%) 110.06%
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The brief form of the external financial auditor’s report
See the appendix
3B EXPERT AUDIT
INDENPENDENT AUDITOR’S REPORT
To: the shareholders of CITY INSURANCE SA
Opinion
We have audited the Financial Statements on the date of December 31, 2016 attached that belong to the
Insurance-Reinsurance Company CITY INSURANCE S.A. (referred to as “the Company”), with
registered office in Bucharest, 14 Constantin Aricescu St., 1st district, incorporated in the Trade Register
under no. J40/3150/1998, tax registration number: 10392742, registered in the Insurer’s Register under no.
RA-008/07.04.2013, which comprise the Balance sheet (code 01), the Technical Account of the general
insurances (code 02), the Non-technical Account (code 04), the Statement of changes in equity, the
Statement of Cash Flows related to the exercise ended on this date and the notes to the financial statements,
including a summary of the significant accounting policies.
In our opinion, the attached financial statements fairly present, under all the significant aspects, the
Company financial standing on the date of December 31, 2016 and its financial performance and its cash
flows related to the exercise ended on that date, in accordance with the Rule of the Financial Supervisory
Authority no. 41/2015 for the approval of the Accounting Regulations regarding the annual individual
financial statements and the annual consolidated financial statements of the entities that perform insurance
activity and/or, as subsequently amended and supplemented.
The basis for the opinion
We carried out our audit in accordance with the International Standards of Audit (ISAs). Our
responsibilities based on these standards are described in detail in the section Auditor’s responsibilities in
an audit of the financial statements in our report. We are independent of the Company, in accordance with
the ethical requirements relevant for the financial statements and have fulfilled the other ethical
responsibilities according to these requirements. We believe that the audit samples that we obtained are
sufficient and adequate to provide a basis for our opinion.
Significant uncertainty regarding the continuity principle
We draw the attention on the 19th Note “Business continuity” to the financial statements, that describes that
the financial statements have been drawn up in accordance with the business continuity principle, even if,
on December 31, 2016 the Company was in the financial recovery procedure. The measures taken by the
Company management, in the financial recovery procedure, described in the 19th Note, were not completed
on December 31, 2016. These issues indicate the existence of a significant uncertainty which could generate
significant doubt with respect to the Company’s ability to continue its business activity. Our opinion is not
changed with respect to this issue.
Audit key issues
The audit key issues are those issues which, based on our professional reasoning, had the greatest
importance in our performance of the financial statements audit in the current period. These issues have
been tackled in the context of the financial statements as a whole and in forming our opinion on these
financial statements. We do not offer a separate opinion with respect to these audit key issues.
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Significant issue How we tackled this issue during the audit
Calculation of the technical reserve We considered this key issue because of the significant weight of the technical reserves value in the Company Balance Sheet, as it is described in the Explanatory Note 2(r) and the Explanatory Note 11.1. The reserves cannot be accurately assessed, but only estimated, considering reasoning based on the most recent credible information made available to us. The Company creates and maintains the technical reserves in accordance with the FSA (Financial Supervisory Authority) Rule no. 38/2015 on the technical reserves created for the insurance activity, the way of their calculation for the purpose of drawing up the annual financial statements and the special register for assets recording that cover them (FSA Rule no. 38/2015). The premiums reserve, amounting to Lei 378,564,630, is calculated every month by aggregating the shares of the gross premiums underwritten pertaining to the unexpired periods of the insurance contracts. Their value at the end of the financial year represents the share of the gross premiums underwritten for which the risk is reported in the next financial exercise. The reported loss reserve, amounting to Lei 239,771,412 is the estimated fund, created so that to be sufficient to cover the payments for the reported claims and which are pending liquidation. The not reported loss reserve, amounting to Lei 145,220,474 represents the fund created to honour the Insurer’s future obligations arising as a result of the accidents occurred, but not reported up to the reference date of reserves calculation. The unexpired risk reserve, amounting to Lei 484,815, is calculated on the basis of the estimation of claims that will occur after the end of the financial exercise, in the event it is found that the estimated claims in the future exceed the premiums reserves created and, therefore, in the future periods the calculated premium reserve will not be sufficient to cover the claims that will occur in the next financial exercises.
Our audit procedures included among others: We evaluated the internal methodologies established by the Company in accordance with the principles for the determination of the technical reserves value in the FSA Rule no. 38/2015. We evaluated and tested (based on a sample) the way the internal controls on the technical reserves value estimation process are designed and their effectiveness. We involved our actuarial specialists to evaluate and test: - Evaluation of the compliance of the estimation
methodology used for the determination of the technical
reserves value
- Reconciliation of the databases that contain details
regarding the determination of the reported and not reported
loss reserve with the data in the accounting records of the
Company
- Evaluation based on our professional reasoning if the
estimates of the Company management have been
adequate
- - The critical evaluation of the assumptions used by the
Company management for the estimation of the value of the
technical reserves by comparing our knowledge regarding
the legal regulations in force, the Company specific
circumstances and by testing the accuracy of the process
by which the Company has prepared future forecasts.
- The actuarial methodology for the determination of the value
of the technical reserves has been adjusted during the audit
mission as a result of the audit procedures applied.
-
Assessment of investments in fixed tangible assets (lands and buildings) As it is described in the Note 3.B, investments in fixed tangible assets – lands and buildings are assessed on the date of the balance sheet at the market value of Lei
Our audit procedures included among others: We involved our assessment specialists to assist us in: - The evaluation of the professional skills and
qualifications of the assessment experts who prepared
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108,068,379. This market value was determined by an independent assessor. The assessment techniques, the entry data used by the independent assessor for the determination of the market value are described in the Note 3.B to the attached financial statements.
the reports for the assessment of the buildings and lands
held by the Company on December 31, 2016
- The evaluation of the compliance of the assessment
methods used with the relevant accounting standards
- The critical evaluation of the assumptions (entry data)
used by the assessors in the assessment reports. We
re-examined the policy regarding “Guarantee
Insurances for loss of value” in the event of the sale of
property located in 5-7 Constantin Aricescu St.
Adjustments of receivables impairment As it is described in the Note 4.4 “Other receivables” to the attached financial statements, for other receivables in the gross amount of Lei 83,618,114, adjustments for the impairment amount to Lei 10,932,849. We took this key issue into consideration because of the level of professional reasoning required to determined the impairment and because some receivables are unconventionally insured.
Our audit procedures included among others: We have audited the management estimates regarding the impairment of these receivables and evaluated their compliance to the accounting regulations applicable. We have audited the insurance policies (the bonds) used to reduce the exposure to the impairment risk.
Receivables from the subsidiary City Invest SRL As it is described in the Note 4.1 “Receivables from affiliated entities” to the attached financial statements, the gross value of receivables from City Invest SRL on the date of the balance sheet is Lei 90,504,207 and the adjustments for the impairment amount to Lei 9,401,555. We took this key issue into consideration because of the significant amount of the receivable and the high level of professional reasoning regarding the risks associated to the receivables appraisal on the date of the balance sheet.
Our audit procedures included among others: We have audited the management estimates regarding the impairment of these receivables and evaluated their compliance to the accounting regulations applicable. We have examined the insurance policies (the bonds) used to reduce the exposure to the impairment risk. We have appraised whether the disclosures made in the explanatory notes to the financial statements are exhaustive to ensure the full understanding of these transactions and receivables.
Other information – The management report
Other information includes the Management report. The management is responsible for the drafting and
submission fo the the Management report in accordance with the FSA Rule no. 41/2015 Chapter 7, items
480 – 481 and for that internal control the management deems necessary to enable the preparation and
submission of the Management report without significant distortions due to fraud and error.
The Management report is presented from the 1st page to page 14 and is not part of the financial statements.
Our opinion with respect to the financial statements does not refer to the Management report.
In connection with the audit of the financial statements for the financial exercise ended on December 31,
2016, our responsibility is to read the Management Report and, in this approach, to judge whether there are
any significant inconsistencies between the Management Report and the financial statements, whether the
Management Report includes, in all its significant issues, the information requested by the FSA Rule no.
41/2015 Chapter 7, items 480-481 and whether the information included in the Management Report is
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significantly erroneous. We are requested to report with respect to these issues. Based on the activity carried
out, we report that:
a) In the management report we have not identified information that is not consistent, in all the
significant issues, with the information in the attached financial statements;
b) The Management report identified above includes, in all the significant issues, the information
requested by the FSA no. 41/2015 Chapter 7, items 480-481.
Based on the knowledge and understanding acquired during the audit of the financial statements for the
financial exercise ended on December 31, 2016, with respect to the Company and its environment, we have
not identified any significantly erroneous information in the Management Report.
Responsibilities of the management and of the persons in charge with the governance for the financial
statements
The Management is responsible for the preparation and accurate presentation of the financial statements in
accordance with the Rule no. 41/2015 for the approval of the Accounting Regulations regarding the annual
individual financial statements and the annual consolidated financial statements of the entities that perform
insurance activity and/or, as subsequently amended and supplemented and for that internal control the
management deems necessary to enable the preparation of financial statements without any significant
distortions caused either by fraud, or by error.
In preparing the financial statements, the management is responsible for the evaluation of the Company
ability to continue its business activity, setting forth, if required, the issues regarding the activity continuity
and using the accounting based on the business continuity, except for the case when the management either
intends to liquidate the Company or to stop the operations, or it has no other realistic option beside these
variants.
The persons in charge with the governance are responsible for the supervision of the financial reporting
process of the Company.
Auditor’s responsibilities in an audit of the financial statements
Our goals are to obtain a reasonable assurance regarding the extent to which the financial statements as a
whole are free from significant distortions, caused either by fraud, or by error, as well as to issue an
auditor’s report that includes our opinion. The reasonable assurance means a high level of assurance, but
is not a guarantee of the fact that an audit performed in accordance with the ISAs will always detect a
significant distortion, if such distortion exists. Distortions may be caused either by fraud, or by error and
are deemed significant if it is possible to forecast that they, jointly or severely, will influence the economic
decisions of the users, made on the basis of these financial statements.
As a part of an audit in accordance with ISA, we exercise the professional reasoning and maintain the
professional skepticism throughout the audit. As well:
We identify and assess the risks of significant distorsion of the financial statements, caused either
by fraud, or by error, we design and carry out audit procedures in response to the said risks and
obtain sufficient and adequate audit samples in order to provide a basis for our opinion. The risk of
non-detection of a significant distortion caused by fraud is higher than the one of non-detection of
a significant distorsion caused by error, because fraud may imply secret agreeements, forgery,
deliberate omissions, misrepresentation and avoiding the internal audit.
We understand the internal control relevant for the audit, with a view to designing audit procedures
adequate to circumstances, but without having the purpose to express an opinion on the
effectiveness of the internal control of the Bank.
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We evaluate the degree of adequacy of the accounting policies used and the reasonable nature of
the accounting estimates and of the related presentations of information performed by the
management.
We express a conclusion with respect to the degree of adequacy of the use by the management of
accountancy based on the business continuity and we determine, based on the audit samples
obtained, whether there is a significant uncertainty with respect to the events or conditions that may
generate significant doubts regarding the Bank’s ability to continue its business activity. In the
event we conclude that there is a significant uncertainty, we must draw the attention in the auditor’s
report on the related presentations in the financial statements or, in the event such presentations are
inadequate, we must amend our opinion. Our conclusions are based on the audit samples obtained
up to the date of auditor’s report. Nevertheless, future events or conditions may cause the Company
to stop carrying out its business activity based on the business continuity principle.
We evaluate the presentation, the structure and the content of the financial statements as a whole,
including the information presentations, and the extent to which the financial statements reflect the
transactions and events at their foundation in such a manner to result in a fair, accurate presentation.
We obtain sufficient and adequate audit samples to issue our opinion on the financial statements.
We convey to the persons in charge with the governance, among other issues, the planned area and the time
scheduling of the audit, as well as the main findings of the audit, including any significant deficiencies of
the internal control, which we identify throughout the audit.
Moreover, we offer to the persons in charge with the governance a declaration by which we acknowledge
that we have complied with the ethical requirements with respect to the independence, and convey all the
information and other issues that may be reasonably deemed to affect our independence and, if required,
related safety measures.
Taking into consideration the issues communicated with the persons in charge with the governance, we
determine those issues that had the greatest importance in auditing the financial statements of the current
period and the key issues of the audit respectively. We will describe these issues in our audit report, except
for the case where the law or the regulation makes the public disclosure impossible with respect to the
given issue or when, in extremely rare events, we determine that an issue should not be conveyed in our
report because its negative consequences might exceed the benefits of public interest of this conveyance.
Mamas Koutsoyiannis illegible signature/stamp affixed
Registered with the Chamber of the Romanian Financial Auditors with number 1515/2003
For and on behalf of :
3B EXPERT AUDIT
Registered with the Chamber of the Romanian Financial Auditors with number 073/2001
Stamp affixed
Bucharest, Romania
April 28, 2017