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New model maybe applied for calculating insurance premiums

3 October 2017 12:52 (UTC+04:00)
New model maybe applied for calculating insurance premiums

By Sara Israfilbayova

Azerbaijan eyes application of CAMELS model to calculate the size of insurance premiums based on risks.

The CAMELS rating is a supervisory rating system originally developed in the U.S. to classify a bank's overall condition. Within the CAMELS rating system, supervisory authorities assign each bank a score on a scale, and a rating of one is considered the best and the rating of five is considered the worst for each factor. Banks that are given an average score of less than two are considered to be high-quality institutions. Banks with scores greater than three are considered to be less-than-satisfactory institutions.

The application of new system is planned within the framework of improving the deposit insurance mechanism, reads a report on monitoring of the implementation of measures reflected in the Strategic Roadmap for the Development of Financial Services.

“A primary model of CAMELS was developed to calculate the amount of insurance premiums based on risks. This will improve the mechanism of deposit insurance,” reads the report.

The developed model was submitted for analysis of experts in the second phase of the project "Modernization of the financial sector of Azerbaijan", financed by the World Bank.

“The experts, in general, positively assessed the application of the developed model and made their recommendations for its improvement. Currently, based on the recommendations received, the relevant work is being carried out, "the report says.

The World Bank, with the support of the Government of Switzerland, launched the second phase of the “Modernization of the Financial Sector of Azerbaijan” project in February 2017.

The project will be implemented in 2017-2020 through a $3million grant from the Swiss State Secretariat for Economic Affairs (SECO).

The main objectives of the project are to improve the legislative and regulatory environment of the financial sector in line with international standards, and the institutional development of the Financial Market Supervisory Body (FMSB), as well as possible changes in the activities of ADIF.

The project is expected to help stabilize the banking sector, strengthen the deposit insurance system, strengthen the protection of consumers of financial services, as well as restructuring problem loans.

The reports further reads that work on amendments to the Law on Deposit Insurance has been launched. The draft amendments to the Law are planned to be submitted for discussion of the autumn session of Parliament [Milli Majlis] of Azerbaijan.

ADIF was founded on August 12, 2007 after the Law on Deposit Insurance was adopted by the Parliament.

The purpose of establishing the Deposit Insurance Scheme is to prevent the risk of losing money deposited by individuals and to ensure the sustainability and development of the financial and banking system whenever banks and local branch offices of foreign banks become insolvent.

Deposits accepted by the Fund’s member banks with the annual interest rate 3 percent in the foreign currency and 15 percent in the national currency will be fully insured for 3 years, in accordance with the Law on deposit insurance.

ADIF member banks are obliged to pay quarterly calendar fees in the amount of 0.125 percent (0.5 percent per year) of the total amount of insured deposits in the bank, in accordance with the legislation. Thus, annually, at the expense of calendar fees paid by member banks, ADIF receives about 30 million manats ($17.65 million).

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