‘06 annual report © 2007 Albanian Financial Supervisory Authority

Any use of data included on this publication should be subject of the reference to AFSA.

Please contact us for any further information. Address : Rr. “Perlat Rexhepi”, Kati II, Tirana / ALBANIA Tel : +355-4-247148, 250686 Fax : +355-4-250686 E-mail : [email protected] URL : www.amf.gov.al

Graphic Design: Studio Grafi ke Elsi Kongo Press: PEGI Table of Contents

Chairperson’s Statement 4

Executive Summary 5

AFSA Institutional Overview 6 1.1 AFSA Set Up 6 1.2 AFSA as a Regulatory Entity 8 1.3 AFSA Management and Organization 10

AFSA Activity 18 2.1 Regulatory Activity 18 2.2 Licensing Activity 21 2.3 Supervisory Activity 27 2.4 Institutional Relations 45 2.5 Information and Technology 49

Future Perspective 51

Appendixes 53 A. AFSA Organizational Structure 53 B. Non- Banking Sector Legal and Regulatory Framework 54 C. List of Supervised Institutions 59 D. Statistical Tables 63

ALBANIAN FINANCIAL SUPERVISORY AUTHORITY 3 Chairperson’s Statement

Honorable ladies and gentleman,

It is a great pleasure for me to present the fi rst Annual Report of the Albanian Financial Supervisory Authority.

The AFSA was established by the Parliament of Albania as a unique independent regulatory and supervisory institution of non-bank fi - nancial markets and started its operation as of October 2006. AFSA establishment demonstrated the commitment of Albanian authori- ties in terms of improvement and strengthening of non-bank fi nan- cial markets in the frame of fi nancial system in Albania and in the overall country economy.

Approximation to European standards in the context of the commit- ment made by Albania through Stabilization and Association Agree- ment, dynamic development and markets best practices effi ciency have laid out the need of revising the legal framework, which regulates the supervised sectors, as well as, the supervisory traditional methodology. Drafting of compliant codes concerning markets’ regulation area associated with risk based modern supervisory methodology and with increasingly improved expertise by maintaining a fl exible regulatory environment will promote non-bank fi nancial market development to protect public interests.

The Report focuses on two directions: the AFSA institutional establishment by means of describing the establishment, the organization structure and its functions – The following part of the Report addresses the non-bank fi nancial markets activity over 2006 and the steps taken by the respective supervisory institutions and, further on, by AFSA in terms of regula- tion and supervision. Additionally, the Report presents the AFSA vision for the future.

The activity, which is described in this report, has been a challenge for the AFSA staff members, who covered it with a serious commitment. In addition, Board members have, provided their contribution through their constructive and professional role to establish an effi cient and modern institution. I express my gratitude to all of those who assisted and supported AFSA and, specifi cally, the World Bank.

I hope that this report will be of interest and valuable to the readers.

Ms. Elisabeta GJONI Chairperson

4 ANNUAL REPORT ‘06 Executive Summary

The Albanian Financial Supervisory Authority (AFSA) was established in 2006. The Au- thority consolidated the regulatory – supervisory functions of fi nancial non-banking ac- tivities, which were previously carried out by Insurance Supervisory Authority, Albanian Securities Commission and by the Inspectorate of Supplementary Pensions Private Insti- tutions. Protection of consumers’ interests, promotion of sustainability, transparency and reliability of non-banking fi nancial institutions as well as ensuring law enforcement con- stitute the goals of the Authority. World Bank has played a signifi cant role in supporting the Government initiative regarding AFSA design and institutional establishment.

Insurance market is the largest and most developed market across non-banking fi nancial markets, whereas securities and private pensions markets are in their initial development stage. Albanian insurance market, despite challenges and issues, has recently been sub- ject to a positive development trend and it presents a large potential in terms of quality and quantity expansion. This potential is based on the favorable economic conditions, improved regulatory and supervisory system, low market penetration rate, as well as, on business com- munity and population, which are dynamic and easily adaptable. It is important to point out that foreign investors see the insurance market as very attractive. Premiums volume in 2006 increased by 11.95% compared to 2005, while the total assets amounted to about 11,4 billion ALL1 marking an increase to an extent of 11,69%. Although Premiums Income to GDP ratio at 0.50% and Assets to GDP ratio at about 1.3% are lower than in similar markets, they in- dicate potential for market development Premiums structure, although under improvement, consists of motor compulsory insurance, which takes up about 66% of it. Life insurance takes up about 7% of gross written premiums. Loss ratio for the market remains at a low rate of about 35%, which is still far from the international minimum standard consisting of a rate of 50%. Bringing loss ratio to industry standards is one of the main AFSA priorities. There are seven non-life insurance companies, two life insurance companies and one company which conducts both life and non-life activity that operate in the market.

Three pensions companies operate in the private and supplementary pensions market. Range of activity in this market is limited. Pensions accumulated fund amounted to about 13.15 million ALL and the number of contributors was above 2600. Future development of this market is part of a wide reform with regard to the development of pensions’ fi rst and second pillar. Securities market is mainly focused on retail trading of the Government pa- pers, while stocks market remains still undeveloped.

Improvement of regulatory framework by ensuring an approximation to the European Union Directives for the three fi nancial sectors under jurisdiction, transition to a risk based supervi- sory system associated with introduction of the IT developed platforms, as well as, promotion of the markets development along with the outputs provided by these markets constitute some of Albanian Financial Supervisory Authority future priorities. In addition, AFSA institu- tional consolidation pursuant to standards of a fi nancial regulator remains a priority task.

1) Albanian Lek – ALL (as of December 29th, 2006 1 Euro=123,85 ALL)

ALBANIAN FINANCIAL SUPERVISORY AUTHORITY 5 I. AFSA Institutional Overview

1.1 AFSA Set Up

1.1.1 Establishment of a Unifi ed Regulatory Entity

Year 2006 marked a signifi cant step in terms of the reformation of supervision and regulation relating non-banking fi nancial system. Based on the Government’s initiative to reform the non- banking fi nancial regulatory system towards unifi cation into a consolidated regulatory entity, and based on the close consultancy and assistance of World Bank, the integration of regulatory- supervisory entities was accomplished in October 2006 including markets and legal entities performing activities in the insurance area, securities market, as well as, supplementary private pension schemes. In this context, the unifi cation of Insurance Supervisory Authority (ISA), Al- banian Securities Commission (ASC), as well as, I this led to the establishment of the Albanian Financial Supervisory Authority (AFSA) as the unique institution responsible for licensing, su- pervision and regulation of the overall non-banking fi nancial sector activity in Albania.

All component elements of the regulators’ unifi cation process in the non-banking sector, in- cluding drafting of the strategy, AFSA establishment, building of institutional capacities, and selection of trained staff, as well as, Authority’s vision for the future were accomplished upon the World Bank permanent support. This cooperation continues in relation to the improve- ment of both, the regulatory-supervisory framework and the functions of the institution.

AFSA was established pursuant to Law No. 9572, date 03 July 2006 “On the Albanian Fi- nancial Supervisory Authority”, which came into effect as of 10 August 2006 following its decreeing by the President of the Republic and its publishing in the Offi cial Journal. The Parliament of Albania appointed 7 members of AFSA Board as of 27 September 2006, thus allowing the Albanian Financial Supervisory Authority to start its activity as of 11 October 2006. Authority is a central institution, which is independent from the Government and reports to the Parliament on its activity performed over the prior year.

Financial Supervision Integration Advantages

Integrated supervision is an approach, which is based on the assumption that, in a global economy, changes to in- stitutions that provide fi nancial services are becoming decreasingly smaller and they are often causing confl icting regulative practices, which may leave room form violations or negative infl uences on the fi nancial markets develop- ment. Financial markets’ fast development and launching into the market of increasingly more complex fi nancial services instruments are factors, which, in several cases, have caused an overlapping of these markets’ supervisory coverage scope. A new and highlighted trend of fi nancial regulators’ unifi cation can be observed over the last decade, which is also a characteristic of the Eastern Europe.

A fully integrated supervisory structure is better than a fragmented structure due to the following reasons: • Integration ensures equivalent regulation and addressing standards across different sectors; • Integration provides synergy between different regulators’ functional areas either from the personnel or from the regulatory impartiality point of view;

6 ANNUAL REPORT ‘06 • Integration facilitates international cooperation better.

Integration can be a complete unifi cation, or into two regulatory structures. Albania pursued the model of two fi nan- cial regulators (Bank of Albania and AFSA), to be reviewed at a second stage towards a complete unifi cation.

Integration Models Relevant experiences from developed countries have demonstrated that there are two models of fi nancial system regulatory institutions integration: a. Horizontal Integration – unified regulator’s organization structure is built according to the supervisory proc- esses functions (on site, off site supervisions, licensing), b. Vertical Integration – organization structure is built according to sectors (insurance, investments, pensions).

Both to date theoretical analysis and experiences speak in favor of a functional or “horizontal” integration, which, in fact, has greater administration challenges at the initial transfer stage, although it has a series of advantages during the activity of the institution. Albania applied the “horizontal” model for a functional integration. .

1.1.2 Integration in the Case of Albania and the Chosen Model

After taking into consideration the development of the fi nancial sector (especially the non- banking sector) and the number of fi nancial institutions operating in 2006, it was con- cluded that Albania had too many fi nancial regulators. In addition, the fi nancial sector regulatory and supervisory function was shared among the Bank of Albania, which su- pervises the banking sector and a series of regulatory entities with different statuses that supervised various areas of non-banking fi nancial sector (ISA, ASC, ISPPI). This had led to fragmentation of authority and responsibilities, sharp differences in terms of standards as well as ineffi cient use of regulatory and supervisory skills.

The establishment of the Albanian Financial Supervisory Authority, division and stand- ardization of fi nancial sector regulation and supervision into two main pillars based on the banking sector supervised by the Bank of Albania and the non-banking sector supervised by an integrated regulatory entity (AFSA) is the best and most appropriate solution for the country’s fi nancial system. On the other hand, non-banking fi nancial system regulatory and supervisory integration will enhance the opportunities for a more rapid and sustain- able development of this important sector of the economy.

Albania chose the “horizontal integration”, which is a combination of the functional inte- gration at high levels of the organization unit of AFSA structure and, inside them, a sector division. Thus, the main departments are defi ned by the key functions of the following in- tegrated institutions: licensing department, off-site department, on-site department, legal affairs department, etc. They include the sector divisions such as, for example, insurance activities licensing, securities investment activities, etc.

ALBANIAN FINANCIAL SUPERVISORY AUTHORITY 7 1.2 AFSA as a Regulatory Entity

Mission The AFSA’s fundamental mission is to protect the consumers’ and investors’ rights closely linked with the safety of the supervised operators by means of ensuring law enforcement.

Vision Promoting and fostering higher standards to protect the consumers and licensees’ integri- ty, non-banking fi nancial market stability and effi ciency increase, as well as, improvement of professional degree by means of permanent enhancement of supervisory and regulatory level in the market make up our targets.

Key Objectives Within the frame of performing its functions and exercising its authorities set forth in the law, the Albanian Financial Supervisory Authority is led by the following objectives:

1. Protection of consumers’ interests; 2. Enhancement of sustainability, transparency and reliability of non-banking fi nancial markets; 3. Ensuring law enforcement.

Institutions under jurisdiction

• Life and Non-Life Insurance Companies; • Albanian Share Register; • Reinsurance Companies; • Securities Financial Intermediaries; • Brokers and Insurance Agents; • Investments Advisers; • Tirana Stock Exchange; • Supplementary Pensions Private Institutions

AFSA’S Main Functions AFSA’s main functions consist of the regulation and supervision of the following:

a. Insurance market and the activity of this market, which includes all insurance, reinsur- ance, intermediary activities and operations that stem from these activities. b. Securities market and the activity of this market, which includes the activity of entities, linked with securities investments which operate in this market. c. Supplementary pensions market and the activity of this market, where all supplemen- tary pensions’ insurance activities provided by the supplementary private pensions institutions are included. d. Other non-banking fi nancial institutions in compliance with the defi nitions set forth in special laws of the area.

8 ANNUAL REPORT ‘06 Financial System Supervisory and Regulatory Structure in Albania TY BILI TA

UN Parliament CO AC RS

TO Bank of Albania Financial Supervisory LA

GU (Banking Sector) Authority (Non-banking Sector) RE

Other Insurance Securities Private Banks Pensions

FIELDS Institutions Market Market Market Universal Banks Foreign Exchange Office Other Financial Institutions Insurance Companies Insurance Business Intermediarie Insurance Service Suppliers Securities Market Securities Securities Investments Supplement S Business Intermediarie Re Pr Advisors gister s ivate P OR AT s PER ensions Institutes ET O s RK MA s s

The AFSA’s regulatory and supervisory basic functions are set forth basically in Articles 2 and 13 of the Law No. 9572, date 03 July 2006 “On the Albanian Financial Supervisory Authority”, and partially in the laws of the area (Law No. 9267, date 29 July 2004, “On the Insurance, Re-insurance and Intermediary Activity in Insurance and Reinsurance”, Law No. 8080, date 01 March 1996, ”On Securities”, and in Law No. 7943, date 01 June 1995, “On Supplementary Pensions and Private Pensions Institutions”. However, a series of regu- latory functions stipulated by the laws of the area are addressed in various manners as a result of the heritage of different dependencies of the three prior regulators. Legal revisions in terms of clear defi nition of authorities on standards issuance or recommendation, laws and by-laws of the areas make up an ongoing process of institutional integration.

ALBANIAN FINANCIAL SUPERVISORY AUTHORITY 9 1.3 AFSA Management and Organization

1.3.1 AFSA Board Activity

The board is the Albanian Financial Supervisory Authority’s leading and decision making organism. It is a collegial body composed of 7 members, three of which, the chairperson and two deputy chairpersons are full time executive members. The chairperson of the Board and one of the two deputy chairpersons are elected for a 5-year term, whereas the other deputy chairperson is elected for a 4-year term. The term for the four other Board members is as follows: the fi rst – 5 years, the second – 4 years and two others – 3 years.

All board members are elected by the Parliament of Albania. The Council of Ministers rec- ommends the chairperson, the two chairpersons and two members (the Bank of Albania, Ministry of Finance and National Accounting Council recommend three out of these fi ve members), whereas the Parliament recommends two other members.

The Albanian Financial Supervisory Authority Board has the following composition:

1. Ms. Elisabeta GJONI Chairperson

2. Mr. Keler GJIKA Deputy Chairperson

3. Ms. Ermela GUXHOLLI Deputy Chairperson

4. Ms. Miranda RAMAJ Member

5. Ms. Diana LAMANI Member

6. Ms. Raimonda KARAPICI Member

7. Ms. Silvana BELLO Member

During 2006 the Board had conducted frequent meetings to discuss a series of legal duties connected with AFSA set-up and institutional functioning. The purpose of the meetings has been the merging and consolidation of three existing regulators into one entity. Si- multaneously the Board has cautiously tracked market developments utilizing the work and experience of AFSA’s staff and WB assistance, by responsibly exercising its authorities in relation to attentive market supervision through making a series of important decisions.

The Board’s activity has consisted in passing a series of regulations concerning function- ing or the market, implementing a series of administrative measures targeting regulation of the market and operators which conduct their activity in this market. Non-executive members of the Board have provided a special contribution in the relevant areas by means of committing a considerable amount of time and energy.

10 ANNUAL REPORT ‘06 AFSA Board Members

Ms. Elisabeta GJONI / Chairperson

Mr. Keler GJIKA / Deputy Chairperson Ms. Ermela GUXHOLLI / Deputy Chairperson

Ms. Miranda RAMAJ / Member Ms. Diana LAMANI / Member

Ms. Rajmonda KARAPICI / Member Ms. Silvana BELLO / Member

ALBANIAN FINANCIAL SUPERVISORY AUTHORITY 11 Financial Supervisory Authority Board Main Competences

1. Drafts the rules for the description and scope of work of every department and unit. 2. Drafts and adopts key principles of its activity. 3. Drafts and adopts rules and guidelines as set forth in the law. 4. Hands out written guidelines concerning interpretation and enforcement of laws and by-laws. 5. Issues, refuses, cancels or revokes licenses of exercising activity in the non-banking financial market. 6. Limits or interrupts investments of insurance and re-insurance companies when they do not comply with regu- latory rules or when they put the financial position of the company into risk. 7. Reviews insurance contract terms before they are launched into the market by the operators. 8. Adopts the financial statements of insurance and re-insurance companies. 9. Adopts and distributes accounting standards and financial reporting formats, which are binding on the licensees. 10. Defines supervisory and control policies of the supervised entities and of the non-bank financial market devel- opment. 11. Adopts the list of accounting experts for the Companies that operate in the non-bank financial markets. 12. Annually adopts the report on industry in connection with the condition and the prospect of the non-bank financial market. 13. Adopts inspection handbooks. 14. Pursuant to the law, makes a decision to start, the bankruptcy procedures for the supervised companies and appoints the liquidator. 15. Adopts the AFSA draft budget and the annual report. 16. Makes decisions on entering into cooperation and information exchange memorandums with authorities inside and outside the country. 17. Makes decisions about hiring area experts to provide consultancy service. 18. Adopts the salary and remuneration policy of AFSA staff. 19. Adopts rules regarding staff appointment and dismissal.

1.3.2 AFSA Structure

The Parliament of Albania adopts, upon the AFSA Board recommendation, the Authority’s organizational structure.

The Board adopts the regulation of internal administrative organization, special functions and responsibilities of departments and directories, communication procedures among them, as well as, responsibilities of technical staff and AFSA Structure other employees. AFSA, in the frame of its staff struc- turing and organization, is inclined towards ensuring Completion of tasks and meeting the objectives the required inputs and human resources to perform a is ensured by the authority’s staff, which is or- highly effi cient supervision and regulation of various ganized based on a structure adopted by the non-banking fi nancial sectors. Council of Ministers Decision No. 551, date 02 August 2006 “On the Albanian Financial Super- visory Structure”. AFSA commenced its activity as of October 2006 with an organizational structure adopted pursuant to the

12 ANNUAL REPORT ‘06 Council of Ministers Decision No. 551, date 02 August 2006 and with a level of salaries for the executive or non-executive Board members as set forth in Law No. 9584, date 17 July 2006, “On Salaries”. The AFSA 2006 organizational structure consisted of 37 employees. The level of salaries decreased for several staff members. This did not prove to be very appropriate in terms of integration challenges and in terms of covering all regulatory func- tions that a regulatory entity should perform. This structure is expected to improve and the staff number is expected to increase over time, starting from 2007 , based on the needs and best practices.

1.3.3 Management Activity

The AFSA management has worked towards the establishment the operation of this new regulatory entity within a short time. Initially, the attention of the executive bodies of AFSA focused on the selection of professional staff consisting essentially of specialists, who have a long experience in different sectors, subject to AFSA’s supervisory activity. In this context, a great attention has been paid to motivate the selected staff, therefore a salary and supplementary benefi ts policy has been drafted essentially based on the expe- rience, training and responsibilities. Despite the efforts, it is diffi cult to keep the skilled employees due to the low salary ceiling. Consequently, AFSA drafted terms of reference in order to prepare a better organizational and salary structure to meet the goals of the institution. The new AFSA recommended structure has been approved by the Board and presented to the Parliament of the Republic of Albania for ratifi cation.

In order to ensure an effi cient supervision, AFSA leadership has been provided with foreign technical assistance and it has enjoyed the close cooperation of international fi nancial do- nors and institutions like World Bank (WB), Financial Services Volunteer Corps (FSVC) re- garding the drafting of a well-studied strategy concerning non-banking fi nancial market in Albania. On one hand, the AFSA has paid special attention to the institutional presentation to the public and various stakeholders. On the other hand, AFSA, although newly estab- lished, has continued its day-to-day supervisory activity by regularly monitoring the non- banking fi nancial market and the operators, which conduct their activity in this market.

1.3.4 Human Resources Policy

The human resources area bears a special importance, because the attainment of targets set by AFSA depends on the quality and motivation of every employee. The main target in the area of human resources during 2006 was the professional development of the employ- ees and their motivation to meet the institution goals.

The Human Resources Sector, as a part of a FSVC program, has received very useful as-

ALBANIAN FINANCIAL SUPERVISORY AUTHORITY 13 sistance and support from experts with long experience in the human resources manage- ment area. This program focused on important key issues:

• The drafting of Human Resources Strategy; • The defi ning of policy directions in human resources area; • The drafting of staff capacity building programs including training needs analysis; • The drafting of job description in compliance with the AFSA organizational structure; • The establishment of a salary structure that allows fl exibility based on job performance.

The main human resources policies in 2006 have focused on encouragement and promo- tion at work, selection of a well-trained staff, as well as, the professional development of staff through training.

FSVC experts recommendations on important issues regarding human resources area

Recruitment • Drafting of a more attractive package about staff recruitment, which, apart from the salary, must include career promotion opportunities, professional training, better work and communication conditions and means, appraisal and motivation at work (rewards) etc. • Drafting and application of uncomplicated and reasonable tests for the recruitment process. • Drafting of a plan about gradual increase of the staff number and defining of higher priority sectors where more staff is needed.

Performance Appraisal Developing a simple and effective form of performance appraisal and linking this to the salary.

Career Promotion Finding and offering opportunities to build professional capacities of the specialists that work for AFSA through training not only inside, but also abroad. This is also a good opportunity concerning motivation enhancement.

Staff motivation at work The crucial objective of such a policy is to increase staff motivation to work and enhance the work quality. The key element of motivation at work is material remuneration in the form of salary and fringe benefi ts. In this context, restructuring of salary system, which will be supported by a detailed job assessment based on the performance appraisal of every staff member, will be carried out.

The human resources department has focused on creating a friendly and effi cient job environment which would provide a balance of the professional and private life of staff members.

14 ANNUAL REPORT ‘06 Employment Employment is one of the key elements that directly affect work effi ciency and quality. Pro- fessional skills, communication skills and personal qualities, which help to employ skillful and motivated individuals, are considered signifi cantly important in the employment proc- ess. Employment of young individuals, graduated with outstanding results or, who have received best training inside or abroad have been a priority in selecting AFSA staff. Such guide makes up a real source of development regarding work in this institution.

In order to support the employment policy, staff shortlists procedures and rules have been drafted and they have been presented to the AFSA Board for approval. According to these rules, competition will be the main approach of attracting professionals. In ad- dition, the aim will be to apply methods, which will allow selection of potential candi- dates, whose profi le would match the required job descriptions.

On-job staff training Training through work is an ongoing process, which aims at conveying knowledge to ensure the continuity of professional activity. Human Resources Sector has focused its attention on short-term training either in the country and abroad, relying also on the as- sistance and support provided by donors such as World Bank and FSVC.

Staff training has essentially consisted in attending conferences and workshops, which are linked to various sectors of the non-banking fi nancial system and whose activity is subject to AFSA supervision and regulation. Additionally, the Authority aims at promot- ing and funding, to a certain extent, the long term training of its staff, especially in areas that allow successful accomplishment of major tasks and goals of the institution.

1.3.5 Internal Auditing

Pursuant to the duties defi ned by Law No. 9572, date 03 July 2006 “On the Albanian Finan- cial Supervisory Authority”, and Law No. 9009, date 13 February 2003 “On Internal Audition of Public Sector” the Internal Auditing Unit has checked and verifi ed the merging proce- dures of three prior regulatory entities. Through the audits conducted is concluded that legal requirements set forth in the effective legislation have been respected in terms of economic, fi nancial, administrative and managerial aspects. These audits, which were conducted in the frame of special aspects of AFSA legal operation, have verifi ed adherence to the law.

1.3.6 Financial Statements

2006 AFSA Funding and Budget Pursuant to Article 26 of Law No. 9572, date 03 July 2006 “On the Albanian Financial Supervisory Authority”, the AFSA is an independent institution, which is mainly funded

ALBANIAN FINANCIAL SUPERVISORY AUTHORITY 15 by its own resources, except for any short-falls between fund resources and operation expenses. In that case the short-falls are funded by the State Budget up to the level when revenues are deemed suffi cient to ensure its normal operation. State Budget fund- ing allocation is approved by the Parliament of Albania in the form of an independent part of the State Budget. The budget surplus of the fi nancial year is transferred to the State Budget revenues within 4 months following the end of fi nancial year, apart from the funds set apart for investments which are in an ongoing phase.

Pursuant to Articles 33 and 37 of Law No. 9572, date 03 July 2006 “On the Albanian Financial Supervisory Authority”, as well as, to Ministry of Finance Memo No. 8663/1, date 21 November 2006, the 2006 AFSA budget was drafted based on the budget of prior regulatory entities consisting of ASC, ISPPI and ISA respectively. AFSA opening bal- ance sheet was certifi ed by an external certifi ed accounting expert.

AFSA drafts the fi nancial statements and holds its accounts pursuant to the Council of Ministers Decision No. 248, date 10 April 1998 “On the Adoption of Local Government, State Central and Local Institutions and the Subsidiary Units Public Accounts”, as well as, the Ministry of Finances Guideline No. 14, date 28 December 2006 “On Drafting An- nual Financial Statements”.

The approved resources and funds covering the AFSA establishment and operation (10 October - 31 December 2006) are presented in the following table:

Table 1: AFSA Revenue Resource

AFSA Funds Resource (11 October - 31 December 2006) 000/ALL

1. Carried forward from three institutions (10 October 2006) 36,598 1.1. Own revenues 24,932 1.2. Budget financing 11,666 1.2.1 Operating expenses 10,666 1.2.2 Investment budget 1,000 2. Revenues generated by AFSA (11 Oct. .06 – 31 Dec. .06) 21,475 Total 58,073

Pursuant to Articles No. 26 and 27 of Law No. 9572, date 03 July 2006, “On the Albanian Financial Supervisory Authority”, revenues generated by the Authority from 11 October 2006 through 31 December 2006 includes revenues from insurance market, from trade of securities, from pensions market, 20% of the collected fi nes, as well as, other revenues.

According to the fi nancial plan for 2006, expenses to cover payments for the staff mem- bers who lost their jobs in the frame of three prior institutions reforms take up 14% of sala-

16 ANNUAL REPORT ‘06 Table 2: Use of AFSA Funds

Use of AFSA Funds (11 October - 31 December 2006) 000/ALL

1. Funds for operating expenses 23,027 2. Funds for investment 31,153 2.1. Completed investments 1,663 2.2. Ongoing investments 29,490 3. Payments to State Budget 3,893 Total 58,073 ries’ fund or 9% of operating expenditures.

Investments are carried out according to the adopted fi nancial plan pursuant to stipula- tions set forth in the Strategy for the establishment of the institution. Investments have focused on IT programs, whereas the issue of offi ce building remains still pending for the coming year due to delays linked with the availability of offi ce buildings.

ALBANIAN FINANCIAL SUPERVISORY AUTHORITY 17 II. AFSA Activity

2.1 Regulatory Activity

2.1.1 Legal Changes

The adoption of the Law No. 9572, date 03 July 2006 “On the Albanian Financial Su- pervisory Authority” led to an actual change of the non-banking fi nancial market su- pervision because of the regulatory functions’ unifi cation of the three former regulatory institutions. This law defi nes the establishment, the responsibilities and the functioning of the Albanian Financial Supervisory Authority, as well as, it regulates the scope of activity of this institution.

The changing of non-banking fi nancial market regulatory and supervisory structure made it necessary to also amend the entire legal and regulatory framework related to differ- ent areas of this sector. In this context, the end provisions of Law No. 9572 stipulate the changes to be made regarding relevant laws, as well as, they defi ne the responsible struc- tures for their implementation, notably:

a. In insurance area – Law No. 9267, date 29 July 2004, “On the Insurance, Reinsurance and Intermediary Activity in Insurance and Reinsurance”, b. In securities area – Law No. 8080, date 01 March 1996 “On Securities” c. In private pensions area – Law No. 7943, date 01 June 1995 “On Supplementary Pensions and Private Pensions Institutions”.

Insurance Law Changes regarding the Guarantee Fund In the frame of adhering to the National Plan on Implementation of Stabilization and As- sociation Agreement with European Union (EU), amendments to Law No. 9267, date 29 July 2004 “On the Insurance, Reinsurance and Intermediary Activity in Insurance and Re- insurance” have been prepared during 2006. These amendments refl ect a very important aspect of EU directives about the insurance compa- nies’ guarantee fund. These changes consist of the EU Directives about Insurance amendment of Article 98 of this law, on the increase Companies Guarantee Fund of the guarantee fund to 3 million Euros, a process, which has been planned to be completed in three According to EU directives on “life” activity stages in the future. 2002/12 and on “non life” activity 373 L 0239 it results that the guarantee fund has to be no less Another important change, which has come up as a than 3 million €. Time required to meet this legal need of implementing the law, is the amendment of obligation is 5 years starting from the date of com- ing into effect of this directive. the annual report delivery deadline by the insurance companies on their authorized accounting expert.

18 ANNUAL REPORT ‘06 2.1.2 Regulatory Framework Changes

Once the Law No. 9572, date 03 July 2006 “On the Albanian Financial Supervisory Author- ity” came into effect, all the by-laws pursuant to laws covering the respective areas, which were not in compliance with the provisions of this law, were repealed. In order to manage the lack of regulation coming as a consequence of the aforementioned abrogation in terms of internal administrative organization, specifi c functions, responsibilities of departments and directorates and the communication procedures among them, the following were drafted and adopted in two months time following coming into effect of the law: • AFSA internal rules, • AFSA Board functioning regulations.

Regulations adopted by FSA over 2006

In Insurance Area 1. Regulation “On the Limits of Insurance Companies Capital Investment”, 2. Regulation “On the Content of Reinsurance Program of Insurance Companies and the Timeframe of its Delivery to AFSA”, 3. Regulation “On the Rules, Manners and Conditions of Insurance Companies Reporting to AFSA” 4. Regulation “ On Authorized Accounting Experts of Insurance Companies”, 5. Regulation “On the Basis, Calculation Methods and the Manners of Recording Mathematical Provisions”, 6. Regulation “On the Basis, Calculation Methods and the Manners of Recording Technical Provisions of Non Life Insurance”, 7. Regulation “On the Criteria that must be met by Individuals Elected or Appointed in the Leading Bodies of Insurance or Reinsurance Companies” 8. Guideline “On the List of Documents of Insurance and Reinsurance Companies Annual Mandatory and Regular Reporting”, 9. Guideline “On the Rules of Disclosing the Data of Insurance Companies and Broker Companies in the Frame of Transparency to the Public and Consumer Protection”, 10. Guideline “On Setting the Criteria of Reinsurance Companies, with which Insurance Companies Conduct that operate in the Republic of Albania can enter into Reinsurance Agreements”,

In the Securities Area 1. Regulation “On the Financial Resources Requirements re: Licensed Individuals Who Operate in Securities Area”, 2. Regulation “On Licensing, Fees and Commissions of Subjects that Operate in the Securities Market”, 3. Regulation “On Take-Over”, 4. Regulation “On Illegal Practices of Securities Trade” , 5. Regulation “On Prospect”, 6. Regulation “On Conducting the Test of Individuals Applying for Receiving License as Dealer Agents”, 7. Regulation “On Procedures of Monitoring Retail Market on Securities of the Republic of Albania Government”,

In the Private Pensions Area 1. Regulation “On Procedures of Licensing and Reviewing the Applications about Issuing the Permit to Operate as a Supplementary Private Pensions Institution”, 2. Regulation “On Supervision of and Financial Control of Supplementary Private Pensions Institutions”.

ALBANIAN FINANCIAL SUPERVISORY AUTHORITY 19 Within a period of time of 6 months AFSA has reconsidered and adopted all relevant by- laws adopted by prior regulatory authorities according to the areas. Their revision was con- ducted based on the legal changes, new adopted rules and by refl ecting market needs.

2.1.3 Legal Changes Plan

The non-banking fi nancial market regulatory structure changed once the Law No. 9572, date 03 July 2006 “On the Albanian Financial Supervisory Authority” came into effect. However, this change was not accompanied with adequate legal infrastructure to meet the targets and responsibilities assigned by law, and therefore, resulted in dif- fi culties in the interaction of market players. While enjoying a more independent status, the target of the regulatory entity is to play a more active role towards taking the initia- tives and issuing the regulatory measures. The target of establishing the institutional infrastructure in insurance area will be to clearly defi ne the role of stakeholders’, AFSA, Minister of Finance, Bank of Albania, supervised companies and of the operators’ or- ganizations. This process is to be associated with the proposal for legal changes and drafting of necessary legislation.

The fulfi llment of commitments made in the context of the National Plan regarding Imple- mentation of Stabilization and Association Agreement and fulfi llment of obligations deriv- ing from it in terms of implementing similar legislation will continue to remain a priority across the three areas: insurance, securities and private pensions institutions.

Regarding the securities market, besides changes made to Law No. 8080, date 01 March 1996 “On Securities”, a cooperation program with European Bank for Reconstruction and Development (EBRD which aims at drafting the necessary legislative and regulatory framework on bonds issuance by joint-stock companies and local government units), is in progress at this time.

The private pension institutions are also a target of the reform and therefore, the law “On Supplementary Pensions and Private Pensions Institutions” and by-laws pursuant to it are under drafting process in compliance with the government’s national reform in pension’s area.

In order to apply Risk-Based methodologies and International Financial Reporting Stand- ards (IFRS), drafts of sub-legislation regarding the insurance market are in progress. This sub-legislation will refl ect, according to market developments, most recent directives.

The AFSA is discussing on the following: • Draft/Regulation “On Defi ning Procedures to Attract Infl uential Participation

20 ANNUAL REPORT ‘06 in Insurance and Reinsurance Companies”; • Draft/Regulation “On Defi ning the Conditions and Criteria for Issuing and Revoking the Actuary’s Authorization ”; • Draft/Regulation “On Defi ning the Conditions and Criteria for Intermediaries in Insurance ”; • Draft/Regulation “On Defi ning the Claims Assessment Methodology”; • Draft/Regulation “On Defi ning the Criteria of Licensing Loss Adjusters” seeking here independence and better supervision; • Draft/Manual “On Inspection Procedures”; • Draft/Regulation “On Defi ning how to manage the Guarantee Fund ”; • Draft/Regulation “On Defi ning the Procedures of Prohibiting the Insurance Company Property Free Transfer”.

2.2 Licensing Activity

The target of AFSA is to ensure, by means of adhering to the requirements of the Law “On the Albanian Financial Supervisory Authority” and the licensing requirements pursuant to the respective area laws (insurance, securities, and supplementary private pensions), a fair and regulated market through a process developed on the basis of justice, fairness and equality.

The key principle of the Authority in the licensing process for the entities operating in the non-banking fi nancial market is to set forth requirements, which are clear, fair and trans- parent to the public.

2.2.1 Insurance Licensing Activity

Pursuant to the effective legislation, the Authority has responded in a timely fashion to the applications for license by market operators, mainly regarding the activity expansion, or changes to the capital stock and leading staff. This has involved careful examination regarding consideration of the proper documentation, which has been presented by the interested parties.

• Insurance Intermediaries Licensing The intermediary activity, as a negotiating and selling of insurance contracts by indi- vidual or juristic entities licensed by AFSA, is focused on agents’ activity. The insur- ance brokering activity is not present yet in the Albanian insurance market.

ALBANIAN FINANCIAL SUPERVISORY AUTHORITY 21 The licensing of the following entities was accomplished over 2006 in the frame of insurance intermediaries licensing process:

1) “Motor Insurance Agency – ASA” S.A. - ASA was established as a joint-stock company according to Law “On Commercial Companies” and it was issued by the respective regulatory Authority with license No. 4, date 12 April 2006 to operate as an agents’ company in the area of selling non-life insurance prod- ucts. Established by 7 shareholders, where each of them owns equal number of shares, ASA developed an online system, which enabled online trading of non- life insurance products through a computerized system pursuant to the Council of Ministers Decision No. 192, date 25 March 2005 “On the Licensing Criteria and Procedures for Insurance Agents and the Rules of Supervising their Activity”. This online system provided for the fi rst time a fast and reliable service to the companies and also to their customers.

In 2006, ASA operated as trading network for 7 insurance companies by applying fi xed fees according to the contracts signed with these companies. During this period, there were about 50 trading locations, which covered the entire territory of Albania. The locations were connected online with ASA central offi ce and compa- nies, with which contracts had been made regarding the sale of internal TPL motor compulsory policies.

2) “Albanian Post S.A. - was issued with license Nr. 2; date 10 Mars 2006 to operate as a trading agent for non-life insurance business. Additionally, Albanian Post met all requirements of effective regulatory framework for individuals, which were ac- cepted to operate as agents at the premises of this institution.

3) 16 individual agents of Insig S.A.. – They were licensed to operate as non-life insurance agents on behalf of “Insig S.A.” insurance company on a 3-years license term with the right of renewing the license. The license validity is linked with sign- ing the contract with the insurance company and with the installation of online trading program.

• Approvals regarding insurance companies:

1) The AFSA approved, upon Decision No. 5, date 03 March 2006, the changing of the insurance company name from “Dukagjini Al S.A.” into “Eurosig S.A.”, following changes in company shareholders and leading staff. The changing of the name came as a result of the company’s strategy change in the management and opera- tional aspect in the insurance market.

22 ANNUAL REPORT ‘06 2) The AFSA approved, upon Decision No. 6, date 03 March 2006, the license to per- form reinsurance activity by “Sigal S.A..” insurance company. Point 3/c of Article 20 of Law No. 9267, date 29 July 2004, “On the Insurance, Reinsurance and Intermedi- ary Activity in Insurance and re-Insurance” stipulates the case when a company can be licensed by the Authority both as an insurance and reinsurance company at the same time.

3) As of December 2006, AFSA approved establishment of representation offi ce in Ti- rana for the insurance company “Intersalonika” General Insurance S.A. , which has its headquarters located in Thessalonica in Greece. The goal of establishing this offi ce is to conduct a market research and to set up the preparatory documentary conditions to start its operation in the future as an insurance company in Albania. The establishment of foreign companies’ representation offi ces is a new develop- ment of the national insurance market.

Table 3: List of licensed insurance companies

Licensed Type Time of receiving No. Ownership Companies of Activity the license

Life Insurance Government of 1. Insig S.A. 08.06.2000 + Non-Life Insurance Albania + EBRD + IFC

2. Sigma S.A. Non-Life Insurance National Private Capital 03.02.1999

National Private Capital 3. Sigal S.A. Non-Life Insurance 23.06.1999 + Albanian-American Fund

4. Atlantik S.A. Non-Life Insurance National Private Capital 01.06.2001

5. Intersig S.A. Non-Life Insurance National Private Capital 13.09.2001

6. Interalbanian S.A. Non-Life Insurance National Private Capital 10.09.2004

7. Albsig S.A. Non-Life Insurance National Private Capital 10.09.2004

8. Eurosig S.A. Non-Life Insurance National Private Capital 10.09.2004

National Private Capital Life Insurance 10.09.2004 9. Sigal Life S.A. + Albanian-American Fund

10. Sicred S.A. Life Insurance National Private Capital 10.09.2004

During the last quarter of 2006, international insurance companies showed interest in the Albanian insurance market in investing in Albanian insurance companies. Therefore, changes are accepted to happen with the shareholder-structure of “Interalbanian”, “Alb- sig”, ‘Sigal” and possibly other insurance companies.

ALBANIAN FINANCIAL SUPERVISORY AUTHORITY 23 2.2.2 Licensing Activity in Securities Market

In 2006, the Authority’s target in relation to securities market has been to expand Gov- ernment securities (T-Bills & T-Bonds) retail market by increasing the number of licensed entities operating in this market.

AFSA is the regulatory body for Government securities retail market in the Republic of Albania

Government securities retail market is an OTC market where the trade is conducted through the physical or virtual counters of the banks and other entities licensed to carry out transactions, with investors who can be individual or legal entities, resident and non-resident persons.

Undertaking the activity of retail trade and keeping of the analytical register is performed by the entities licensed for this purpose by the Albanian Financial Supervisory Authority. Keeping of the analytical register makes up one of the conditions regarding licensing of dealers to operate in Government securities retail market.

The register ensures keeping of the records in an analytical manner for investors on Government securities ownership, transactions carried out in connection with securities or data concerning their pledging as guarantees.

By end of 2006 securities market consisted of the following: • 10 licensed companies which operate as securities dealers, of which 5 banks were entitled to the right of trade also in the T-Bills retail market. • 14 licensed representatives of securities dealers. • 5 licensed registrars of Government securities. • Albanian Share Register, and • Tirana Stock Exchange.

At the beginning of 2006, ALFA Bank commenced its activity as securities dealer and, at the same time as T-Bills registrar. Credins Bank, which was licensed as of 08 May 2006 was added to the list of registrars in Government securities, thus increasing to 5 the number of entities licensed for this activity.

In May 2006, the relevant Authority licensed the Italian-Albanian Bank as a securities dealer. Based on the entity’s application, the license was issued for one year term. In De- cember 2006, AFSA re-licensed as securities dealers two agents of “American Bank of Albania”, which represent the entity in the trading activities conducted in the Stock Ex- change and in the Government securities retail market.

The existence and development of Government securities retail market has raised the in- terest of several entities either inside the country and abroad, which have demonstrated their interest to become participants of this market.

24 ANNUAL REPORT ‘06 Table 4: Government Securities Dealers in 2006

No. Companies Description No. of Representatives License Term

1. Tirana Bank S.A. 1 No expiration term

2. Triumph Group S.A. 1 No expiration term

3. Credins Bank S.A. 1 No expiration term

4. Balkan Group-01 S.A. 2 No expiration term

5. Raiffesen Bank S.A. 1 No expiration term

6. National Commercial Bank S.A. 2 No expiration term

7. Popular Bank S.A. 1 No expiration term

8. Italian-Albanian S.A. 1 No expiration term

9. American Bank of Albania S.A. 2 No expiration term

10. Alfa Bank 2 No expiration term

Pursuant to Law No. 8080, date 01 March 1996 “On Securities”, to Regulation “On Securi- ties Registrars Licensing” and to Regulation “On the Government of the Republic of Al- bania Securities Retail Trade”, the following entities have been licensed to operate in the capacity of registrar:

Table 5: Government Securities Registrars in 2006

No.Licensed Entity Type of License License Term

1. Raiffesen Bank S.A. Government Securities Registrar No expiration term

2. American Bank of Albania S.A. Government Securities Registrar No expiration term

3. National Commercial Bank S.A. Government Securities Registrar No expiration term

4. Alfa Bank S.A. Treasury Bonds Registrar No expiration term

5. Credins Bank S.A. Treasury Bonds Registrar No expiration term

2.2.3 Entities Operating in the Supplementary Private Pensions Market

Pursuant to the Law No. 7943, date 01 June 1995, “On Supplementary Pensions and Private Pensions Institutions” and to by-laws, there are 3 companies that operate in the supple- mentary private pensions’ market. The law sets forth the requirements for establishing pensions’ institutions by more than one employer. According to this law, one of these employers should have at least more than 100 employees and no less than 500 employees.

ALBANIAN FINANCIAL SUPERVISORY AUTHORITY 25 The following supplementary private pensions’ institutions, which are established and operate in the Albanian market, meet this legal requirement:

• “GARANTSIG Pensions Private Institution”, was licensed by the relevant Authority upon Decision No. 1, date 01 July 2005, • “APFA – American Pension Fund of Albania”, was licensed by the relevant Authority upon Decision No. 2, date 01 July 2005, • “Pensions Private Institution CAPITAL” Company was licensed by the relevant Authority upon Decision No. 3, date 12 December 2005.

2.2.4 Corporate Governance

In the frame of its efforts to increase its role in terms of improving the climate of corporate governance, AFSA has targeted promotion and implementation of the OECD White Paper “On the Principles of Corporate Governance in Southeastern Europe” through simultane- ously identifying the most important areas, where reforms must be taken for proper cor- porate governance.

In order to increase its role over corporate governance, the Authority has aimed at defi ning clear criteria about the elected persons in the Supervisory Boards of the licensed entities, in leading positions or in the auditing committee by insisting on improving integrity, pro- fessionalism, experience and training.

The Albanian Financial Supervisory Authority is a mem- AFSA - Member of ber of Albanian Corporate Governance Forum. Activities Albanian Corporate and meetings of the Forum continued during 2006, where Governance Forum the following are worth of mentioning:

Albanian Securities Commission (now AFSA), as a cofounder, endorsed in 14 1) The analysis of the fi ndings of the observation con- June 2005 the resolution on the establish- ducted by OECD on the implementation status of ment of the Albanian Corporate Govern- White Paper Recommendations. ance Forum. 2) The involvement of the Forum in providing knowl- The Forum was established as an organiza- edge regarding the contemporary standards of the tion similar to a network of institutions and organizations with interests, impact and corporate governance. joint will regarding necessary improvement of corporate governance practices in Alba- 3) The signing of a Cooperation Memorandum between nia. The goal of the forum is to provide its the Albanian Corporate Governance Forum and Interna- contribution to the implementation of con- tional Financial Corporate (IFC) with the aim of meeting temporary principles and standards of Cor- short-term and long-term objectives regarding the im- porate Governance in Albania. provement of overall corporate governance in Albania.

26 ANNUAL REPORT ‘06 2.3 Supervisory Activity

The Albanian Financial Supervisory Authority performs its non-banking fi nancial markets supervisory functions through monitoring markets in general, and market stakeholders’ performance, in particular. The Supervision department is increasingly focusing on iden- tifi cation, measuring, prevention and elimination of the scale of risks that threaten market performance and, consequently, consumers’ interests. Risk-based supervision, as a new model of non-banking fi nancial markets supervision, constitutes a detachment from the traditional methods of static observation that included interventions only in cases of legal infringements. Risk-based supervision is moving towards a contemporary analysis sys- tem, where regulatory interventions start right after receiving early warnings that may lead to deterioration of one or several parameters of operators in the market.

Risk-Based Supervision

The analysis of a company’s operations has traditionally been the method of supervision to make sure that the company has adhered to the effective legislation and regulations, as well as, to make sure that fi nancial data have been prepared in compliance with appropriate reporting methods and that they accurately refl ect the real fi nancial condition of the company.

Risk-based supervision leads this method several steps ahead, so the supervisory process identifi es and focuses on the areas, which include a high risk presence for the company and, which jeopardize company’s fi nancial progress. Risk-based supervision does not audit fi nancial outcomes of the insurance company. Its focus consists in identifying risks that impact the business and the managerial processes to prevent and minimize these risks.

Risk-based supervision takes into consideration every risk that the company faces and it identifi es risks through a structured process. The supervision department checks how these risks are managed and it focuses on company exposure against most critical risks. In this manner, the focus remains on the risks, managerial process, outcomes uncertainty and their impact on the company’s progress.

The development and the stabilization of the market will bring, over time, a sophistication of these risk-based supervisory methods.

AFSA performs its markets supervisory function through a) analyzing the documents (off- site supervision) presented by the supervised entities, regular or ad-hoc reports, and b) initiating on-site inspections of the supervised entities with the purpose of identifying the data. On-site supervision and analysis may include a large scope of issues, or it may focus on specifi c issues.

ALBANIAN FINANCIAL SUPERVISORY AUTHORITY 27 Off-Site Monitoring Indicators in Albania

AFSA together with Word Bank held a Conference “On Insurance Financial Indicators Analysis” on 05-06 Decem- ber in Hotel Tirana. Participants had the opportunity to attend a 1 day lecture on the Off-Site fi nancial indicators, which are applied to review the fi nancial situation of non-life insurance companies. The goal of this conference was to help all participants, companies’ representatives, external audits, and AFSA staff to have substantial knowl- edge on the fi nancial indicators importance, how some of these indicators are calculated, and how to interpret the outcomes when assessing the activity and fi nancial situation of the insurance companies. Following the lecture, AFSA conducted a test involving all participants concerning their knowledge on the Off-Site fi nancial indicators. All participants successfully passed the test and they received a certifi cate of profi ciency on the basic level of their knowledge on fi nancial indicators. This lecture was attended by insurance companies’ managers, heads of different AFSA sectors and by two auditing companies.

In 2006, AFSA has set as priority the insurance market regulation and supervision based on the weight that this sector bears in the frame of fi nancial market, as well as based on its size and dynamics. Meanwhile, attention was not detached from cautious monitoring and support for a sound development of securities and supplementary private pensions.

On Site Supervision – IAIS Standards

On-site supervision is a very important part of the supervisory process, which is closely linked with the ongoing monitoring process. On one hand, inspection provides information that is supplementary to fi nancial and statisti- cal analysis information submitted by the entities. On the other hand, On Site inspection needs to be supported by market information and statistics that stem from fi nancial statement analysis (revenues and expenses, annual balance-sheet). On-site supervision allows the supervisor to gather information and identify the issues that can be identifi ed through continuous monitoring, notably as follows: a. In the case of companies with problems concerning the activity, accounting irregularities or weaknesses in management, on-site supervision allows the supervisor to identify problems that the company may have willingly failed to take into consideration and, some times, even hiding them; b. Provides the supervisors with the opportunity to establish a direct relationship with the company leaders, which is very important in terms of being more closely familiarized with the efficiency of leaders’ work. c. Allows the supervisors to make assessments both, in the frame of the decision making process by the company leaders’ and in internal control effectiveness; d. It may serve to advise companies to shun those types of activities, which may be illegal and inappropriate; e. Provides the supervisors with the possibility of analyzing the impact of specific regulators and, very often, gathering of information to conduct benchmarking against standards.

Reporting – IAIS Reporting Standards a. Supervisory Authority: • Sets criteria regarding presentation of financial information, actuarial reports and other information from all licensed insurance companies under jurisdiction to the Authority in a regular fashion. • Defines the goal and frequency of these reports and information including criteria that determine whether

28 ANNUAL REPORT ‘06 these reports and information must become subject to auditing, or not, • Requests, at least, an auditing report for every year, • Requests more frequent and more detailed information as per the necessity,

b. Supervisory Authority: • Asks insurance companies to present information about their financial situation on individual and group basis. It can request and gather information about every office of the supervised company, • Asks insurance companies to report every exposure outside the financial balance sheet, • Asks insurance companies to report on delegated functions as other companies outsource, • Requests that the appropriate level of insurance companies managers report on the timeframe and their accuracy, • Asks that inaccurate information gets remedied and it has authority to impose sanctions about reporting with fraudulent purposes. • Asks insurance companies to present information about their financial situation on individual and group basis. It can request and gather information about every office of the supervised company, • Asks insurance companies to report every exposure outside the financial balance sheet, • Asks insurance companies to report on delegated functions as other companies outsource, • Requests that the appropriate level of insurance companies managers report on the timeframe and their accuracy, • Asks that inaccurate information gets remedied and it has authority to impose sanctions about reporting with fraudulent purposes.

2.3.1 Insurance Market

The Market Structure and Size There we ten insurance companies in the market in 2006, of which seven are non-life insurance companies, two are life insurance companies and one company offers both non- life and life insurance products. The number of policyholders in 2006 was 507,375 marking an increase of about 9,5% compared to 2005. The increase in the number of policyholders in 2006 led to an increase of the revenues from premiums written. Insurance gross written premiums amounted to about 4,5 billion ALL, a fi gure 11,95% higher than that of 2005. The market still remained inclined towards non-life insurance, which provided about 93% of the premiums , thus leaving life insurance with about 7% of all the written premiums.

2006 Insurance Premiums Structure

7% 34% Voluntary Life Insurance 93% 66% Non-life Obligatory Insurance

ALBANIAN FINANCIAL SUPERVISORY AUTHORITY 29 Monthly Progress of Insurance Gross Written Premiums in 2006

600,000

500,000

400,000

300,000

200,000

100,000

0 l . y g. t. v. c. n. b. h ri ly pt rc Ma Ja Fe Ap June Ju Au Se Oc No De Ma

Life Voluntary Non-Life Compulsory

Compulsory Insurance Compulsory insurance products continued to dominate Albanian market in 2006, thus generating about 66% of revenues from insurance gross written premiums. Due to development specifi cs, the compulsory insurance market has not been liberalized in terms of prices. The minimum and maximum prices for internal TPL and border policy are determined once a year by the Ministry of Finance following recommendations made by market specialists. Fixed prices determined several years ago are still applied to the green card business.

Compulsory Insurance Monthly Premiums (in thousand ALL)

500,000 2006 2005 400,000

300,000

200,000

100,000

0 l . y g. t. v. c. n. b. h ri ly pt rc Ma Ja Fe Ap June Ju Au Se Oc No De Ma

30 ANNUAL REPORT ‘06 • Insurance gross written premium revenues of internal TPL in 2006 was about 1,57 billion ALL. Revenues’ increase by 14,46% compared to 2005 was basically tied to the increase of the fl oor price since May 2006, while the number of contracts remained almost unchanged. The tendency of insurance companies to sell insurance TPL poli- cies with prices lower than allowed fl oor levels decreased in 2006. This occurred as a result of the following: a) enforcement of the Council of Ministers Decisions on real time (online) insurance policies issuing and reporting and b) operators agreements concern- ing the functioning ways of their sale networks. These shifts were accompanied by the changes across shares of the market dominated by the operators.

• Green card revenues’ increase was in line with contracts number increase. In 2006 gross written premiums amounted to about 648 million ALL, or 11,72% more than in 2005. Due to the particularities of this insurance class such as duration and unlim- ited liabilities, qualitative reinsurance remains a necessity for this class. In 2006, the Authority decreased from fi ve to four the number of operators licensed to trade the green card policy. Intersig S.A. insurance company did not manage to fi nd appropriate reinsurance to meet the criteria of maximum coverage per hazard set forth in the law. Actually, the licensed companies which issue green card policies, are: Insig S.A., Sigal S.A., Sigma S.A. and Atlantik S.A.

• Border insurance marked the highest increase in the group of compulsory insurance business at 25% compared to 2005. The increase in this market was a result of the in- creased number of policies written in 2006, the increase of prices and the functioning of a joint selling network for all market operators. In 2006 written premiums from border policies amounted to about 528 million ALL.

Voluntary Insurance In 2006, number of voluntary insurance contracts increased by roughly 17%, while premiums increased by 6,25% compared to 2005, thus reaching 1,53 billion ALL. Non-life voluntary insurance business revenues remained at the level of 2005, while there was a considerable increase by 29% in life insurance business compared to the previous year. This increase in life-insurance products refl ects an increasing trend of consumer awareness regarding the need of risk transfer in insurance companies. The voluntary insurance business market remains still at low levels, however, we need to point out that we have unutilized potentials in our country. Its development is closely linked not only with the economic level, but also with the level of education and consumers’ trust on market operators.

• Property insurance during 2006 recorded 785 million ALL revenues. Fire and addi- tional nature perils insurance products were ranked the fi rst with about 49% property insurance revenues followed by guarantee insurance with 17%. There was a signifi cant increase of fi re insurance in the second half of 2006, which was linked to the banking system as the commercial banks required that their customers insure their proper-

ALBANIAN FINANCIAL SUPERVISORY AUTHORITY 31 Voluntary Insurance Premiums Monthly Progress (in thousand ALL)

180,000 160,000 2006 2005 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 l . y g. t. v. c. n. b. h ri ly pt rc Ma Ja Fe Ap June Ju Au Se Oc No De Ma

ties over the duration of the loan. Premiums and contracts increase from guarantee insurance, based also on the specifi cs that they demonstrate, was associated with the AFSA’s permanent monitoring and supervision towards determining the risk scale undertaken by the operators, mainly through the phenomena of risk transfer from the banks or other entities to the insurance companies..

• It is worth mentioning that, although the construction industry is well developed in Albania, the engineering insurance products were at a low level within the group of property insurance.

• Despite the importance they have at the existing stage of country’s development, li- ability insurance also remained at low levels. Operators’ activities in the fuel, building, hotels & tourism, etc., markets are, in most cases, not insured against damages that it may cause to third parties. Professional liability in various fi elds also remains uncov- ered by insurance.

• Revenues from personal accidents and health insurance in 2006 amounted to about 177 million ALL, thus marking an increase by 21% compared to 2005. Travel health insurance made up most of this group with about 82% of this group revenues. The main factor of the increase in travel health insurance written premiums is the continuous increase in the number of individuals traveling abroad.

• Life insurance market in 2006 split into three following operators: Insig S.A., Sigal S.A. and Sicred S.A.. Life insurance premiums were recorded at 308 million ALL.

Claims • Total claims paid by insurance companies in 2006 were about 1,28 billion ALL, or 7.5%

32 ANNUAL REPORT ‘06 Claims payment by non-life insurance companies in 2006 (in thousand ALL)

500,000

400,000

300,000

200,000

100,000

0 L A G IK IG R- G GM GA NT RS BSIG TE AN SI SI INSI IN LA TE AL NI EUROSI AT IN BA AL

more than in 2005. Due to the market structure described above, majority of paid claims belong to compulsory insurance with 928 million ALL, or 73% of the total claims.

• Technical provisions make up a considerable part of liabilities in all insurance compa- nies balance sheets. They also refl ect the incurred but not paid claims.

• It is worth noting that the Loss ratio at 35% is low compared to other countries across the region. Moreover, this ratio is very low taking into consideration that com- pulsory insurance occupies the main place in insurance structure. This indicates that customers’ indemnifi cations are not assessed and paid at the proper extent by the insurance companies.

2006 Paid Claims Structure

1% 27% Life Voluntary

99% 73% Non-Life Mandatory

• While aiming at fulfi lling its key mission to protect consumers’ interests, the AFSA is paying special attention to the addressing, assessment and payment process of in- surance claims. All insurance companies became subject to on-site inspection con-

ALBANIAN FINANCIAL SUPERVISORY AUTHORITY 33 ducted by the Authority during October-December 2006, which focused on the issue of addressing the claims and their payment. Once the conclusions from the on-site inspection were drawn, AFSA took disciplinary and penalizing measures against some companies. Meanwhile, AFSA in cooperation with Albanian Insurers Asso- ciation and stakeholders’ representatives has started a program on standardizing claims reporting, handling, and payment procedures, closely tied with the review and improvement of insurance contracts terms and conditions. The establishing of a database for claims recording is a priority, which will serve not only supervision, but also insurance companies towards development of tariff differentiation systems based on claims experience.

Reinsurance • The amount of premiums ceded in reinsurance in 2006 was 486 million ALL, about 11% of gross written total premiums. Insurance companies have carried out portfoli- os or specifi c reinsurance contracts in order to build capacity alleviate some fi nancial effects incurred by large claims. Insurance companies have entered into reinsurance agreements regarding the transfer of green card, property, internal TPL and debtor’s life responsibilities. Reinsurance facultative contracts have supported companies’ original insurance contracts mainly in engineering insurance, marine insurance, aviation insurance and liability insurance. The Financial Supervisory Authority has monitored the agreements and reinsurance facultative contracts in compliance with legal requirements of risk maximum retention and the criteria related to reinsurers’ quality. It is worth mentioning the quality improvement of reinsurers participating in the renewing of companies reinsurance agreements carried out during October- December 2006.

• An option to increase reinsurance effi ciency is the establishment of a joint scheme, or facility for reinsurance, which will serve as a tool to make qualitative reinsurance agreements having qualitative re-insurers as a target. There are different experi- ences across the world such as pool reinsurance, or the existence of national rein- surance companies. Such an idea is supported also by the World Bank and it can be applied in the near future, following the analyzing of potential options of adminis- tration approaches.

Insurance Companies’ Ranking in 2006 • In 2006, Sigal insurance company kept on leading the non-life insurance market with 27,34% of insurance premiums total. Meanwhile, Insig recovered its position by moving up to the second position with 18,64% of premiums, thus leaving Sigma Company behind in the third place with 18,40%. Other companies continue respec- tively as follows: Atlantik – 11,39%; Intersig – 8,00%; Interalbanian – 7,05%; Albsig – 5,95%; and Eurosig – 3,23%.

34 ANNUAL REPORT ‘06 EUROSIG ALBSIG 3.23% 5.95% INSIG INSIG 18.64% 42.39% INTERALBANIAN SICRED 7.05% 22.47%

INTERSIG 8.00%

ATLANTIK 11.39% SIGAL 27.34% SIGAL LIFE SIGMA 35.14% 18.40%

• Insig insurance company maintained it position with 42,39% in life insurance, followed by Sigal-Life with 35,14% and Sicred with 22,47% of premiums total.

• Sigma insurance company was ranked fi rst since it had paid 32,12% of the total claims paid by companies. Other companies rank respectively as follows: Sigal – 25,28%; In- sig – 17,63%; Intersig – 9,40%; Atlantik – 8,21%; Interalbanian – 3,61%; Albsig – 2,48% and Eurosig – 1,28%.

Insurance Sector Financial Analysis The AFSA conducted in November - December 2006 with the World Bank technical assistance an insurance market due diligence by reviewing its experience and existing condition. The analysis helped with the identifi cation of market issues and phenomena and the potential scenarios in the future.

The examining of the insurance sector fi nancial condition focused on companies’ as- sessment through Insurance Regulatory Information System (IRIS), standards adapted to non-life insurance companies in Albania. This examining included assessment of claims administration, risk retention and insurance companies’ solvency as the initial step towards AFSA’s full strategy with the goal of drafting initial conclusions and con- tinuation of the supervisory activity further.

Financial reports of the above model are considered very important in terms of set- ting up an early warning system as a key element of the modern model of risk-based supervision. The target of early warning is to timely identify the issues that may affect consumers’ interests and market stability, as well as, permanent monitoring and inter-

ALBANIAN FINANCIAL SUPERVISORY AUTHORITY 35 vention or taking of relevant measures by AFSA.

• The majority of non-life insurance compa- Ratio Importance (IRIS fi nancial indicators) nies have a growth rate in compliance with – Ratios Value Range industry limits.

Ratio High End % Low end % • Net retention ratio is relatively high in the mar- Premium growth rate + 40 - 40 ket. Industry standards are values between Net Retention 80 40 40%– 80%, while the ratio in the Albanian Expense/Premiums Ratio 50 25 market is to an extent of degree of 87.8 %. Claims/Premiums Ratio 80 50 Although this would apparently be regarded Combined Ratio 105 85 as low levels of ceding in reinsurance, large Investment revenues 8 4 Other Revenues 1 N/A amounts in absolute values are transferred Operating Ratio 101 80 outside the territory. High rate of retention is Profi t Ratio 20 - 1 also connected with the insurance structure Capital to Gross Premiums 50 20 in Albania. Internal TPL and border insurance Capital to Technical Provisions 30 10 prevalence certainly has an impact on the high Solvency Ratio 300 150 retention rate by the companies.

IRIS tests on the fi nancial condition of insurance Companies in Albania in 2006

80,00% Premiums Increase Rate Net Retention Rate 60,00% 100.00% 40,00% 80.00% 20,00% 60.00% 40.00% 0,00% l g g a r- ig 20.00% si ga rs ntik gm Insi -20,00% Si Inte l la Si Albsig g g 0.00% a r- ig Euro Inte si At ga rs Albanian ntik

-40,00% gm Insi Si Inte la Si Albsig Euro Inte At

-60,00% Albanian

Claims Ratio Expenditures Ratio

100.00% 80.00% 80.00% 60.00% 60.00% 40.00% 40.00% 20.00% 20.00% 0.00% 0.00% l l g g g g a a r- r- ig ig si si ga ga rs rs ntik ntik gm gm Insi Insi Si Si Inte Inte la la Si Si Albsig Albsig Euro Euro Inte Inte At At Albanian Albanian

36 ANNUAL REPORT ‘06 Combined Ratio Revenue Investment Ratio 120.00% 30.00% 100.00% 25.00% 80.00% 20.00% 60.00% 15.00% 40.00% 10.00% 20.00% 5.00% 0.00%

l 0.00% g g a r- ig l g g a si ga r- ig rs ntik si gm ga

Insi -5.00% Si rs ntik Inte gm la Si Albsig Insi Si Inte la Euro Si Albsig Inte At Albanian Euro Inte At Albanian

Other Revenue Ratio Operating Ratio 8,00% 120.00% 100.00% 6,00% 80.00% 4,00% 60.00% 2,00% 40.00% 20.00% 0,00% 0.00% l g g a r- ig si l ga g g a rs r- ntik ig gm Insi Si si ga Inte la rs Si Albsig ntik gm Insi Si Euro Inte Inte la At Si Albsig Albanian Euro Inte At Albanian

Capital Ratio vs. Gross Premiums Capital Ratio vs. Technical Provisions

400.00% 250.00% 200.00% 300.00% 150.00% 200.00% 100.00% 100.00% 50.00% 0.00% 0.00% l l g g g g a a r- r- ig ig si si ga ga rs rs ntik ntik gm gm Insi Insi Si Si Inte Inte la la Si Si Albsig Albsig Euro Euro Inte Inte At At Albanian Albanian

Solvency Ratio Profit Ratio 2100.00% 1800.00% 50.00% 1500.00% 40.00% 1200.00% 900.00% 30.00% 600.00% 20.00% 300.00% 10.00% 0.00% l g g a r- ig 0.00% si ga rs l ntik gm g g a Insi Si r- ig

Inte -10.00% la Si si Albsig ga rs ntik Euro gm Inte Insi Si At Inte Albanian la Si Albsig Euro Inte At Albanian

ALBANIAN FINANCIAL SUPERVISORY AUTHORITY 37 • Positive trends of market indicators can be observed at fi rst sight; however, the Loss ratio and Expense ratio, in general, still continue to be at levels which are far from ac- ceptable. This is a situation, which has been inherited over several years, and, there- fore, it will be in the AFSA’s focus of attention to normalize it through drafting new risk management strategies and improving the legal framework that affects claims.

• The combined ratio across the majority of companies complies with the low end and high end limits. The Authority’s goal is to maintain the combined ratios of companies within industry limits by demanding modifi cation of the trends of its component parts.

• The operating ratio for the majority of companies falls within the maximum and mini- mum limits set by industry.

• It is noticeable that the majority of insurance companies have an investment return, which is lower than the industry minimum rate of 4% and, which is essentially linked with the size of companies’ assets rather than with the premiums’ revenues.

• With regards to other income ratio, the majority of insurance companies have a higher rate return than the minimum limit of 1% set for this ratio.

The monitoring of Companies Balance Sheets Elements

The AFSA has monitored the balance sheets of companies based on legal requirements and accounting standards. The process was focused on verifi cation of liabilities elements (assets and liabilities of every company) and, then, on reviewing their compliance with assets items in value and time.

• The AFSA has permanently pursued adherence to the legal requirement on insurance companies guarantee fund and application of rules for its investment. Actually, insur- ance companies possess the guarantee fund invested in “frozen deposits” at second tier banks on 1-year term basis and T-Bills as per the law requirements;

• The AFSA has verifi ed by the end of every quarter the minimum limit of companies’ solvency margin as per the law requirements and solvency which makes up, at the same time, also their capital and the investment policies;

• Companies’ fi nancial analysis has also included the auditing of database and calcula- tions carried out in relation to technical and mathematical provisions of the companies by the end of every quarter. The AFSA audit was accompanied by the respective com- ments and the assessment of technical provisions’ suffi ciency. Once the suffi ciency has been assessed , the Authority has conducted verifi cation of assets that would cover the technical and mathematical provisions.

38 ANNUAL REPORT ‘06 • Total of Insurance market assets by 31 December 2006 amounted to about 11,4 bil- lion ALL marking an increase to an extent of 11,69%, compared to 2005. This in- crease was refl ected mainly in investments in T-Bills and real estate by 30.89% and 23.97% respectively;

• The bank deposits amounted to about 3,3 billion ALL, thus comprising also the highest item of market assets to an extent of 28.94 % of total assets. The receivables remain still high at 1.118.206.723 ALL, making up about 9% of assets in the insurance sector;

• The compulsory insurance premium increase in 2006 led to a positive change of the market fi nancial situation, to an improvement of cash fl ow, to the increase of the com- panies’ investment potential. The increase in investment potential has brought about an improvement of assets quality towards liquid investments guaranteeing coverage of technical and mathematical provisions with high quality assets.

Table 6: Insurance Market Balance Sheet

Balance Sheet 31.12.2005 31.12.2006 (*)

Deposits 3.477.332.193 3.302.423.253 Land and constructions 848.259.652 1.051.585.476 Stock and Shares 854.111.519 948.707.019 Treasury Bonds 1.752.811.221 2.294.279.103 Debtors-Receivables 955.121.772 1.118.206.723 Other Activities 2.327.975.749 2.694.262.335 Total Assets 10.215.612.106 11.409.463.909 Gross Technical Provisions 4.917.078.725 5.378.670.605 Other payables 609.889.355 300.160.934 Own Capital 4.688.644.026 5.730.632.370 Total Liabilities 10.215.612.106 11.409.463.909

(*) 2006 data are operational

2.3.2 Securities Market

The securities’ market continues to be prevailed by trading in the primary and secondary market of the Government debt instruments (T-Bills and T-Bonds), while the securities stock market remains still undeveloped and mainly limited in the off-exchange market registered in the Albanian Share Register.

In the recent years, various national and international entities have shown an increasing interest to operate in the securities market.

ALBANIAN FINANCIAL SUPERVISORY AUTHORITY 39 The Authority’s supervisory activity in the securities domain has mainly focused on per- manent follow up of market indicators development. In addition, in order to have a more confi dent and real assessment of these indicators, the AFSA has set as a priority the regu- lar reporting process standardization to be performed by operators on the securities mar- ket day-to-day trading data.

The Government Securities Retail Market

The retail market of Government securities is the most developed securities market in the country. Even during 2006 this market was totally dominated by short-term instruments (T-Bills). The expansion of the market including other operators and deepening it further with longer maturity term Government securities is expected to also increase the transac- tions’ volume in the retail market of these instruments.

2006 marked a relatively satisfactory fl ux of transactions in the Government securities retail market, which has experienced an increase compared to the prior year. The total amount of transactions in the Government securities retail (secondary) market in 2006 was roughly about 20.912,14 billion ALL (compared to 1.518,80 million ALL in 2005). The total number of transactions carried out in this market over the same period was 6065 against 42 in 2005.

Table 7: Government Securities Retail Market in 2006

Quarter I Quarter II Quarter III Quarter IV Type of Transaction (in million ALL) Nominal No. Nominal No . Nominal No. Nominal No . Value Trans. Value Trans. Value Trans. Value Trans.

1. Purchase in the

Primary Market

Individual s 2.058,93 992 756,97 272 695,18 239 1.649,37 686

Juristic Persons 706,76 17 880,25 13 874,64 14 1.939,81 19

2. Selling from 2.891,33 1445 725,61 305 1.442,17 588 1.460,05 602 Bank Portfolio 3. Purchase from individuals prior 115,34 74 227,53 138 1.181,27 126 213,33 87 to maturity date 4. Payment of nominal 209,36 48 814,77 78 940,89 66 1.094,00 195 value in maturity date

5. Pledging of Government securities 2,53 2 7,72 18 8,12 18 16,11 23 as collateral

Total 5.984,25 2578 3.412,85 824 5.142,27 1051 6.372,67 1612

40 ANNUAL REPORT ‘06 Thus, the increase of the transactions’ volume in this market compared to 2005 has oc- curred as a result of the decentralization of the Government securities register and trans- ferring of this activity to the banks licensed by the AFSA to exercise their activity in the retail market. This has enhanced banks inclination to provide to their customers a fi nan- cial product, different from deposits. Additionally, experience has indicated that also the increasing of public awareness on investing in Government securities has a special impor- tance concerning boosting of transactions volume in this market.

Stock Market The stock market still remains the most undeveloped sector of securities market in Al- bania. It consists of the formal market (Tirana Stock Exchange), licensed dealers to trade securities and informal market of transactions on the shares of joint-stock companies.

Tirana Stock Exchange, which was established Tirana Stock Exchange since 1996, is a state-owned company with Minis- try of Finance as the single shareholder and it was Tirana Stock Exchange S.A., has a license to licensed by Albanian Securities Commission (now operate as a securities organized market for AFSA) as an organized market for shares and de- 2 years until 01July 2007. The license serves bentures. Despite permanent efforts, this institu- for Government securities trading, companies tion has not managed to become attractive for the debt and shares. 2 year licensing is condi- domestic companies. Actually, there are no compa- tioned with the duty of drafting and reporting to AFSA of the plan for taking steps to gradu- nies listed in Tirana Stock Exchange, while Govern- ally shift from state ownership and preparing ment securities trading in this market is inexistent. of potential public companies to register them in Tirana Stock Exchange. The existing conditions, in which the economy of the country is facing accompanied by the need for a fast and sustainable growth, which implies an increase of the demand for investments from the private and state sector, request the immediate start and not postponing of the process of stock market development. In this context, the Government may play an im- portant role towards encouraging the development of this sector mainly through privatiz- ing any package of shares of state-owned strategic companies in the stocks market or, by means of providing various fi scal and legal incentives to encourage domestic business to utilize this market as a fi nancing alternative by listing in the stock exchange.

Off-exchange stock market is not an organized one and it mainly consists of transactions executed between shareholders of privatized companies. This market continues to be active, although it has kept declining over years as result of property consolidation these privatized companies. Pursuant to Law No. 7638, date 19 November 1992 “On Commer- cial Companies” all companies, which consist of more than 50 shareholders, have to be registered in a specialized independent registered. Therefore, registration together with clearing and settlement of accounts for transactions executed in shares is conducted by the Albanian Share Register (ASR).

ALBANIAN FINANCIAL SUPERVISORY AUTHORITY 41 ASR is a shareholding company registered with Albanian Share Register (ASR) AFSA as a registrar of property securities. Apart from electronic registration (Book-Entry) of prop- ASR operates since 2002 since it was licensed hav- erty rights for companies, ASR provides also other ing as its scope of work the registration of joint-stock companies’ shares. These companies with over 50 corporate actions for the registered companies. 48 shareholders are subject to the legal obligation of companies are actually registered in the ASR, of keeping their stocks register in an independent which 15 are fi nancial institutions (4 commercial registration center. Albanian Share Register (ASR), banks, 9 insurance companies, 1 securities regis- apart from keeping the register, also conducts its trar and Social Insurance Institute). record updating on executed transactions. Like- wise, ASR provides also the following services: • Announcement of general meeting of share- The total number of registered companies in ASR holders assembly, during 2006 experienced a decline of 31,4% com- • Dividends calculation. pared to 2005. Only shares of 18 companies were traded in the off-exchange market. A total of 140 transactions were executed including a total number of 1.637.755 shares compared to 554 transactions executed in 2005 with a total number of 1.002.886 shares. The number of traded shares in the off-exchange market over 2006 makes up about 8.89% of all stock of companies registered with ASR, something which indicates the low rate of liquidity that characterizes this market.

Table 8: Statistics on the Off-Exchange Stock Market in 2006

No. Classification Statistic

1. Total number of companies registered in Albanian Share Register 48 2. Total number of stocks of companies registered in Albanian Share Register 18.410.025 3. Total number of companies whose stocks have bee traded 20 4. Total number of transactions executed over 2006 140 5. Total number of stocks traded over 2006 1.637.755 6. Percentage of transactions traded over 2006. 8.89 %

Source of Data: Albanian Share Register

It is diffi cult to assess the evolution of the off-exchange stock market in Albania, mainly due to the lack of information on stock trade prices, which hinders calculation of real indi- cators of this market assessment. In addition, lack of information on the activity and fi nan- cial statements of these companies leaves room for “price distortions”, because it does not present the real supply of these securities, thus leaving the minor investors who own stock of these companies, without protection.

42 ANNUAL REPORT ‘06 2.3.3 The Supplementary Private Pensions’ Market

The Development of Supplementary Private Pensions Institutions The pensions’ system in Albania is at a low level of development compared to the region countries. This system is essentially based on state funded pillar, which is otherwise rec- ognized as Social Insurance Scheme (PAYG or, Pay-As-You-Go System).

The existence of pensions third pillar in Albania is still in its earlier stages. Regardless the adoption of the Law ”On Supplementary Pensions and Private Pensions Institutions” as of 1995, the activity of the fi rst companies in private pensions area commenced in 2006. Over this time, these companies have paid very much attention to marketing, work with employers and individuals to attracts as many contributors as possible. Regardless of this fact, the existing private pensions institutions have a number of contributors, which stands at minimum levels required by legal framework. On the other Third Pillar hand, lack of foreign companies in It implies individual savings and supplementary contribution by the this market, due to legal restric- employer. This scheme provides supplementary incomes for individu- tions, renders competition between als who are willing to benefi t higher pensions when they retire. Ex- domestic companies insignifi cant. perience from several countries has indicated that investing a part In 2006, total of supplementary pri- of savings in pensions private funds is a good way of investment for vate pensions market contributors retirement. The Income from supplementary schemes are a very im- portant component for the retirees. is about 2621, thus accumulating a fund of about 13,15 million ALL.

The Companies’ Market Data:

• “Garantsig Pensions Private Institution S.A.” has started its activity as of 01 January 2006. From January to December 2006, the company had a fi gure of about 892 con- tributors with about 2,62 million ALL of contributions.

• “APFA – American Pension Fund of Albania S.A.” started its activity as of 01 Janu- ary 2006. From January to December 2006, the company had a fi gure of about 1122 contributors with about 9,27 million ALL from contributions, which were invested in T-Bills.

• Private Pensions Institution “Capital S.A.” started its activity as of 01 March 2006. From March to December 2006 this institution collected 1,26 million ALL from contributions, totaling about 607 contributors. The contributions have been invested in T-Bills to an extent of 90%, while the rest were invested in bank deposits.

ALBANIAN FINANCIAL SUPERVISORY AUTHORITY 43 Private Pensions’ Market Structure in 2006

10% CAPITAL 23% CAPITAL 34% APFA 20% 70% GRANTISIG APFA

43% GRANTISIG

Pensions Private Funds Market Pensions Private Funds Market (according to contributions) (according to contributors number)

Supplementary and private pensions institutions have been subject to on-site supervision by AFSA. The goal of inspections conducted on these companies has essentially consisted in the verifi cation of the following: i) The respecting of legal requirements regarding pensions institutions in the course of performing their activity; ii) The investment of the guarantee fund; iii) The collection of revenues from contributions and their investment; iv) The members’ individual accounts; v) The implementation of the business plan drafted by private pensions’ institutions.

Third Pillar Future Development Based on the importance that third pillar presents in the frame of pensions’ system, as well as, based on the limitations of the existing legal framework concerning the organization of this pillar, the conclusion is that its development needs fundamental changes basically focused on these following directions: • The full revision of legal framework. The existing law needs signifi cant improvements, which must be brought up to international standards and, which must align with the coun- try developments as a goal; • The stimulation and involvement of employers and individuals in these schemes through developing legal and fi scal incentives; • The enhancement and strengthening of the elements of the guarantee and the proper ad- ministration of private pensions’ institutions; • The promotion and development of stock market in the country, as this is closely connected with pensions’ market development.

Taking measures to meet the aforementioned requirements will necessarily bring about positive outcomes in the Albanian market of supplementary private pensions.

44 ANNUAL REPORT ‘06 2.4 Institutional Relations

2.4.1 Cooperation with Domestic Institutions

The Albanian Financial Supervisory Authority has an important role in development and maintenance of solid fi nancial stability for the country’s economy. In this context, efforts have been made to develop a positive climate of cooperation with important fi nancial insti- tutions in the country, such as the Ministry of Finance and the Bank of Albania. In addition, AFSA represents a serious partner for the Government in terms of supporting acceleration of reforms, which have to do with non-banking fi nancial sector’s development. In 2006, the AFSA has cooperated also with other domestic institutions regarding improvement and coordination of work with stakeholders, which have connections with its activity.

An important element of institutional cooperation is also the signing of Memorandums of Co- operation and Understanding between the AFSA and other regulatory institutions in the coun- try. The goal of these agreements consists in coordinating the regulatory activity among regu- latory entities of similar domains, as well as, the exchange of information with other important institutions, which play a determinant role in the development of the country (see Table 9).

Financial Stability Advisory Group (FSAG)

Article 30 of Law No. 9572, date 03 July 2006, “On the Albanian Financial Supervisory Authority” explicitly specifi es the establishment and functioning of a new structure, Financial Stability Advisory Group (FSAG), which:

• Aims at coordinating the supervisory and regulatory work and assists in the development of joint policies in the financial system of the country, • Ensures exchange of information between financial institutions, which are group members. • Assists in protection, stability and development of financial markets in the Republic of Albania, as well as, in the improvement and increasing of efficiency of control over the operators of these markets.

FSAG Members • Minister of Finance; • Chairperson of FSA Board; • Bank of Albania Governor

In December 2006, AFSA signed a Memorandum of Under- standing with the Competition Authority. The scope of this agreement consists in provision of bilateral assistance with regard to information exchange. The target of this agreement is to set bilateral rules to ensure a free and effective compe- tition pursuant to nondiscrimination policies regarding enti- ties that operate in areas, which are subject to the AFSA own regulatory and supervisory functions.

ALBANIAN FINANCIAL SUPERVISORY AUTHORITY 45 2.4.2 Cooperation with International Institutions

The rapid development of international fi nancial markets, the unifi cation of regulatory and supervisory standards, as well as, the involvement of regulators of relevant countries in the implementation of these “general principles” has led to the intensifi cation of the AFSA’s contacts and the exchange of experiences with its counterparts and to the consideration of participation in international organizations as priority task. International cooperation becomes more intensive due to the need of enforcement of EU Directives and implementa- tion of Stabilization and Association Agreement.

Table 9: Membership and Signed Cooperation Agreements

A. Agreements Signed with Organizations Inside Albania Year Institution

- Faculty of Law 2002ASC (now AFSA)

- Authorized Accounting Experts Institute (AAEI) 2003ASC (now AFSA)

- General Directorate of Road Transportation Service 2003ISA (now AFSA)

- Bank of Albania 2005ISA, ASC (AFSA)

- Competition Authority 2006AFSA

B. Agreements Signed with Counterpart Institutions outside Albania Year Institution

- Stock Market Commission of Greece 1999ASC (now AFSA)

- Securities Commission of Quebec 2000ASC (now AFSA)

- Securities and Stock Exchanges Commission of Italy 2000ASC (now AFSA)

- Stock Market Agency of Slovenia 2003ASC (now AFSA)

- Securities and Stock Exchanges Commission of Poland 2003ASC (now AFSA)

- Stock Market Board of Turkey 2003ASC (now AFSA)

- Financial Market Supervisory Commission of Bulgaria 2003ASC (now AFSA)

- Kosovo Banking and Payments Authority 2004ISA (now AFSA)

- National Securities Commission of Rumania 2005ASC (now AFSA)

- Securities and Stock Exchanges Commission of Macedonia 2005ASC (now AFSA)

- Securities and Stock Exchanges Commission of Montenegro 2005ASC (now AFSA)

- Securities Commission of Croatia 2005ASC (now AFSA)

C. Membership in Regulators International Organizations Year Institution

- IOSCO (International Organization of Securities Commissions) 1998ASC (now AFSA)

- IAIS (International Association of Insurance Regulators) 2001ISA (now AFSA)

- IOPS (International Organization of Pensions Regulators) 2006AFSA

46 ANNUAL REPORT ‘06 Membership in International Organizations The AFSA is a full member of regulators’ international organizations in the areas of insurance and securities carried over from the respective prior authorities. Additionally, AFSA recently signed an agreement on becoming a full member of the International Organization of Pension Regulators (IOPS). The target of active participation in these organizations is to increase bi- lateral cooperation in support of most effective regulation of these markets at an international level. This cooperation has consisted in the exchange of information and experiences, coordi- nation of efforts regarding setting of regulatory and supervisory standards and provision of a joint assistance in relation to protection of non-banking fi nancial markets integrity.

International Association of Insurance Supervisors (IAIS) – Membership in this or- ganization has assisted the AFSA basically to improve the insurance area regulatory legal framework through introducing international standards and to apply this legal framework in practice. From this perspective, AFSA has had permanent contacts with various IAIS bodies through permanent participation in trainings, workshops, conferences, as well as, in annual meetings of the members of this organization.

International Organization of Securities Commissions (IOSCO) – Enjoying the IOSCO member status, AFSA has, in 2006, continued its cooperation with this organization by par- ticipating in the Committees and Working Groups established on various issues. Moreover, the target of AFSA has been to become a signatory-country in the Multilateral Memoran- dum of Understanding and Assessment Methodology (MMoU), signed by majority of IOSCO members, which are developed countries. The goal of this agreement is to boost interna- tional cooperation, establish the information exchange system in order to achieve an in- creasingly effi cient supervision on the operators and fi nancial services of stock markets in a global scale. AFSA has to meet up to 2010 all legal and regulatory adjustments and become subject to an assessment in order to be qualifi ed to sign MMoU. Same process occurs also in the case of MMoU in IAIS. Therefore, the AFSA faces major responsibilities and challenges concerning revision of the overall legal package of the areas under its jurisdiction.

International Organization of Pensions Supervisors (IOPS) – Right after its establish- ment as new regulatory institution, the AFSA determined procedures to become e member of IOPS and it accomplished its goal by becoming its full member in December 2006. The functioning goal of this organization consists in the international promotion and coopera- tion in the area of pensions market regulation. In addition, IOPS serves as an open forum for the discussion of development policies of this market, as well as, for the exchange of experiences and information.

Cooperation with Counterpart Institutions The AFSA has continued good bilateral relations with similar Authorities, which regu- late and supervise non-banking fi nancial markets across countries. These efforts were substantiated with the signing of the Memorandum of Understanding with several coun-

ALBANIAN FINANCIAL SUPERVISORY AUTHORITY 47 terpart Authorities. The main benefi t of signing and implementation of these agreements consists of bilateral relations establishment to facilitate exchange of confi dential infor- mation as a key instrument in terms of a friendly, fast and effi cient functioning of best international practices in the area of fi nancial markets regulation. Pursuant to this positive situation, the AFSA is working on expanding cooperation with other similar institutions through drafting of several new agreements with some of the developed countries.

Cooperation with Partners (Donors) Donors have been serious partners and a very important supporting factor in relation to in- stitutional establishment of the AFSA, as well as, promotion and development of particular links of the activity of this institution.

Cooperation with World Bank (WB) – being the key and most important partner, WB has assisted and supported the overall regulators unifi cation process and the AFSA institu- tional set-up. In addition, WB has provided a real support also in connection with conducting of a series of trainings by well-known international experts and lecturers. Devel- oping human resources and providing further training on specifi c issues not only involving AFSA staff, but also non- banking fi nancial market operators has also been the goal of these trainings.

Cooperation with FSVC (Financial Services Volunteer Corps) – has been effi cient especially in the frame of drafting human resources management policies and training of specialists of a very specifi c area of insurance market such as actuary.

Cooperation with European Bank for Reconstruction and Development (EBRD) – has focused in the area of drafting necessary legislation for the issuance of corporate bonds, as well as, municipal bonds.

Activities, Conferences and Trainings Membership in international organizations and cooperation with counterpart Authorities is considered as an opportuni- ty to exchange experiences, brainstorm on common issues and to develop human resources through trainings, In this sense, the AFSA has demonstrated its interest through an active participation in meetings, conferences, workshops and in various trainings held at regional and international level where issues of insurance, securities and pensions markets have been addressed.

48 ANNUAL REPORT ‘06 2.4.3 Public Relations Policies

The Albanian Financial Supervisory Authority considers public information very impor- tant in terms of protecting consumers’ interests to the best extent possible. Therefore, a special attention is paid to transparency of supervisory and regulatory activity of the AFSA as well as to the availability and accessibility of the information to the public. In this context, the AFSA, following its establishment, went on with its successful practice of prior regulatory entities in terms of publication of information and statistical reports on the development of various non-banking market sectors.

A specifi c attention has been paid to the AFSA’s presentation in media essentially through participation in conferences and workshops where important issues, which affect develop- ment of Albanian economy, are topics of discussion. In addition, in order to stay closer to the community, work has already started on the AFSA’s offi cial webpage, which will be an important communication tool that would link the regulatory entity with the public.

2.5 Information Technology

The AFSA is working on a strategy regarding the development of Information and Tech- nology (IT) that would apply to the institution itself and to the market. This IT strategy would meet the supervisory needs of the market through implementing a risk-based supervisory model application.

In order to effi ciently meet legal obligations, the AFSA needs an Integrated Information System, which completes and processes all the information needed as a part of the institu- tion activity, while it ensures stability, certainty and continuation of work processes.

Such a system has the following advantages:

• The establishment of a database for the overall insurance market, which will be used not only in daily monitoring of insurance companies, or in the case of on-site inspections conducted by inspectors, but it will also be used by companies to avoid fraudulent cases and misrepresentation of facts. This database will be useful in the future in implementing more effi cient methods in setting premiums based on poli- cyholder’s background etc.

ALBANIAN FINANCIAL SUPERVISORY AUTHORITY 49 • The minimization of technical errors by the experts due to different platforms’ applica- tion, which will make the information released by the authority more reliable.

• It will provide higher effi ciency of work-processes and it will decrease the time needed to process information.

• It will enable the use of “software programs” in the AFSA fi nancial activities, which are recognized by the tax authorities or auditing entities. The use of such software programs will make the activity of AFSA more transparent.

• The computerization of the data and of all records to facilitate and enable faster process- ing of paper work.

• The data of non-banking fi nancial sector are in a computerization process.

• It will provide higher effi ciency by shortening the manual process of data input. At the same time, it will enable the experts to put in more efforts and time into other projects.

• It will provide an opportunity to reconcile the statistical data from this database with the fi nancial data, as well as it will enable cooperation with counterpart institutions which operate in fi nancial markets.

• Insurance risk and investment risk will be assessed more accurately;

• Portfolio diversifi cation of licensed entities will get more clarifi ed.

50 ANNUAL REPORT ‘06 III. Future Perspective

The AFSA’s fundamental goal is to protect consumers’ interests along with ensuring fi - nancial stability of operators in the market as well as law enforcement. The Authority’s focus in the future will be the regulation and improved supervision of non-banking fi nan- cial sector, which will have an impact on the signifi cant increase of the role of insurance, supplementary private pensions and securities in fi nancial market and overall Albanian economy. This will have a positive impact in the stability of the economy of the country.

The revision of legislation in compliance with development needs and its harmonization with European Union directives comprises one of basic priorities of the institution towards markets’ regulation according to international standards. The increase of the guarantee fund, already passed by the Parliament, and the introduction of international fi nancial reporting standards (IFRS) by 2008 will be followed by other AFSA initiatives such as improved legislation that would comply with EU directives. The target of improved legal framework will be to build a safer environment for the operators’ activity across supervised markets. On the other hand, the AFSA will closely cooperate with all the other structures in terms of passing legislation in accordance with market development and market de- mands, as well as, ensuring Compliance with such legislation.

The transition from the traditional supervisory model to the risk based one relying on Eu- ropean countries practice will constitute AFSA’s priority in the supervisory perspective. The new risk-based supervisory approach is expected to be backed up by a new electronic reporting system, which will guarantee fast and reliable communication, improvement of analysis’ capacity, improvement of warning system and, eventually, improvement of quality and effi ciency of the overall AFSA’s supervisory activity. The Authority is already cooperating with counterpart institutions in Europe in order to examine various system models and their effi ciency in supervision in the respective countries. The drafting and revision of AFSA’s regulation and internal manuals, regarding on-site supervision and other risk based supervision activities, will take place at the same time of the application of the new supervisory model.

The promotion and encouragement of markets’ development, and non-banking fi nancial services and products will remain in the focus of AFSA work over the next period. Such a goal will be attained not only through quality improvement of the existing services and products, but also through improving the range of the products offered in order to meet the consumers’ needs. Better quality of corporate governance is needed in the improve- ment of risk management and the reduction of administrative costs. The AFSA will pay a special attention to quality improvement of corporate governance. Our goal is to ensure the capability, possibility and good will in the governing of the supervised operators. Increasing consumers’ awareness and knowledge regarding the products offered will be part of a large campaign that the Authority will initiate in cooperation with market operators. The goal of this campaign will consist in making consumers aware of the role and importance of insurance, supplementary pensions and other fi nancial outputs

ALBANIAN FINANCIAL SUPERVISORY AUTHORITY 51 in the market. This campaign will provide awareness and knowledge of products that will ensure fi nancial stability of Albanian households and businesses and will improve overall life quality in Albania.

The attainment of all the AFSA’s goals regarding regulation and supervision will be based on close cooperation with all insurance, securities and supplementary private pensions market structures. The target is to conduct programs, which promote effi ciency and su- pervised markets integrity, in cooperation with businesses. Fruitful cooperation and regu- lar communication established with insurers organization will be further enhanced upon initiation and implementation of programs regarding expansion of businesses, insurance of nature disasters, etc.

In conclusion, a solid macroeconomic development of the country and a fast grow- ing banking sector tied with good potentials that insurance, securities and pensions markets provide in Albania, are all factors, which enable solid growth of non-banking fi nancial markets in a relatively short time. These factors, accompanied by the overall improvement of the fi nancial markets supervision , have served at this time as the basis of attracting the interest of international insurance companies and pension institutions. It is worth mentioning that some of the best European insurance companies, have be- gun their cooperation with Albanian insurance companies. International companies have indicated considerable interest regarding the privatization of the state-owned Insig insurance company, which is set to be completed within 2007. Incorporation of inter- national best practices combined with a modern regulatory and supervisory approach will certainly play a very big role in non-banking fi nancial market capacity boost and its overall safety and perfection.

52 ANNUAL REPORT ‘06 IV. Appendixes

APPENDIX A: Financial Supervisory Authority Organization Structure

The Board of AFSA

Internal Audit

Adviser Chairperson

Deputy ChairpersonDeputy Chairperson

Inspection & Human Resources Licensing & International & Disciplinary & Other Supporting Monitoring Public Relations Department Department Department Department

Inspection IT Sector Licensing Legal Department Department Sector

Finance & Actuarial Monitoring International Accounting Department Department & Public Sector Relat. Dept.

Human Disciplinary Resources Department Sector

ALBANIAN FINANCIAL SUPERVISORY AUTHORITY 53 APPENDIX B: Non-Banking Legal-Regulatory Framework

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n .

Law/Regulation Descriptio The Law defines obligations concerning compulsory insurance and liability to third parties in cases of accidents by setting forth procedures in relation to meting these obligations and it also sets forth establishment of Albanian Insurance Bureau and the procedures its functioning and activity The scope of this Law is establishment general principles and rules concerning insurance, reinsurance, intermediary activity in insurance and reinsurance supervision by the state of entities which undertake to exercise the activities set forth in this law. The CoMD defines the high end acceptable limits of activities and investments of activities to recover technical and mathematical provisions in insurance companies. The scope of this regulation is to determine basic rules drafting the reinsurance needs program for every financial year of insurance company. The CoMD defines the professional and reliability criteria of insurance agents, as well as, it sets forth procedures regarding licensing of and rules for the supervision of agents’ activity Te goal of this regulation is the establishment balance for insurance companies’ stock investment and compulsory adherence to some supervisory relations. The scope of this regulation consists the rules set by AFSA concerning the insurance companies reporting manner The scope of this regulation is definition criteria and procedures for authorized accounting experts companies, which will be appointed by insurance companies following the approval of AFSA and content of the control reports on insurance companies by authorized accounting experts companies. the foreign insurance company, as well as, procedures of licensing and expansion of the insurance company activity. The scope of this regulation is calculation methods and the manners of keeping mathematical provisions by the insurance companies. The scope of this regulation is the manner calculation and keeping of non-life insurance technical provisions by companies. The goal of this regulation is definition the time limits and procedures of issuing the license to exercise activity as insurance and reinsurance company and as an office of a foreign company, procedures of establishing the representation office in Republic Albania by The CoMD defines the Ways of estimating required level solvency concerning Life and Non-life Insurance of insurance companies the elements that compose it. the consumers ahead of entering into insurance contract, or over the insurance contract validity time. The scope of this instruction consist the regulation insurance companies reinsurance activity, which can reinsure part of liabilities that it has contracted with insurers, national reinsurance companies, with offices of foreign reinsurance companies licensed by the AFSA or foreign reinsurance companies that meet criteria set forth in this instruction. for regular and annual reporting of insurance companies to the AFSA. The goal of this instruction is definition the rules disclosure for the necessary data to enable public become familiar with financial condition of insurance companies and to assess the companies affordability in terms of paying the claims and meeting other obligations, as well as, defining the rules for providing information to The scope of this regulation is listing all mandatory documentation The goal of this regulation is to define requirements in connection with professionalism and the reputation of persons, who conduct administration, leading and controlling of the insurance company, as well as, constraints to be applied in the frame of their appointment and dismissal. This order defines earned premium rates of compulsory insurance by motor vehicles owners in connection with liabilities to third parties. The scope of this order is issuance, trading and administration Border Insurance Policies. The Albanian Bureau is assigned to carry out these activities on behalf of insurance companies, which are members it

e

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n athematical provisions in insurance companies. On the limits of insurance companies stock investment Descriptio On the Insurance of Motor Vehicle Owners in connection with Liability to third parties On trading and administration of border polices by Albanian Insurance Bureau “On the Insurance, Re-insurance and Intermediary Activity in Insurance and Reinsurance” On the insurance companies reporting rules, manners and conditions to AFSA m the elements that compose it limits of the activities and investments activities to recover technical and On the adoption of approach on Ways of estimating the required level solvency concerning Life and Non-life Insurance of insurance companies and On determining the high end acceptable On the reinsurance program content of presenting it to the Financial Supervisory Authority insurance companies and timelines of On the Licensing Criteria and Procedures for Insurance Agents and the Rules of Supervising Their Activity”. On the adoption of motor compulsory insurance premium regarding liabilities to third parties On defining the criteria of reinsurance companies, with which the insurance companies that operate in the Republic of Albania may enter into reinsurance agreements. On the rules of disclosing insurance and brokerage companies data in the context of transparency to the public and consumer protection. On the insurance companies authorized accounting experts of applications about issuing the license to exercise insurance or reinsurance activity in the Republic of Albania On some criteria to be met by persons elected or appointed in the insurance and reinsurance companies leading bodies. On the basis, calculation methods and the manners of keeping non-life On the accepting and reviewing procedures insurance technical provisions. On the basis, calculation methods and the manners of keeping mathematical provisions. annual mandatory reporting of insuranc and reinsurance companies. On the list of documents regular and

d d d

d

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5

5

Council of Ministers Decision (hereinafter referred to as CoMD) No 191, date 25 March 200 CoMD No. 268, date 28 April 2005 Regulation adopted by Decision No. 5, date 08 February 2007 of Financial Supervisory Authority Boar CoMD No. 192, date 25 March 2005 date 15 September1992 changes by Law No. 7461, Decree No.295, date 01 December 992, and by Law No. 8729, date 18 January 2001 Minister of Finance Order No. 11 date 25 March 200 Minister of Finance Order No. 14 date 06 May 2005 Regulation adopted by Decision No. 4, date 08 February 2007 of Financial Supervisory Authority Boar Law No. 9267, date 29 July 2004 Legal/Regulatory Reference Regulation adopted by Decision No. 6, date 08 February 2007 of Financial Supervisory Authority Board Regulation adopted by Regulation adopted by Decision No. 14, date 08 February 2007 of Financial Supervisory Authority Boar Decision No. 9, date 08 February 2007 of Financial Supervisory Authority Board Regulation adopted by Decision No. 8, date 08 February 2007 of Financial Supervisory Authority Board Instruction adopted by Decision No. 12, date 08 February 2007 of Financial Supervisory Authority Board February 2007 of Financial Supervisory Authority Board Instruction adopted by Decision No. 11, date 08 Regulation adopted by Decision No. 7, date 08 February 2007 of Financial Supervisory Authority Board February 2007 of Financial Supervisory Authority Boar Instruction adopted by Decision No. 10, date 08 Regulation adopted by Decision No. 13, date 08 February 2007 of Financial Supervisory Authority Board In Insurance Area

54 ANNUAL REPORT ‘06 In Insurance Area

Legal/Regulatory Description Law/Regulation Description Reference

“On the Insurance, Re-insurance and The scope of this Law is establishment of general principles and rules Law No. 9267, Intermediary Activity in Insurance concerning insurance, reinsurance, intermediary activity in insurance date 29 July 2004 and Reinsurance” and reinsurance and supervision by the state of entities which undertake to exercise the activities set forth in this law.

Decree No.295, The Law defines obligations concerning compulsory insurance and date 15 September1992 liability to third parties in cases of accidents by setting forth procedures changes by Law No. 7461, On the Insurance of Motor Vehicle Owners in relation to meting these obligations and it also sets forth date 01 December 992, in connection with Liability to third parties establishment of Albanian Insurance Bureau and the procedures of and by Law No. 8729, its functioning and activity. date 18 January 2001

On the adoption of the approach on the Council of Ministers Ways of estimating the required level of The CoMD defines the Ways of estimating the required level of solvency Decision (hereinafter solvency concerning Life and Non-life concerning Life and Non-life Insurance of insurance companies and the referred to as CoMD) No. Insurance of insurance companies and elements that compose it. 191, date 25 March 2005 the elements that compose it.

On the Licensing Criteria and Procedures The CoMD defines the professional and reliability criteria of insurance CoMD No. 192, for Insurance Agents and the Rules of agents, as well as, it sets forth procedures regarding licensing of and date 25 March 2005 Supervising Their Activity”. rules for the supervision of agents’ activity.

On determining the high end acceptable The CoMD defines the high end acceptable limits of the activities and CoMD No. 268, limits of the activities and investments of investments of activities to recover technical and mathematical date 28 April 2005 activities to recover technical and provisions in insurance companies. mathematical provisions in insurance companies.

Minister of Finance On the adoption of motor compulsory This order defines earned premium rates of compulsory insurance by Order No. 11 insurance premium regarding liabilities motor vehicles owners in connection with liabilities to third parties. date 25 March 2005 to third parties

Minister of Finance The scope of this order is issuance, trading and administration of Border On trading and administration of border Order No. 14 Insurance Policies. The Albanian Insurance Bureau is assigned to carry out polices by Albanian Insurance Bureau date 06 May 2005 these activities on behalf of insurance companies, which are members of it.

Regulation adopted by Te goal of this regulation is the establishment of balance for the Decision No. 4, date 08 On the limits of insurance insurance companies’ stock investment and compulsory adherence February 2007 of Financial companies stock investment to some supervisory relations. Supervisory Authority Board

Regulation adopted by On the reinsurance program content of The scope of this regulation is to determine basic rules of drafting Decision No. 5, date 08 insurance companies and timelines of the reinsurance needs program for every financial year of the February 2007 of Financial presenting it to the Financial Supervisory insurance company. Supervisory Authority Board Authority

Regulation adopted by Decision No. 6, date 08 On the insurance companies reporting The scope of this regulation consists of the rules set by AFSA February 2007 of Financial rules, manners and conditions to AFSA concerning the insurance companies reporting manner. Supervisory Authority Board

The scope of this regulation is definition of criteria and procedures for Regulation adopted by authorized accounting experts companies, which will be appointed by Decision No. 7, date 08 On the insurance companies insurance companies following the approval of the AFSA and the content February 2007 of Financial authorized accounting experts of the control reports on insurance companies by the authorized Supervisory Authority Board accounting experts companies.

Regulation adopted by On the basis, calculation methods Decision No. 8, date 08 The scope of this regulation is calculation methods and the manners and the manners of keeping February 2007 of Financial of keeping mathematical provisions by the insurance companies. mathematical provisions. Supervisory Authority Board ALBANIAN FINANCIAL SUPERVISORY AUTHORITY SUPERVISORY FINANCIAL ALBANIAN Regulation adopted by On the basis, calculation methods The scope of this regulation is the manner of calculation and keeping Decision No. 9, date 08 and the manners of keeping non-life of non-life insurance technical provisions by insurance companies. February 2007 of Financial insurance technical provisions. Supervisory Authority Board

The goal of this regulation is definition of the time limits and the Regulation adopted by On the accepting and reviewing procedures procedures of issuing the license to exercise activity as insurance and Decision No. 13, date 08 of applications about issuing the license reinsurance company and as an office of a foreign company, procedures February 2007 of Financial to exercise insurance or reinsurance of establishing the representation office in the Republic of Albania by Supervisory Authority Board activity in the Republic of Albania the foreign insurance company, as well as, the procedures of licensing and expansion of the insurance company insurance activity.

The goal of this regulation is to define requirements in connection Regulation adopted by On some criteria to be met by persons with professionalism and the reputation of persons, who conduct Decision No. 14, date 08 elected or appointed in the insurance administration, leading and controlling of the insurance company, February 2007 of Financial and reinsurance companies leading bodies. as well as, constraints to be applied in the frame of their appointment Supervisory Authority Board and dismissal. Instruction adopted by On the list of documents of regular and Decision No. 10, date 08 The scope of this regulation is listing of all mandatory documentation annual mandatory reporting of insurance February 2007 of Financial for regular and annual reporting of insurance companies to the AFSA. and reinsurance companies. Supervisory Authority Board The goal of this instruction is definition of the rules of disclosure for the necessary data to enable the public to become familiar with the Instruction adopted by On the rules of disclosing the insurance financial condition of insurance companies and to assess the insurance Decision No. 11, date 08 and brokerage companies data in the companies affordability in terms of paying the claims and meeting other February 2007 of Financial context of transparency to the public

55 obligations, as well as, defining the rules for providing information to Supervisory Authority Board and consumer protection. the consumers ahead of entering into the insurance contract, or over the insurance contract validity time.

The scope of this instruction consist of the regulation of insurance Instruction adopted On defining the criteria of reinsurance companies reinsurance activity, which can reinsure part of liabilities by Decision No. 12, companies, with which the insurance that it has contracted with insurers, with national reinsurance date 08 February 2007 companies that operate in the Republic companies, with offices of foreign reinsurance companies licensed by of Financial Supervisory of Albania may enter into reinsurance the AFSA or foreign reinsurance companies that meet the criteria set Authority Board agreements. forth in this instruction.

n

aw/Regulation Descriptio This decision defines the rules in connection with entities, which enjoy right to make announcements about securities and exemptions from this rule, rules in relation to orders that must be issued by the regulatory body in cases when it finds out a security related announcement is fraudulent, the obligation to send a copy of announcements regulator’s address, and the sanctions on cases, which are verifies as running against this decision. This regulation defines rules applicable to securities public proposals, which are shares, bonds or guarantees, by providing the exceptions to general rule. The regulation provides prospect mandatory form and content. It defines the data that must make up narrative part of the prospect such as responsible persons, advisors, securities data, with which proposal is linked, general information on the issues and its capital, etc. Additionally, regulation regulates in a detailed manner the procedures on prospect registration; it sets forth maximum time limit of a public proposal, the obligation issuer to report AFSA following proposal closure and the measures to eliminate irregularities during public proposal. The Law “On Securities” is the main regulatory framework for functioning of regulatory. The object of this law is provision investors’ protection in securities by establishing the regulatory body, by regulating securities markets and persons engaged in investment The goal of this decision is to stipulate an ethic, a behavior persons licensed operate in securities market. It defines the obligations vis-à-vis customers, obligation concerning sets forth rules about execution upon priority principle of customer’s orders, quick and fair registration of eh transaction carried out by the customer, etc. business, and by controlling the public issue of trading in securities. This law establishes a clear and fair communication, the obligation to explain risk customer, obligation to familiarize the customer with fees that are applied, etc. The decision also the regulatory entity which has supervisory and licensing authority for securities market, and with further development of this market, the regulator will take attributes an independent agency. The decision defines the obligations in terms of keeping accounting records, their renovation and maintenance, the obligation to draft financial statements their form and content. It provides the definition “customer money” operations linked with them. In addition, the decision sets forth obligation of licensed person to assign accounting experts, thus reinforcing authorities and procedures regarding their appointment dismissal. The regulation establishes the legal basis and it applies to all proposals take possession of the shares control package or to merge joint stock companies registered in Albania. Its goal is less than 20% of the right to vote). to ensure an equal and fair treatment of all shareholders, which are affected transactions carried out to get possession of shares control package. This regulation imposes the rules the game. Proposals to get possession of control package must be made by defined deadline in order to provide shareholders with the possibility of making a well-informed decision. The public enjoys the right to be informed about any significant change (more or The scope of this regulation is the definition requirements, procedures and time limits of licensing persons who apply to be issued with license operate as securities registrar. The regulation defines the examination organization procedure for securities dealer, investments advisor and their representative. Securities registrar is a juristic person licensed by AFSA, which has organization and administration of securities registers as the scope its activity. This regulation sets forth rules concerning minimum capital, low end liquidity limit, obligations of licensed persons, definitions with regard to approved inputs and liquid and their estimate. The goal of this regulation is to define the licensing procedures and fees that entities must pay case by depending on the activity, for which they apply. This regulation explicitly stipulates the actives for which securities dealer, investments advisor and their representative are licensed. Licensing criteria take up a considerable special part of the regulation. These criteria define all necessary documentation that unless it is licensed in advance by AFSA. The securities market (stock exchange) organizes its activity based on the statute and rules of trade operation, which become subject to adoption by the AFSA. applicants must present in order to be licensed conduct the activities, which fall under Definition of requirements, time limits and licensing procedures to be followed by the entities applying to be provided license operate in securities market make up the scope of this regulation. In frame, it is defined that no entity may operate as securities dealer the scope of this regulation. The AFSA right to accept or refuse applications is applied in the frame of procedures, which are followed in such a process. In addition, it sets forth fees and commissions to be paid by the licensed entities both, at moment when issued with describing its two key elements, which are the accurate nature and influence on price. persons with access to internal information, its updating and transparency AFSA regarding transactions carried out by company directors and persons linked with them. In addition, the regulation sets forth preventive measures, which are connected with the obligations of persons professionally involved in the transaction to condemn an illegal practice, as well as, obligation of journalists and financial analysts to make transparent conflicts interest in their securities related articles and analysis. the license and during exercising activity, for which they have received license. The regulation reflects most recent guidance of CE re: trade violations and protection against them. The regulation provides the definition of internal information by means clearly This definition considers it a market violation even if the person, who has performed action, did not make any profit. It is the first time that obligations such as drafting of list report to AFSA. The regulation prohibits trading activity in the retail market of banks, which keeping of the Government securities analytical register by being issued with a license for this type of activity or, by making an agreement with another bank, which is licensed for this purpose. This regulation explicitly defines the manner of retail market functioning, monitoring and transparency procedures with the aim of protecting investors that invest in government securities. The regulation provides an accurate definition of retail market, type transactions on this market, trading procedures, keeping of analytical register, obligation to inform and are not licensed by the AFSA. Banks, which operate in retail market, must also organize the AFSA to trade and keep register on securities of Republic Albania Government constitute the scope of this regulation. The target regulation is to protect securities investors’ interests and improvement of the functioning conditions Government securities retail market. Stipulation of conditions, manner and procedures monitoring the entities licensed by

nL On the retail market on Government securities of the Republic of Albania Descriptio

On Securities On the rules of leading securities investment activity On the rules re: form and content of announcements about investment activity in securities. On the financial and accounting requirements of securities dealers On prospect On take-over On securities registrars licensing On the requirements re: financial resources of licensed persons On licensing, fees and commissions On the organization of applicants examination On securities market licensing On the procedures of monitoring retail market on Government securities of the Republic of Albania On illegal practices of trading On licensing securities dealer, the investments advisor and their representative.

Area

Law 8080 date 01.03.1996, changed CoMD No. 441 date 17 June 2001 by Laws No. 8168, date 05 December 1996 and Law No. 8745, date 22 February 2001. Reference Legal/Regulatory CoMD No. 440 date 17 June 2001 CoMD No. 442 date 17 June 2001 Regulation adopted by Decision No. 12, date 29 Regulation adopted by Decision No. 12, date 29 January 2007 of Financial Supervisory Authority Board January 2007 of Financial Supervisory Authority Board Authority Board Regulation adopted by Decision No. 12, date 29 January 2007 of Financial Supervisory date 29 January 2007 of Financial Supervisory Authority Board Regulation adopted by Decision No. 12, Regulation adopted by Decision No. 12, date 29 January 2007 of Financial Supervisory Authority Board Regulation adopted by Decision No. 12, date 29 January 2007 of Financial Supervisory Authority Board Regulation adopted by Decision No. 12, date 29 January 2007 of Financial Supervisory Authority Board Regulation adopted by Decision No. 12, date 29 January 2007 of Financial Supervisory Authority Board date 29 January 2007 of Financial Supervisory Regulation adopted by Decision No. 12, Authority Board Regulation adopted by Decision No. 12, date 29 January 2007 of Financial Supervisory Authority Board by Decision No.5, date 07 December 2006 of Financial Supervisory Authority Board Regulation adopted In Securities

56 ANNUAL REPORT ‘06

n

aw/Regulation Descriptio This decision defines the rules in connection with entities, which enjoy right to make announcements about securities and exemptions from this rule, rules in relation to orders that must be issued by the regulatory body in cases when it finds out a security related announcement is fraudulent, the obligation to send a copy of announcements regulator’s address, and the sanctions on cases, which are verifies as running against this decision. The goal of this decision is to stipulate an ethic, a behavior persons licensed operate in securities market. It defines the obligations vis-à-vis customers, obligation concerning sets forth rules about execution upon priority principle of customer’s orders, quick and fair registration of eh transaction carried out by the customer, etc. The decision defines the obligations in terms of keeping accounting records, their renovation and maintenance, the obligation to draft financial statements their form and content. It provides the definition “customer money” operations linked with them. In addition, the decision sets forth obligation of licensed person to assign accounting experts, thus reinforcing authorities and procedures regarding their appointment dismissal. a clear and fair communication, the obligation to explain risk customer, obligation to familiarize the customer with fees that are applied, etc. The decision also The regulation defines the examination organization procedure for securities dealer, investments advisor and their representative. The Law “On Securities” is the main regulatory framework for functioning of regulatory. The object of this law is provision investors’ protection in securities by establishing the regulatory body, by regulating securities markets and persons engaged in investment business, and by controlling the public issue of trading in securities. This law establishes the regulatory entity which has supervisory and licensing authority for securities market, and with further development of this market, the regulator will take attributes an independent agency. The goal of this regulation is to define the licensing procedures and fees that entities must pay case by depending on the activity, for which they apply. persons with access to internal information, its updating and transparency AFSA regarding transactions carried out by company directors and persons linked with them. In addition, the regulation sets forth preventive measures, which are connected with the obligations of persons professionally involved in the transaction to condemn an illegal practice, as well as, obligation of journalists and financial analysts to make transparent conflicts interest in their securities related articles and analysis. This definition considers it a market violation even if the person, who has performed action, did not make any profit. It is the first time that obligations such as drafting of list The regulation reflects most recent guidance of CE re: trade violations and protection against them. The regulation provides the definition of internal information by means clearly describing its two key elements, which are the accurate nature and influence on price. This regulation explicitly stipulates the actives for which securities dealer, investments advisor and their representative are licensed. Licensing criteria take up a considerable special part of the regulation. These criteria define all necessary documentation that applicants must present in order to be licensed conduct the activities, which fall under The scope of this regulation is the definition requirements, procedures and time limits the scope of this regulation. The AFSA right to accept or refuse applications is applied in of licensing persons who apply to be issued with license operate as securities registrar. the frame of procedures, which are followed in such a process. In addition, it sets forth fees Securities registrar is a juristic person licensed by AFSA, which has organization and administration of securities registers as the scope its activity. and commissions to be paid by the licensed entities both, at moment when issued with the license and during exercising activity, for which they have received license. Definition of requirements, time limits and licensing procedures to be followed by the entities applying to be provided license operate in securities market make up the scope of this regulation. In frame, it is defined that no entity may operate as securities dealer unless it is licensed in advance by AFSA. The securities market (stock exchange) organizes its activity based on the statute and rules of trade operation, which become subject to adoption by the AFSA. This regulation sets forth rules concerning minimum capital, low end liquidity limit, obligations of licensed persons, definitions with regard to approved inputs and liquid and their estimate. This regulation defines rules applicable to securities public proposals, which are shares, bonds or guarantees, by providing the exceptions to general rule. The regulation provides prospect mandatory form and content. It defines the data that must make up narrative part is linked, general information on the issues and its capital, etc. Additionally, regulation regulates in a detailed manner the procedures on prospect registration; it sets forth maximum time limit of a public proposal, the obligation issuer to report AFSA following proposal closure and the measures to eliminate irregularities during public proposal. of the prospect such as responsible persons, advisors, securities data, with which proposal report to AFSA. The regulation prohibits trading activity in the retail market of banks, which keeping of the Government securities analytical register by being issued with a license for this type of activity or, by making an agreement with another bank, which is licensed for this purpose. This regulation explicitly defines the manner of retail market functioning, monitoring and transparency procedures with the aim of protecting investors that invest in government securities. The regulation provides an accurate definition of retail market, type transactions on this market, trading procedures, keeping of analytical register, obligation to inform and are not licensed by the AFSA. Banks, which operate in retail market, must also organize The regulation establishes the legal basis and it applies to all proposals take possession of the shares control package or to merge joint stock companies registered in Albania. Its goal is less than 20% of the right to vote). to ensure an equal and fair treatment of all shareholders, which are affected transactions carried out to get possession of shares control package. This regulation imposes the rules the game. Proposals to get possession of control package must be made by defined deadline in order to provide shareholders with the possibility of making a well-informed decision. The public enjoys the right to be informed about any significant change (more or the AFSA to trade and keep register on securities of Republic Albania Government constitute the scope of this regulation. The target regulation is to protect securities investors’ interests and improvement of the functioning conditions Government securities retail market. Stipulation of conditions, manner and procedures monitoring the entities licensed by

nL On the retail market on Government securities of the Republic of Albania Descriptio

On the rules of leading securities investment activity On the financial and accounting requirements of securities dealers securities of the Republic of Albania On the procedures of monitoring retail market on Government On Securities On the rules re: form and content of announcements about investment activity in securities. On licensing, fees and commissions On illegal practices of trading On securities registrars licensing On the organization of applicants examination On securities market licensing On the requirements re: financial resources of licensed persons On licensing securities dealer, the investments advisor and their representative. On prospect On take-over

Area

CoMD No. 441 date 17 June 2001 CoMD No. 442 date 17 June 2001 Regulation adopted by Decision No. 12, date 29 January 2007 of Financial Supervisory Authority Board Law 8080 date 01.03.1996, changed by Laws No. 8168, date 05 December 1996 and Law No. 8745, date 22 February 2001. Regulation adopted by Decision No. 12, date 29 January 2007 of Financial Supervisory Authority Board CoMD No. 440 date 17 June 2001 Reference Legal/Regulatory Authority Board Regulation adopted by Decision No. 12, date 29 January 2007 of Financial Supervisory Regulation adopted by Decision No. 12, Regulation adopted by Decision No. 12, date 29 January 2007 of Financial Supervisory Authority Board Regulation adopted by Decision No. 12, date 29 January 2007 of Financial Supervisory Authority Board Regulation adopted by Decision No. 12, date 29 January 2007 of Financial Supervisory Authority Board date 29 January 2007 of Financial Supervisory Authority Board Regulation adopted by Decision No. 12, date 29 January 2007 of Financial Supervisory Authority Board by Decision No.5, date 07 December 2006 of Financial Supervisory Authority Board Regulation adopted date 29 January 2007 of Financial Supervisory Regulation adopted by Decision No. 12, Authority Board date 29 January 2007 of Financial Supervisory Authority Board Regulation adopted by Decision No. 12, In Securities

ALBANIAN FINANCIAL SUPERVISORY AUTHORITY 57 In Securities Area

Legal/Regulatory DescriptionLaw/Regulation Description Reference

The Law “On Securities” is the main regulatory framework for functioning of regulatory. Law 8080 date The object of this law is provision of investors’ protection in securities by establishing the 01.03.1996, changed regulatory body, by regulating securities markets and persons engaged in securities investment by Laws No. 8168, On Securities business, and by controlling the public issue of and trading in securities. This law establishes date 05 December the regulatory entity which has supervisory and licensing authority for the securities market, 1996 and Law No. 8745, and with further development of this market, the regulator will take the attributes of an date 22 February 2001. independent agency.

This decision defines the rules in connection with entities, which enjoy the right to make On the rules re: announcements about securities and exemptions from this rule, rules in relation to orders form and content CoMD No. 440 that must be issued by the regulatory body in cases when it finds out that a security related of announcements date 17 June 2001 announcement is fraudulent, the obligation to send a copy of announcements to the about investment regulator’s address, and the sanctions on cases, which are verifies as running against activity in securities. this decision.

The goal of this decision is to stipulate an ethic, a behavior of persons licensed to operate On the rules of in securities market. It defines the obligations vis-à-vis customers, the obligation concerning CoMD No. 441 leading securities a clear and fair communication, the obligation to explain the risk to the customer, the date 17 June 2001 investment activity obligation to familiarize the customer with the fees that are applied, etc. The decision also sets forth rules about execution upon priority principle of customer’s orders, quick and fair registration of eh transaction carried out by the customer, etc.

The decision defines the obligations in terms of keeping the accounting records, their On the financial renovation and maintenance, the obligation to draft financial statements and their form CoMD No. 442 and accounting and content. It provides the definition “customer money” and the operations linked with date 17 June 2001 requirements of them. In addition, the decision sets forth the obligation of licensed person to assign accounting securities dealers experts, thus reinforcing authorities and procedures regarding their appointment and dismissal.

Regulation adopted by Decision No. 12, date 29 On licensing, fees The goal of this regulation is to define the licensing procedures and the fees that entities January 2007 of Financial and commissions must pay case by case depending on the activity, for which they apply. Supervisory Authority Board

Regulation adopted by On the requirements This regulation sets forth rules concerning minimum capital, low end liquidity limit, Decision No. 12, date 29 re: financial resources obligations of licensed persons, definitions with regard to approved inputs and liquid inputs January 2007 of Financial of licensed persons and their estimate. Supervisory Authority Board

This regulation defines rules applicable to securities public proposals, which are shares, bonds or guarantees, by providing the exceptions to the general rule. The regulation provides the Regulation adopted prospect mandatory form and content. It defines the data that must make up the narrative part by Decision No. 12, of the prospect such as responsible persons, advisors, securities data, with which the proposal On prospect date 29 January 2007 is linked, general information on the issues and its capital, etc. Additionally, the regulation of Financial Supervisory regulates in a detailed manner the procedures on the prospect registration; it sets forth the Authority Board maximum time limit of a public proposal, the obligation of the issuer to report to the AFSA following proposal closure and the measures to eliminate irregularities during the public proposal.

The regulation establishes the legal basis and it applies to all proposals to take possession of the shares control package or to merge joint stock companies registered in Albania. Its goal is Regulation adopted to ensure an equal and fair treatment of all shareholders, which are affected transactions by Decision No. 12, carried out to get possession of shares control package. This regulation imposes the rules of date 29 January 2007 On take-over the game. Proposals to get possession of the control package must be made by the defined of Financial Supervisory deadline in order to provide shareholders with the possibility of making a well-informed Authority Board decision. The public enjoys the right to be informed about any significant change (more or less than 20% of the right to vote). Regulation adopted The scope of this regulation is the definition of requirements, procedures and time limits by Decision No. 12, On securities of licensing of persons who apply to be issued with license to operate as securities registrar. date 29 January 2007 registrars licensing Securities registrar is a juristic person licensed by AFSA, which has organization and of Financial Supervisory administration of securities registers as the scope of its activity. Authority Board Regulation adopted by Decision No. 12, date 29 On the organization of The regulation defines the examination organization procedure for the securities dealer, January 2007 of Financial applicants examination investments advisor and their representative. Supervisory Authority Board Definition of requirements, time limits and licensing procedures to be followed by the Regulation adopted entities applying to be provided license to operate in securities market make up the scope by Decision No. 12, On securities of this regulation. In this frame, it is defined that no entity may operate as securities dealer date 29 January 2007 market licensing unless it is licensed in advance by AFSA. The securities market (stock exchange) organizes its of Financial Supervisory activity based on the statute and rules of trade operation, which become subject to adoption Authority Board by the AFSA.

This regulation explicitly stipulates the actives for which the securities dealer, investments advisor and their representative are licensed. Licensing criteria take up a considerable and On licensing Regulation adopted special part of the regulation. These criteria define all necessary documentation that securities dealer, by Decision No. 12, applicants must present in order to be licensed to conduct the activities, which fall under the investments date 29 January 2007 the scope of this regulation. The AFSA right to accept or refuse the applications is applied in advisor and their of Financial Supervisory the frame of procedures, which are followed in such a process. In addition, it sets forth fees representative. Authority Board and commissions to be paid by the licensed entities both, at the moment when issued with the license and during exercising the activity, for which they have received the license.

The regulation reflects most recent guidance of CE re: trade violations and protection against them. The regulation provides the definition of internal information by means of clearly describing its two key elements, which are the accurate nature and influence on the price. Regulation adopted This definition considers it a market violation even if the person, who has performed the action, by Decision No. 12, did not make any profit. It is the first time that obligations such as drafting of the list of On illegal practices date 29 January 2007 persons with access to internal information, its updating and transparency to AFSA regarding of trading of Financial Supervisory transactions carried out by company directors and persons linked with them. In addition, the Authority Board regulation sets forth preventive measures, which are connected with the obligations of persons professionally involved in the transaction to condemn an illegal practice, as well as, the obligation of journalists and financial analysts to make transparent conflicts of interest in their securities related articles and analysis.

This regulation explicitly defines the manner of retail market functioning, the monitoring and transparency procedures with the aim of protecting investors that invest in government Regulation adopted On the retail market securities. The regulation provides an accurate definition of retail market, type of transactions by Decision No.5, date on Government on this market, trading procedures, keeping of analytical register, obligation to inform and 58 07 December 2006 of securities of the report to AFSA. The regulation prohibits trading activity in the retail market of banks, which Financial Supervisory Republic of Albania are not licensed by the AFSA. Banks, which operate in retail market, must also organize ANNUAL REPORT ‘06 REPORT ANNUAL Authority Board keeping of the Government securities analytical register by being issued with a license for this type of activity or, by making an agreement with another bank, which is licensed for this purpose.

Regulation adopted On the procedures of Stipulation of conditions, manner and procedures of monitoring the entities licensed by by Decision No. 12, monitoring retail the AFSA to trade and keep the register on securities of the Republic of Albania Government date 29 January 2007 market on Government constitute the scope of this regulation. The target of this regulation is to protect securities of Financial Supervisory securities of the investors’ interests and improvement of the functioning conditions of Government securities Authority Board Republic of Albania retail market.

In Private Supplementary Pensions Area

Legal/Regulatory Description Law/Regulation Description Reference

Law No. 7943, date 01 June 1995, changed by Law No. 8393, date On Supplementary pensions The scope of this law is the regulation of private pensions insurance by pensions 02 September 1998 and and pensions private institutions. private institutions, their establishment activity, their licensing and control. Law No. 9181, date 05 February 2004

On the licensing and supervisory The decision defines the necessary documentation to receive the permit to CoMD No. 908, procedures of pensions private operate as private institutions for pensions, the conditions of issuing and revoking date 29.12.2004 institutions the permit, as well as, the supervisory and financial control procedures.

Regulation adopted by On the procedures of licensing Decision No. 16, date 08 and reviewing the applications of The scope of this regulation is the documentation presentation manner for February 2007 of the issuing the permit to operate as a licensing and the procedure followed by the AFSA when issuing the permit to Financial Supervisory supplementary pensions private operate as a supplementary pensions private institution. Authority Board institution. Regulation adopted by Decision No. 15, date 08 On supervision and financial The goal of this regulation is to draft the program of the control exercised by February 2007 of the control of supplementary pensions AFSA to the supplementary pensions private institutions, the control conducting Financial Supervisory private institutions. procedures, drafting of the control report and setting of control standards. Authority Board APPENDIX C: List of Supervised Institutions

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o R o o R . National stock company N Shoqëri me kapital vendas Decision No. 5, date. 13 April 2001 8. EUROSIG S.A 20 September 2004 Rr. “Themistokli Gërmenji”, 3/1, Tirana +355 4 230 506 +355 4 23508 Rr “Lek Dukagjini”, Nr. 5, Tirana +355 4 238 899, +355 4 223 841

[email protected] [email protected]

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No expiration date M A Rr. “Dora D’Istria”, Nr.2, P.O.B. 274/1, Tirana 9. NATIONAL COMMERCIAL BANK S.A. b 12. ITALIAN-ALBANIAN BANK S.A. Treasury bonds dealer L

3. TRIUMF GROUP S.A. Dealer and Registrar of Government bonds in Albania w

01 July 2005 No expiration date 2 S w Securities organized trade +355 68 2058275 / 4 256081 6. TIRANA STOCK EXHANGE S.A. Bul. “Zhan D’ark”, Tirana Rr. “Barrikadave”, Nr.1, Tirana +355 4 233966, 235700 +355 4 265 058 +355 4 250955, 250956 Foreign stock company m S.A

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8. AMERICAN BANK OF ALBANIA S.A. 2. ALBANIAN SHARE REGISTER S.A. Rr. “Donika Kastrioti”, Nr.11/1, Tirana

Treasury bonds Dealer and Registrar Dealer and Registrar of Government bonds in Albania A Rr. “Ismail Qemali”, Nr. 27, Tirana 23 March 2005

E 0 No expiration date E w L 0 +355 4 233442, 233425 Dealer +355 4 272790/1, 272781 +355 4 234096, 258752 +355 4 248753/4/5/6/7, 220160 Rr.”Ismail Qemali”, 5. POPULAR BANK S.A. Foreign stock company c Domestic private stock company Domestic private stock company o 11. CREDINS BANK S.A. A a . 3 c

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n @a l i 5 w w o v 5 f w w sh on-Life Insuranc d 3 n 2. SIGMA S.A 6. ALBSIG S.A Non-Life Insuranc National stock company [email protected] Domestic stock company National and foreign stock company Bul. “Zogu I”, Pall. Diplomatëve. Nr 57, Tirana Decision No. 01, date 03 March 199 Court Decision No. 30756 date 09 September 2004 Rr “A . Frashëri”, sheshi Willson, P.O.B. No. 1714, Tirana +355 4 258 254 +355 4 258253 Rr.,”Punëtoret e Rilindjes”, Nr.10, Tirana +355 4 254 761, +355 4 254 76

Life Insuranc E + Qemal DISHA w Gezim HUQI 01 March 2005 www.sigma-insurance.co w i info 10. SIGAL-LIFE S.A

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1 No expiration date Rr. “Dëshmorët e 4 Shkurtit”, Tirana +355 4 269616, 269707 D Dealer Foreign Stock Company No expiration date 2

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National stock company Rr. “Sami Frashëri”, Pall. 20, Tirana +355 4 233537, 233537 Rr. “Reshit Çollaku”, Pall. 7-katë Government bonds dealer Domestic private stock company No expiration date 24.11.200 Foreign stock company Bul. “Zogu I”, Nr. 47/1, Tirana +355 4 240 478, 232102 7. RAIFFEISEN BANK S.A. Non-Life Insuranc 1. INSIG S.A 9. SICRED S.A 10. ALPHA BANK - Tirana S.A. Life + Non-Life Insurance [email protected] Decision No. 03 and 04, date. 08 June 2000 4. BALLKAN GROUP-01 S.A. Saimir ZEMBLA State + foreign stock company www.insig.com.al + National stock company Decision No. 6, date 13 September 2001 5. INTERSIG S.A 1. TIRANA BANK S.A. Rr. “Dibrës” Nr. 91, Tirana +355 4 234 170 Vangjel BIRBO Rr. “Barrikadave” Pall. 122, Ap1/1, Tirana +355 4 235614 + 355 4 232462 [email protected] tek Shallvaret, shk.2/6. Tirana

A Treasury bonds Dealer and Registrar Government bonds in Albania Dealer and Registrar of +355 4 224540, 230013 Foreign stock company European Trade Center, Bul. “Bajram Curri”, Tirana No expiration date 0 G

w c Decision No. 9, date 26 July 2004

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es Ma ti y y y ri cu License Issuance Date E-mail License Issuance Date License Expiration Date Office Address Tel./Fax Webpage Scope of Activity Type of Ownership License Expiration Date E-mail E-mail E-mail Scope of Activity License Issuance Date License Issuance Date Type of Ownership Office Address Tel./Fax Tel./Fax Office Address Type of Ownership License Expiration Date Type of Ownership Webpage Office Address Tel./Fax Scope of Activity Scope of Activity E-mail Date of Starting Activit Webpage Executive Director Type of Ownership Webpage Executive Director Drejtor Ekzekutiv Webpage Type of Ownership Date of Starting Executive Director Executive Director Activit Office Address Tel./Fax Executive Director Office Address Tel./Fax E-mail Drejtor Ekzekutiv Webpage

Scope of Activity Scope of Activity Tel./Fax Type of Ownership Office Address License Expiration Date Scope of Activity Webpage

E-mail Date of Starting Activit Insuranc Se

ALBANIAN FINANCIAL SUPERVISORY AUTHORITY 59 Insurance Market

1. INSIG S.A 2. SIGMA S.A 3. SIGAL S.A 4. ATLANTIK S.A

Executive Director Saimir ZEMBLAKU Qemal DISHA Avni PONARI Dritan ÇELAJ

Scope of Activity Life + Non-Life Insurance Non-Life InsuranceNon-Life InsuranceNon-Life Insurance

State + foreign Domestic and foreign Type of Ownership Domestic stock company Shoqëri me kapital vendas stock company stock company

Rr “A . Frashëri”, Bul. “Zogu I”, Nr.1 , Rr. “Themistokli Gërmenji”, Office Address Rr. “Dibrës” Nr. 91, Tirana sheshi Willson, P.O.B. No.2387, Tirana 3/1, Tirana P.O.B. No. 1714, Tirana +355 4 258 254, +355 4 230 506, Tel./Fax +355 4 234 170 +355 4 250 220 +355 4 258253 +355 4 235088

Webpage www.insig.com.al www.sigma-insurance.com www.sigal.com.al www.atlantik.com.al

E-mail [email protected] [email protected] [email protected] [email protected]

Date of Starting Decision No. 03 and 04, Decision No. 01, Decision No. 02, Decision No. 5, Activity date. 08 June 2000 date 03 March 1999 date. 23 June 1999 date. 13 April 2001

5. INTERSIG S.A 6. ALBSIG S.A 7. INTERALBANIAN S.A 8. EUROSIG S.A

Executive Director Vangjel BIRBO Gezim HUQI Bardhyl MINXHOZI Myslym NELA

Scope of Activity Non-Life InsuranceNon-Life InsuranceNon-Life InsuranceNon-Life Insurance

Type of Ownership National stock company National stock company National stock company National stock company

Rr. “Barrikadave” Rr.,”Punëtoret e Rilindjes”, Zayed Business Center, Rr “Lek Dukagjini”, Office Address Pall. 122, Ap1/1, Tirana Nr.10, Tirana Kutia Postare Nr. 5, Tirana Nr.277/1, Tirana +355 4 235614, +355 4 254 761, +355 4 229 551, +355 4 238 899, Tel./Fax + 355 4 232462 +355 4 254 764 +355 4 229578 +355 4 223 841

Webpage www.albsig.com.al www.interalbanian.com www.eurosig.al

E-mail [email protected] [email protected] [email protected] [email protected]

Date of Starting Decision No. 6, Court Decision No. 30756 Decison No. 9, 20 September 2004 Activity date 13 September 2001 date 09 September 2004 date 19 July 2004

9. SICRED S.A 10. SIGAL-LIFE S.A

Executive Director Genc KOXHAJ Edvin HOXHAJ

Scope of Activity Life Insurance Life Insurance

60 National and foreign Type of Ownership National stock company stock company ANNUAL REPORT ‘06 REPORT ANNUAL Bul. “Zogu I”, Rr. “Sami Frashëri”, Office Address Pall. Diplomatëve. Pall. 20, Tirana Nr 57, Tirana

Tel./Fax +355 4 237 549 +355 4 233 308

Webpage www.sicred.com.al www.sigal.com.al

E-mail [email protected] [email protected]

Date of Starting Decision No. 9, 01 March 2005 Activity date 26 July 2004

Securities Market 2. ALBANIAN SHARE 1. TIRANA BANK S.A. 3. TRIUMF GROUP S.A. REGISTER S.A.

Executive Director Dimitris FRANGETIS Enton SHAHAJ Mirela ANGJELI

Scope of Activity Dealer Corporate registrar Treasury bonds dealer

Type of Ownership Foreign Stock Company State stock company Domestic private stock company

Rr. “Punëtorët e Rilindjes”, Rr. “M. Gjollesha”, Office Address Rr. “Dëshmorët e 4 Shkurtit”, Tirana Nr.13, Tirana Kulla 2, ap.13, Tirana

Tel./Fax +355 4 269616, +355 4 269707 +355 4 233442, +355 4 233425 +355 68 2058275 / +355 4 256081

Webpage www.tiranabank.al

E-mail [email protected]

License 05.11.2002 05.11.2002 24.11.2003 Issuance Date

License No expiration date No expiration date No expiration date Expiration Date

4. BALLKAN GROUP-01 S.A. 5. POPULAR BANK S.A. 6. TIRANA STOCK EXHANGE S.A.

Executive Director Genci RAMAJ Edvin LIBOHOVA Anila FURERAJ

Scope of Activity Government bonds dealer Dealer Securities organized trade

Type of Ownership Domestic private stock company Domestic private stock company State stock company

Rr. “Reshit Çollaku”, Pall. 7-katësh Rr. “Donika Kastrioti”, Rr. “Dora D’Istria”, Nr.2, Office Address tek Shallvaret, shk.2/6. Tirana Nr.11/1, Tirana P.O.B. 274/1, Tirana

Tel./Fax +355 4 233537, +355 4 233537 +355 4 272790/1, +355 4 272781 +355 4 265 058

Webpage www.bpopullore.com www.tse.com.al

E-mail [email protected] [email protected]

License 24.11.2003 23 March 2005 01 July 2005 Issuance Date License No expiration date No expiration date 01 July 2007 Expiration Date

8. AMERICAN BANK 9. NATIONAL COMMERCIAL 7. RAIFFEISEN BANK S.A. OF ALBANIA S.A. BANK S.A.

Drejtor Ekzekutiv Steven GRUNERUD Lorenco RONCARI Seyhan PENCAPLIGIL

Dealer and Registrar of Dealer and Registrar of Dealer and Registrar of Scope of Activity Government bonds in Albania Government bonds in Albania Government bonds in Albania

Type of Ownership Foreign stock company Foreign stock company Foreign stock company

European Trade Center, Office Address Rr. “Ismail Qemali”, Nr. 27, Tirana Bul. “Zhan D’ark”, Tirana Bul. “Bajram Curri”, Tirana

Tel./Fax +355 4 224540, +355 4 230013 +355 4 248753/4/5/6/7, +355 4 220160 +355 4 250955, +355 4 250956

Webpage www.raiffeisen.al www.ambankalb.com www.bkt.com.al

E-mail [email protected] [email protected]

License 28.09.2005 24.11.2005 21.12.2005 Issuance Date License No expiration date No expiration date No expiration date Expiration Date

10. ALPHA BANK - Tirana S.A. 11. CREDINS BANK S.A. 12. ITALIAN-ALBANIAN BANK S.A.

Drejtor Ekzekutiv Andreas GALATOULAS Artan SANTO Luigi MASTRAPASQUA

Treasury bonds Dealer Treasury bonds Dealer Scope of Activity Treasury bonds dealer and Registrar and Registrar

Type of Ownership Foreign stock company Domestic private stock company Foreign stock company

Office Address Bul. “Zogu I”, Nr. 47/1, Tirana Rr.”Ismail Qemali”, Nr. 21, Tirana Rr. “Barrikadave”, Nr.1, Tirana

Tel./Fax +355 4 240 478, +355 4 232102 +355 4 234096, +355 4 258752 +355 4 233966, +355 4 235700

Webpage www.bankacredins.com www.bia.com.al

E-mail [email protected] [email protected]

License 13.02.2006 0 08 May 2006 Issuance Date License No expiration date No expiration date 08 May 2007 Expiration Date Insurance Market

1. INSIG S.A 2. SIGMA S.A 3. SIGAL S.A 4. ATLANTIK S.A

Executive Director Saimir ZEMBLAKU Qemal DISHA Avni PONARI Dritan ÇELAJ

Scope of Activity Life + Non-Life Insurance Non-Life InsuranceNon-Life InsuranceNon-Life Insurance

State + foreign Domestic and foreign Type of Ownership Domestic stock company Shoqëri me kapital vendas stock company stock company

Rr “A . Frashëri”, Bul. “Zogu I”, Nr.1 , Rr. “Themistokli Gërmenji”, Office Address Rr. “Dibrës” Nr. 91, Tirana sheshi Willson, P.O.B. No.2387, Tirana 3/1, Tirana P.O.B. No. 1714, Tirana +355 4 258 254, +355 4 230 506, Tel./Fax +355 4 234 170 +355 4 250 220 +355 4 258253 +355 4 235088

Webpage www.insig.com.al www.sigma-insurance.com www.sigal.com.al www.atlantik.com.al

E-mail [email protected] [email protected] [email protected] [email protected]

Date of Starting Decision No. 03 and 04, Decision No. 01, Decision No. 02, Decision No. 5, Activity date. 08 June 2000 date 03 March 1999 date. 23 June 1999 date. 13 April 2001

5. INTERSIG S.A 6. ALBSIG S.A 7. INTERALBANIAN S.A 8. EUROSIG S.A

Executive Director Vangjel BIRBO Gezim HUQI Bardhyl MINXHOZI Myslym NELA

Scope of Activity Non-Life InsuranceNon-Life InsuranceNon-Life InsuranceNon-Life Insurance

Type of Ownership National stock company National stock company National stock company National stock company

Rr. “Barrikadave” Rr.,”Punëtoret e Rilindjes”, Zayed Business Center, Rr “Lek Dukagjini”, Office Address Pall. 122, Ap1/1, Tirana Nr.10, Tirana Kutia Postare Nr. 5, Tirana Nr.277/1, Tirana +355 4 235614, +355 4 254 761, +355 4 229 551, +355 4 238 899, Tel./Fax + 355 4 232462 +355 4 254 764 +355 4 229578 +355 4 223 841

Webpage www.albsig.com.al www.interalbanian.com www.eurosig.al

E-mail [email protected] [email protected] [email protected] [email protected]

Date of Starting Decision No. 6, Court Decision No. 30756 Decison No. 9, 20 September 2004 Activity date 13 September 2001 date 09 September 2004 date 19 July 2004

9. SICRED S.A 10. SIGAL-LIFE S.A

Executive Director Genc KOXHAJ Edvin HOXHAJ

Scope of Activity Life Insurance Life Insurance

National and foreign Type of Ownership National stock company stock company

Bul. “Zogu I”, Rr. “Sami Frashëri”, Office Address Pall. Diplomatëve. Pall. 20, Tirana Nr 57, Tirana

Tel./Fax +355 4 237 549 +355 4 233 308

Webpage www.sicred.com.al www.sigal.com.al

E-mail [email protected] [email protected]

Date of Starting Decision No. 9, 01 March 2005 Activity date 26 July 2004

Securities Market 2. ALBANIAN SHARE 1. TIRANA BANK S.A. 3. TRIUMF GROUP S.A. REGISTER S.A.

Executive Director Dimitris FRANGETIS Enton SHAHAJ Mirela ANGJELI

Scope of Activity Dealer Corporate registrar Treasury bonds dealer

Type of Ownership Foreign Stock Company State stock company Domestic private stock company

Rr. “Punëtorët e Rilindjes”, Rr. “M. Gjollesha”, Office Address Rr. “Dëshmorët e 4 Shkurtit”, Tirana Nr.13, Tirana Kulla 2, ap.13, Tirana

Tel./Fax +355 4 269616, +355 4 269707 +355 4 233442, +355 4 233425 +355 68 2058275 / +355 4 256081

Webpage www.tiranabank.al

E-mail [email protected]

License 05.11.2002 05.11.2002 24.11.2003 Issuance Date

License No expiration date No expiration date No expiration date Expiration Date

4. BALLKAN GROUP-01 S.A. 5. POPULAR BANK S.A. 6. TIRANA STOCK EXHANGE S.A.

Executive Director Genci RAMAJ Edvin LIBOHOVA Anila FURERAJ

Scope of Activity Government bonds dealer Dealer Securities organized trade

Type of Ownership Domestic private stock company Domestic private stock company State stock company

Rr. “Reshit Çollaku”, Pall. 7-katësh Rr. “Donika Kastrioti”, Rr. “Dora D’Istria”, Nr.2, Office Address tek Shallvaret, shk.2/6. Tirana Nr.11/1, Tirana P.O.B. 274/1, Tirana

Tel./Fax +355 4 233537, +355 4 233537 +355 4 272790/1, +355 4 272781 +355 4 265 058

ALBANIAN FINANCIAL SUPERVISORY AUTHORITY SUPERVISORY FINANCIAL ALBANIAN Webpage www.bpopullore.com www.tse.com.al

E-mail [email protected] [email protected]

License 24.11.2003 23 March 2005 01 July 2005 Issuance Date License No expiration date No expiration date 01 July 2007 Expiration Date

8. AMERICAN BANK 9. NATIONAL COMMERCIAL 7. RAIFFEISEN BANK S.A. OF ALBANIA S.A. BANK S.A.

Drejtor Ekzekutiv Steven GRUNERUD Lorenco RONCARI Seyhan PENCAPLIGIL

Dealer and Registrar of Dealer and Registrar of Dealer and Registrar of Scope of Activity Government bonds in Albania Government bonds in Albania Government bonds in Albania

Type of Ownership Foreign stock company Foreign stock company Foreign stock company

European Trade Center, Office Address Rr. “Ismail Qemali”, Nr. 27, Tirana Bul. “Zhan D’ark”, Tirana Bul. “Bajram Curri”, Tirana

Tel./Fax +355 4 224540, +355 4 230013 +355 4 248753/4/5/6/7, +355 4 220160 +355 4 250955, +355 4 250956

Webpage www.raiffeisen.al www.ambankalb.com www.bkt.com.al 61

E-mail [email protected] [email protected]

License 28.09.2005 24.11.2005 21.12.2005 Issuance Date License No expiration date No expiration date No expiration date Expiration Date

10. ALPHA BANK - Tirana S.A. 11. CREDINS BANK S.A. 12. ITALIAN-ALBANIAN BANK S.A.

Drejtor Ekzekutiv Andreas GALATOULAS Artan SANTO Luigi MASTRAPASQUA

Treasury bonds Dealer Treasury bonds Dealer Scope of Activity Treasury bonds dealer and Registrar and Registrar

Type of Ownership Foreign stock company Domestic private stock company Foreign stock company

Office Address Bul. “Zogu I”, Nr. 47/1, Tirana Rr.”Ismail Qemali”, Nr. 21, Tirana Rr. “Barrikadave”, Nr.1, Tirana

Tel./Fax +355 4 240 478, +355 4 232102 +355 4 234096, +355 4 258752 +355 4 233966, +355 4 235700

Webpage www.bankacredins.com www.bia.com.al

E-mail [email protected] [email protected]

License 13.02.2006 0 08 May 2006 Issuance Date License No expiration date No expiration date 08 May 2007 Expiration Date Insurance Market

1. INSIG S.A 2. SIGMA S.A 3. SIGAL S.A 4. ATLANTIK S.A

Executive Director Saimir ZEMBLAKU Qemal DISHA Avni PONARI Dritan ÇELAJ

Scope of Activity Life + Non-Life Insurance Non-Life InsuranceNon-Life InsuranceNon-Life Insurance

State + foreign Domestic and foreign Type of Ownership Domestic stock company Shoqëri me kapital vendas stock company stock company

Rr “A . Frashëri”, Bul. “Zogu I”, Nr.1 , Rr. “Themistokli Gërmenji”, Office Address Rr. “Dibrës” Nr. 91, Tirana sheshi Willson, P.O.B. No.2387, Tirana 3/1, Tirana P.O.B. No. 1714, Tirana +355 4 258 254, +355 4 230 506, Tel./Fax +355 4 234 170 +355 4 250 220 +355 4 258253 +355 4 235088

Webpage www.insig.com.al www.sigma-insurance.com www.sigal.com.al www.atlantik.com.al

E-mail [email protected] [email protected] [email protected] [email protected]

Date of Starting Decision No. 03 and 04, Decision No. 01, Decision No. 02, Decision No. 5, Activity date. 08 June 2000 date 03 March 1999 date. 23 June 1999 date. 13 April 2001

5. INTERSIG S.A 6. ALBSIG S.A 7. INTERALBANIAN S.A 8. EUROSIG S.A

Executive Director Vangjel BIRBO Gezim HUQI Bardhyl MINXHOZI Myslym NELA

Scope of Activity Non-Life InsuranceNon-Life InsuranceNon-Life InsuranceNon-Life Insurance

Type of Ownership National stock company National stock company National stock company National stock company

Rr. “Barrikadave” Rr.,”Punëtoret e Rilindjes”, Zayed Business Center, Rr “Lek Dukagjini”, Office Address Pall. 122, Ap1/1, Tirana Nr.10, Tirana Kutia Postare Nr. 5, Tirana Nr.277/1, Tirana +355 4 235614, +355 4 254 761, +355 4 229 551, +355 4 238 899, Tel./Fax + 355 4 232462 +355 4 254 764 +355 4 229578 +355 4 223 841

Webpage www.albsig.com.al www.interalbanian.com www.eurosig.al

E-mail [email protected] [email protected] [email protected] [email protected]

Date of Starting Decision No. 6, Court Decision No. 30756 Decison No. 9, 20 September 2004 Activity date 13 September 2001 date 09 September 2004 date 19 July 2004

9. SICRED S.A 10. SIGAL-LIFE S.A

Executive Director Genc KOXHAJ Edvin HOXHAJ

Scope of Activity Life Insurance Life Insurance

National and foreign Type of Ownership National stock company stock company

Bul. “Zogu I”, Rr. “Sami Frashëri”, Office Address Pall. Diplomatëve. Pall. 20, Tirana Nr 57, Tirana

Tel./Fax +355 4 237 549 +355 4 233 308

Webpage www.sicred.com.al www.sigal.com.al

E-mail [email protected] [email protected]

Date of Starting Decision No. 9, 01 March 2005 Activity date 26 July 2004

Securities Market 2. ALBANIAN SHARE 1. TIRANA BANK S.A. 3. TRIUMF GROUP S.A. REGISTER S.A.

Executive Director Dimitris FRANGETIS Enton SHAHAJ Mirela ANGJELI

Scope of Activity Dealer Corporate registrar Treasury bonds dealer

Type of Ownership Foreign Stock Company State stock company Domestic private stock company

Rr. “Punëtorët e Rilindjes”, Rr. “M. Gjollesha”, Office Address Rr. “Dëshmorët e 4 Shkurtit”, Tirana Nr.13, Tirana Kulla 2, ap.13, Tirana

Tel./Fax +355 4 269616, +355 4 269707 +355 4 233442, +355 4 233425 +355 68 2058275 / +355 4 256081

Webpage www.tiranabank.al

E-mail [email protected]

License 05.11.2002 05.11.2002 24.11.2003 Issuance Date

License No expiration date No expiration date No expiration date Expiration Date

4. BALLKAN GROUP-01 S.A. 5. POPULAR BANK S.A. 6. TIRANA STOCK EXHANGE S.A.

Executive Director Genci RAMAJ Edvin LIBOHOVA Anila FURERAJ

Scope of Activity Government bonds dealer Dealer Securities organized trade

Type of Ownership Domestic private stock company Domestic private stock company State stock company

Rr. “Reshit Çollaku”, Pall. 7-katësh Rr. “Donika Kastrioti”, Rr. “Dora D’Istria”, Nr.2, Office Address tek Shallvaret, shk.2/6. Tirana Nr.11/1, Tirana P.O.B. 274/1, Tirana

Tel./Fax +355 4 233537, +355 4 233537 +355 4 272790/1, +355 4 272781 +355 4 265 058

Webpage www.bpopullore.com www.tse.com.al

E-mail [email protected] [email protected]

License 24.11.2003 23 March 2005 01 July 2005 Issuance Date License No expiration date No expiration date 01 July 2007 Expiration Date

8. AMERICAN BANK 9. NATIONAL COMMERCIAL 7. RAIFFEISEN BANK S.A. OF ALBANIA S.A. BANK S.A.

Drejtor Ekzekutiv Steven GRUNERUD Lorenco RONCARI Seyhan PENCAPLIGIL

Dealer and Registrar of Dealer and Registrar of Dealer and Registrar of Scope of Activity Government bonds in Albania Government bonds in Albania Government bonds in Albania

Type of Ownership Foreign stock company Foreign stock company Foreign stock company

European Trade Center, Office Address Rr. “Ismail Qemali”, Nr. 27, Tirana Bul. “Zhan D’ark”, Tirana Bul. “Bajram Curri”, Tirana

Tel./Fax +355 4 224540, +355 4 230013 +355 4 248753/4/5/6/7, +355 4 220160 +355 4 250955, +355 4 250956

Webpage www.raiffeisen.al www.ambankalb.com www.bkt.com.al

E-mail [email protected] [email protected]

License 28.09.2005 24.11.2005 21.12.2005 Issuance Date License No expiration date No expiration date No expiration date Expiration Date

10. ALPHA BANK - Tirana S.A. 11. CREDINS BANK S.A. 12. ITALIAN-ALBANIAN BANK S.A.

Drejtor Ekzekutiv Andreas GALATOULAS Artan SANTO Luigi MASTRAPASQUA

Treasury bonds Dealer Treasury bonds Dealer Scope of Activity Treasury bonds dealer and Registrar and Registrar 62 Type of Ownership Foreign stock company Domestic private stock company Foreign stock company ANNUAL REPORT ‘06 REPORT ANNUAL Office Address Bul. “Zogu I”, Nr. 47/1, Tirana Rr.”Ismail Qemali”, Nr. 21, Tirana Rr. “Barrikadave”, Nr.1, Tirana

Tel./Fax +355 4 240 478, +355 4 232102 +355 4 234096, +355 4 258752 +355 4 233966, +355 4 235700

Webpage www.bankacredins.com www.bia.com.al

E-mail [email protected] [email protected]

License 13.02.2006 0 08 May 2006 Issuance Date License No expiration date No expiration date 08 May 2007 Expiration Date

Supplementary Pensions Private Funds

1. American Pension 2. Private Pensions 3. Private Pensions Fund of Albania Institution GARANTSIG Institution CAPITAL

Executive Director Arjan KRAJA Kiço LOLI Themistokli ADHAMI

Supplementary Pensions Scope of Activity Supplementary Pensions Private Fund Supplementary Pensions Private Fund Private Fund Domestic private stock Type of Ownership Domestic private stock company Domestic private stock company company + foreign stock

Rr. “Mustafa Matohiti”, Sheshi Skenderbej, Hotel “Tirana Office Address Rr. “Dervish Hima”, Nr.2/1, Tirana P.11 katësh, kati 2, zyra 1, Tirana International”, Kati 14, Tirana

Tel./Fax + 355 4 240 207/8 +355 4 265 521, + 355 4 265 044 + 355 4 348 000, + 355 4 363 003

Webpage www.apfa.com.al www.garantsig-al.com www.capital.com.al

E-mail [email protected] [email protected] [email protected]

Date of 01 January 2006 01 January 2006 01 March 2006 Starting Activity APPENDIX D: Statistical Tables

9,4 9,8 8,9 2,5 2,4 5,0 150 934 10,4 11,4 10,8 13,8 2006 9.170 7.310 3.159 2.903 284.805 2.314,2 899.700 9,3 8,7 2,0 2,4 5,6 154 932 12,3 12,5 11,8 11,9 14,2 2005 8.232 6.619 3.142 261.628 2.106,7 2.619,9 822.035 General Indicators 8,4 7,9 2,2 2,9 6,2 157 931 16,8 28,5 16,2 27,9 14,4 2004 7.320 5.893 3.127 240.603 1.884,6 2.341,0 752.367 6,3 5,7 9,8 3,3 2,2 5,8 164 927 10,4 27,0 26,3 15,0 2003 5.695 5.047 3.111 223.071 1.622,2 1.830,6 694.018 6,5 3,3 9,0 2,7 5,8 8,3 1,7 5,2 4,3 173 921 15,8 2002 4.485 4.749 3.094 203.177 1.535,0 1.449,7 628.527 3,5 3,1 7,1 181 921 10,8 14,3 10,9 13,8 10,3 10,5 16,4 2001 4.114 4.595 3.074 192.043 1.494,8 1.338,5 590.282 6,3 6,0 4,2 0,0 6,5 215 10,9 22,9 22,6 10,6 16,8 2000 1.068 3.709 4.020 3.061 174.124 1.313,4 1.211,6 532.977

0,4 240 15,2 -1,0 26,1 15,3 26,1 18,4 13,2 1999 1.065 3.490 3.270 3.054 157.371 1.070,8 1.142,9 480.581

8,7 8,6 235 17,9 16,6 18,7 17,3 17,7 20,9 1998 1.085 2.768 3.055 906,0 136.487 417.009

0,7 0,7 194 32,1 42,1 14,9 -29,3 -29,3 1997 1.107 -10,9 2.375 3.075 772,3 115.013 353.642

9,1 158 33,2 17,4 12,3 1996 1.116 3.360 3.076 114.165 1.092,5 351.113

t % % % % g ALL 000 000 000 US$ Eur o Uni mln ALL AT mln US $ mln Euro increase (%) increase (%) increase (%) increase (%) increase (%) increase (%) Measurin

s

)

Populatio n Registered unempl. person Gross Domestic Product (GDP Real GDP Growth GDP per capita Inflation End of period General Indicators Total number of employees Unemployment Annual average Main Macro-Economic Indicators 1996 - 2006 Source: Ministry of Finance and INST

ALBANIAN FINANCIAL SUPERVISORY AUTHORITY 63 64

ANNUAL REPORT ‘06 REPORT ANNUAL Public Finances Indicators

Indicators Measuring Unit 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

million ALL 52.294 58.949 102.524 123.161 130.643 145.639 154.595 167.224 184.356 204.163 226.283

Total Revenues increase (%) 12,7 73,9 20,1 6,1 11,5 6,1 8,2 10,2 10,7 10,8

% of GDP 14,9 16,7 24,6 25,6 24,5 24,7 24,6 24,1 24,5 24,8 25,2

million ALL 45.579 72.576 83.566 104.112 114.294 128.948 145.388 165.974 183.816 205.514

Tax Revenues increase (%) 59,2 15,1 24,6 9,8 12,8 12,7 14,2 10,7 11,8

% of GDP 12,9 17,4 17,4 19,5 19,4 20,5 20,9 22,1 22,4 22,8

million ALL 87.596 100.730 141.628 165.692 170.620 186.049 192.517 201.152 222.439 232.339 254.762

Total Expenditures increase (%) 15,0 40,6 17,0 3,0 9,0 3,5 4,5 10,6 4,5 9,7

% of GDP 24,9 28,5 34,0 34,5 32,0 31,5 30,6 29,0 29,6 28,3 28,3

million ALL 13.859 24.215 34.120 36.274 43.397 37.925 31.472 38.266 38.375 47.502

Investments increase (%) 74,7 40,9 6,3 19,6 -12,6 -17,0 21,6 0,3 23,8

% of GDP 3,9 5,8 7,1 6,8 7,4 6,0 4,5 5,1 4,7 5,3

million ALL -35.302 -41.781 -39.104 -42.531 -39.977 -40.410 -37.922 -33.928 -38.083 -28.176 -28.479 Overall Deficit % of GDP -10,1 -11,8 -9,4 -8,8 -7,5 -6,8 -6,0 -4,9 -5,1 -3,43 -3,17

million ALL 82.785 120.527 149.439 177.490 226.069 241.161 260.752 280.767 295.200 327.353 348.936 Domestic Dept % of GDP 23,6 34,1 35,8 36,9 42,4 40,9 41,5 40,5 39,2 39,8 38,8

Million $ 323,4 347,5 460,5 550,1 617,0 697,7 979,6 1.200,4 1.389,9 1.356,1 1.553,3 Foreign Dept % of GDP 9,6 14,6 16,6 15,8 16,6 17,0 21,8 21,1 19,0 16,5 16,9

Source: Ministry of Finance and INSTAT Foreign Trade Indicators

Indicators Measuring Unit 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Million $ -678,3 -534,9 -603,7 -662,8 -821,0 -1.027,0 -1.155,2 -1.336,3 -1.591,6 -1.887,0 -1.953,0 Commercial Balance % of GDP -20,2 -22,5 -21,8 -19,0 -22,1 -25,0 -25,8 -23,5 -21,7 -22,9 -21,3

Million $ 243,7 158,6 208,0 275,1 255,4 304,6 330,2 447,1 603,3 652 721

Export increase (%) 19,0 -34,9 31,1 32,3 -7,2 19,3 8,4 35,4 34,9 8,1 10,6

% of GDP 7,3 6,7 7,5 7,9 6,9 7,4 7,4 7,9 8,2 7,9 7,9

Million $ 922,0 693,5 811,7 937,9 1.076,4 1.331,6 1.485,4 1.783,4 2.194,9 2.539 2.674

ALBANIAN FINANCIAL SUPERVISORY AUTHORITY SUPERVISORY FINANCIAL ALBANIAN Import increase (%) 35,6 -24,8 17,0 15,5 14,8 23,7 11,6 20,1 23,1 15,7 5,3

% of GDP 27,4 29,2 29,3 26,9 29,0 32,4 33,1 31,3 30,0 30,8 29,2

Current Accounts Million $ -62,3 -253,7 -65,0 -132,9 -163,1 -217,9 -420,8 -406,7 -358,2 -576,2 -770,3 Balance % of GDP -1,9 -10,7 -2,3 -3,8 -4,4 -5,3 -9,4 -7,1 -4,9 -7,0 -8,4

Direct Foreign Million $ 90,1 47,5 45,0 41,2 143,0 207,3 135,0 178,0 341,3 238,7 293,5 Investments % of GDP 2,7 2,0 1,6 1,2 3,9 5,0 3,0 3,1 4,7 2,9 3,2

Transfer Million $ 559,4 264,4 523,9 353,0 533,0 570,5 613,2 842,0 1.109,4 1.014 1.065

Reserves Million $ 306,0 384,0 482,0 608,0 754,0 860,0 1.026,0 1.374,0 1.390 1.536

Reserves Month imports 3,5 3,7 3,8 4,2 4,6 4,4 3,9 4,0 4,1 4,2

ALL/Euro 104,50 148,93 150,64 137,69 143,71 143,48 140,15 121,86 102,78 99,86 98,11 Exchange rate ALL/Euro 146,96 132,58 128,47 132,36 137,51 127,67 124,19 123,07

Source: Ministry of Finance and INSTAT

Monetary Aggregates

Indicators Measuring Unit 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

million ALL 90.406 91.667 83.729 103.004 124.041 142.926 152.741 144.730 172.833 227.684 227.500 Aggregate M1 65 In % 1,4 -8,7 23,0 20,4 15,2 6,9 -5,2 19,4 31,7 -0,1

million ALL 120.646 162.221 199.264 239.662 264.497 305.302 324.727 349.513 391.411 426.150 480.500 Aggregate M2 In % 34,5 22,8 20,3 10,4 15,4 6,4 7,6 12,0 8,9 12,8

million ALL 154.553 198.547 239.526 292.871 328.101 394.316 416.685 448.427 507.206 578.036 650.600 Aggregate M3 In % 28,5 20,6 22,3 12,0 20,2 5,7 7,6 13,1 14,0 12,6

Source: Ministry of Finance and INSTAT Progress of Some Important Macroeconomic Indicators (1996-2007)

Gross Domestic Product and Rate of Growth Gross Domestic Product and Rate of Growth (mio ALL) (mio Euro)

1,200,000 20 9,000 25 8,000 1,000,000 7,000 20 15 ro L 800,000 6,000 AL 15 n

onEu 5,000 % 600,000 10 % io llii 4,000 In In ll 10 400,000 3,000

5 In mi In mi 2,000 200,000 5 1,000 0 0 0 0 03 01 02 97 98 07 05 96 99 06 04 000 19 19 19 19 20 20 20 20 20 20 20 2 1999 2000 2001 2002 2003 2004 2005 2006 2007

Inflation Investments

50 80,000 8 70,000 7 40 60,000 6 L

30 AL 50,000 5 % n 40,000 4 io %

20 In ll 30,000 3 In 10 20,000 2 In mi 10,000 1 0 0 0 8 1 3 4 5 6 7

-10 996 002 005 1 1997 1998 1999 2000 2001 2 2003 2004 2 2006 2007 199 1999 2000 200 2002 200 200 200 200 200 1997

Yearly Average End of period mio ALL as % to GDP

Public Debt as % to GDP Yield T-Bills Primary Market 45 42.4 40.9 41.5 40.5 39.2 39.8 40% 40 36.9 38.8 38.1 35% 35 30% 30 25% 25 20% 21.8 21.1 19 20.2 15% 20 16.5 18 16.6 17 10% 15 15.8 5% 10 0% 1999 2000 2001 2002 2003 2004 2005 2006*2007** 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Internal Debt Foreign Debt TB 3-months TB 6-months TB 12-months

2006 3-month Treasury Bond s 3 Months T-Bills Deposits TB Inflation Month 7,00% Interest Yield Rate 6,00% January 4,33%5,36% 1,38% 5,00% February 4,28%5,14% 1,35% 4,00% Marc h 3,96%5,13% 1,50% % Apri l 3,95%5,04% 2,37% 3,00% May 3,85%5,07% 3,08% 2,00% June 3,74%5,13% 2,43% 1,00% July 3,62%5,19% 3,25% 0,00% August 3,66%5,34% 2,82% b. r. r. y g. p. t. v. c. Septembe r 3,65%5,69% 2,55% Jan. Fe Ma Ap Ma June July Au Se Oc No De Octobe r 3,85%5,17% 2,25% November 3,86%6,23% 2,91% Months December 3,94%6,38% 2,51% Deposit Rates Yield Inflation Rate

66 ANNUAL REPORT ‘06 2006 6-month Treasury Bonds 6 Month T-Bills Deposits TB Inflation Months Interest Yield Rate 8,00% Januar y 4,95% 6,72% 1,38% 7,00% 6,00% Februar y 4,71% 6,33% 1,35% 5,00%

Marc h 4,80% 5,95% 1,50% % 4,00% Apri l 4,60% 5,62% 2,37% 3,00% May 4,46% 5,48% 3,08% 2,00% 1,00% June 4,35% 5,43% 2,43% 0,00% July 4,23% 5,49% 3,25% r. r. y . t. v. b. g. pt c. Ap Ma une July August 4,26% 5,72% 2,82% Jan. Fe Ma J Au Se Oc No De Septembe r 4,31% 6,24% 2,55% Octobe r 4,50% 6,68% 2,25% Months November 4,51% 6,86% 2,91% Decembe r 4,64% 7,06% 2,51% Deposit Rates Yield Inflation Rate

2006 12-month Treasury Bonds Deposits TB Inflation Months 12 Month T-Bills Interest Yield Rate 10,00% Januar y 4,95% 6,72% 1,38% Februar y 4,71% 6,33% 1,35% 8,00% Marc h 4,80% 5,95% 1,50% 6,00%

4,60% 5,62% 2,37% % Apri l 4,00% May 4,46% 5,48% 3,08% 2,00% June 4,35% 5,43% 2,43% July 4,23% 5,49% 3,25% 0,00% r. r. y ly . t. v. b. g. pt c. August 4,26% 5,72% 2,82% Jan. Ma Ap Ma une Ju Fe J Au Se Oc No De Septembe r 4,31% 6,24% 2,55% October 4,50% 6,68% 2,25% Months November 4,51% 6,86% 2,91% December 4,64% 7,06% 2,51% Deposit Rates Yield Inflation Rate

ALBANIAN FINANCIAL SUPERVISORY AUTHORITY 67