Resolutions of the Board of the Bank of Lithuania
Upon identification of some violations by the Bank of Lithuania, ‘Aviva Lietuva’ will cover unit-linked life assurance customer losses.
The Bank of Lithuania has sent a warning to the private limited liability insurance and pension company (UAGDPB) ‘Aviva Lietuva’ to the effect that the Company did not ensure the interests of its clients in the best possible way in investing their funds according the unit-linked life assurance contracts and thus violated the Law on Insurance. In reaction to the results of the inspection carried out by the Bank of Lithuania, UAGDPB ‘Aviva Lietuva’ will compensate current clients for their asset value in the amount it has decreased by due to an increase in the cost of investment.
During the Bank of Lithuania inspection it was established that, between 1 January 2016 and 30 June 2017, the Company had invested part of its client assets accumulated under unit-linked life assurance contracts in retail client funds to whom higher asset management and distribution fees were applied than to identical institutional investor funds that UAGDPB ‘Aviva Lietuva’ in many cases could choose as well.
Investing client assets in retail client funds, the Company was subject to asset management and distribution fee discounts and part of the funds would return. UAGDPB ‘Aviva Lietuva’ used the returned amounts to increase profits on its investment activity without allocating them or part of them to insurance policy holders. Consequently, the value of assets accumulated by insurance policy holders was lower than it could have been from investing in institutional investor funds.
This constituted a violation of the Law on Insurance, according to which companies are obligated to invest in the best interest of insurance policy holders, insured persons and beneficiaries.
UAGDPB ‘Aviva Lietuva’ undertook to compensate for the injury suffered by more than 50,000 unit-linked life assurance clients: it will increase the value of the Company’s assets by almost € 350 thousand. Clients need to do nothing additionally themselves. Maximum fine for the above-named violation could amount to € 100 thousand.
The provision contained in the Law on Insurance that insurers should invest so as to satisfy the interests of their clients came into force at the beginning of 2016. The Bank of Lithuania will not further tolerate such acting not in the best interest of insurance policy holders when a chosen method of investment is beneficial for a company rather than its clients.
The inspection of UAGDPB ‘Aviva Lietuva’ activities also included the assessment of the effectiveness of the Company’s management and risk management framework, compliance with the requirements for the implementation of the main functions, management of market and operational risk, correctness of the calculation of insolvency capital requirement and of the volume of insurance technical reserves, and implementation of the prevention of money laundering.
Some inaccuracies were identified in the calculation of solvency capital; however, considering that they had no significant influence on the Company’s solvency capital requirement, the Board of the Bank of Lithuania decided not to apply any enforcement measure in relation to these legislative violations.