A new law intending to clarify the scope, legal status, financial resources, and management of the Romanian Insurance Guarantee Fund (“IGF”) recently became effective. This new law was driven mainly by the Romanian Parliament’s desire to protect insureds, beneficiaries, and third parties. It became effective on 27 July 2015 and is known as Law 213 of 2015 (“Law 213/2015”).
The IGF guarantees the payment of indemnities and damages derived from voluntary and mandatory insurance policies if an insurance undertaking becomes bankrupt. One of the most important changes brought by the new law is the limit of payments by the IGF for insurance claims to RON 450,000 (approximately EUR 101,000) per insurance creditor of the bankrupt insurance company. Payments will only be made for insurance claims that are certain, liquid and due and will made be in the Romanian national currency (RON).
Payments will be made in compliance with the coverage level provided in Law 213/2015 and within the financial resources available to the IGF at the time of payment. If IGF funds are insufficient to cover the amounts due, insurance creditors’ claims shall be paid once the IGF receives payments from its debtors, in accordance with provisions of Law 213/2015.
In an earlier article, we mentioned that starting with the 2015 financial year, the Financial Supervisory Authority (the “FSA”) required insurance undertakings to contribute the following amounts to the IGF: (i) 1% of the gross cashed-in premiums for general insurance (increased from 0.8%); and (ii) 0.4% of the gross cashed-in premiums for life insurance (increased from 0.3%). Under the new law, failure to pay the amounts due to the IGF represents a misdemeanour and will be sanctioned by a written warning or fine ranging between RON 5,000 (approximately EUR 1,100) and RON 50,000 (approximately EUR 11,000). In addition to the fine, insurers may be temporarily or definitively prohibited from providing insurance for one or more insurance classes or withdrawal of the authorisation of the insurance undertakings.
The new law also details the composition of the IGF’s board of directors, as follows: (i) 3 members appointed by the FSA’s board, of which one shall be appointed chairman of the board of directors of the IGF; and (ii) 2 members appointed by the Ministry of Public Finance. The members of the IGF’s board of directors shall be appointed for a term of 5 years by decision of the FSA.
In the coming weeks, we expect the market to react to the new requirements of Law 213/2015 and will prepare a more detailed review once more information is available.
Law 213/2015 is available in English here.