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Trends and prospects
What are the current trends in and future prospects for the insurance and reinsurance markets in your jurisdiction?
Market characteristics According to the French Insurance Federation, France is the fifth-largest insurance market in the world and the second-largest in Europe, holding 17.5% of the market share of the main European countries. France also houses the fourth-largest reinsurer in the world, SCOR, which generated a net income of €603 million in 2016.
The French insurance market comprises a significant number of insurers offering a variety of insurance products and distribution channels.
In addition, an increasing number of non-traditional players (eg, insurtechs) are disrupting traditional insurance models and providing added value insurance-related services generally through partnerships with existing insurers or intermediaries (eg, the trend towards digitalisation). An appetite exists for some of these new entrants to insource their services by setting up dedicated licensed insurance or insurance mediation subsidiaries.
Changes to regulations A number of changes have been made to the regulations applicable to the insurance industry, including the following:
•The implementation of EU Directive 2016/97/EC on insurance distribution (due on or before February 23 2018) will trigger substantial changes to the rules applicable to insurance distribution.
•The transparency and anti-corruption reform Sapin II has a direct impact on the insurance market as it reinforces the powers of the French insurance supervisor and introduces new obligations on insurers and their directors and officers (eg, a need for internal procedures aimed at the prevention and identification of corruption risks and protection of whistle-blowers).
•Ordinance 2016-1635, which partially implemented the Fourth Anti-money Laundering EU Directive 2015/849/EU, reinforces the obligations applicable to (re)insurers and insurance intermediaries.
•In principle, the reform of contract law has limited impact on insurance contracts; however, pre-existing general contract rules have been amended and constant case law has been implemented under the form of statutory law. Nevertheless, case law decisions over the coming years should be closely monitored.
•In 2016 the scope of class actions was also extended in relation to medical products, work discrimination, environmental damage and data privacy, increasing insurers' exposure to such class actions.
Further changes will be implemented in the near future, primarily through EU directives.
What is the primary legislation governing the (re)insurance industry in your jurisdiction?
French regulations applicable to the (re)insurance industry stem from EU directives and regulations which (with regard to directives) have been implemented through domestic legislative measures or (with regard to regulations) are directly applicable in France.
In 2015 EU Directive 2009/138/EC (the ‘Solvency II Directive’) was implemented in France and, as well as related EU delegated regulations, substantially amended the legal environment for (re)insurers. Similarly, the EU Insurance Distribution Directive due to be implemented on or before February 23 2018 will substantially alter the regime applicable to insurance distribution and will affect (re)insurers with respect to their distribution networks.
(Re)insurance-related EU directives are implemented into the French Insurance Code and the Monetary and Financial Code, both of which set out the primary rules governing the (re)insurance industry in France. Additional laws and regulations can be found in the Civil Code and other codes and laws, including the Consumers Code.
Consumer protection is one of the statutory objectives of the French Prudential Supervision and Resolution Authority (ACPR); therefore, the ACPR has issued ‘soft’ law (eg, codes of conduct, guidelines, communications and binding recommendations) with a strong emphasis on the practices of marketing financial products.
Regulations applicable in France also stem from case law and professional custom (eg, brokerage custom).
Which government bodies regulate the (re)insurance industry in your jurisdiction and what is the extent of their powers?
The ACPR is the French banking and insurance supervisor in charge of the authorisation, licensing and ongoing control of (re)insurers and (re)insurance intermediaries. It is an administrative independent authority attached to the French Central Bank and charged with preserving the stability of the financial system and protecting the customers, insurance policyholders, members and beneficiaries of the persons that it supervises.
To achieve its statutory missions, the ACPR is granted with wide supervisory powers, the power to impose administrative measures and disciplinary powers, as well as the power to issue soft law.
Ownership and organisational requirements
Ownership of (re)insurers
Are there any restrictions on ownership of or investment in (re)insurers in your jurisdiction, including any limits on foreign ownership/investment?
No legal general restrictions apply to the ownership or control of (re)insurers, including in respect of foreign ownership or investment.
However, for the purpose of granting (re)insurance licences, the French Prudential Supervision and Resolution Authority (ACPR) will assess whether the shareholding structure and the quality of the shareholders guarantee sound and prudent management of the company. To this end, as part of the licensing application procedure, an extensive form must be filed in relation to shareholders and ultimate beneficiaries demonstrating that they have a clean track record and providing the ACPR sufficient assurance as to their ownership in a French (re)insurer.
The ACPR can refuse authorisation if the laws, regulations or administrative provisions of a non-European Economic Area (EEA) member state governing one or more natural or legal persons with which the insurer has close links – or difficulties involved in the enforcement of such measures – prevent the effective exercise of its supervisory functions.
What regulations, procedures and eligibility criteria govern the transfer of control of/acquisition of a stake in a (re)insurer?
Acquisitions, disposals and increases or decreases in the direct or indirect ownership of (re)insurers which have their registered office in France are subject to two regimes.
Prior ACPR authorisation Prior ACPR authorisation is required for the acquisition and increase of ownership interests in relation to any transaction that enables a person – acting alone or in concert with other persons – to acquire or increase his or her ownership in a (re)insurer or a parent company of such undertakings with its registered office in France where:
- such a transaction results in the proportion of voting rights held by that person to exceed 10%, 20%, 33% or 50% of all voting rights of the (re)insurer; or
- the (re)insurer becomes a subsidiary of that person.
A complete application form (as well as supporting documentation) must therefore be filed with the ACPR. The ACPR must acknowledge receipt within two business days and complete its assessment within 60 business days from the date of acknowledging receipt. The ACPR may ask for additional information no later than 50 business days into the assessment period, suspending such period for a maximum of 20 business days (30 business days in relation to non-EEA or unregulated acquirers) until the additional information is received.
The ACPR assesses the application, notably on the grounds of:
- the reputation and financial strength of the acquirer;
- the target undertaking’s ability to fulfil and continue to fulfil the provisions of the French Insurance Code; and
- the existence of reasonable grounds for suspecting money laundering in relation to the planned transaction.
Prior ACPR notification Prior ACPR notification is required in the event of a disposal or reduction of ownership interests which results in the proportion of voting rights to fall below 10%, 20%, 33% or 50%, or where the undertaking ceases to be a subsidiary.
The ACPR must acknowledge receipt of a complete notification within two business days and has 60 business days from the date of its acknowledgement of receipt to oppose the planned transaction, particularly if it calls into the question the conditions to which the licence of the target entity is subject.
Must (re)insurers adopt a certain legal structure in order to operate? If no mandatory company organisation applies, what are the common structures used?
(Re)insurers must be established in the form of one of the three corporate structures (as applicable) provided under the French Insurance Code, namely:
- a joint stock company;
- a mutual insurance company; or
- a European company.
Insurance business may also be carried out by other entities which are governed by the Code of Mutuality or the French Code of Social Security (eg, mutuals or supplementary pension funds).
Do any particular corporate governance requirements apply to (re)insurers, including any eligibility criteria for directors and officers?
Pursuant to the Solvency II Directive, (re)insurers must put in place and maintain an adequate and transparent system of governance which provides for sound and prudent management of the business. The system must include at least an adequate transparent organisational structure with clear allocation and appropriate segregation of responsibilities, and an effective system for ensuring the transmission of information.
(Re)insurers must act prudently and monitor their own risk and solvency on a regular basis. To this end, they must put in place written policies at least in relation to risk management, internal control, internal audit and (where relevant) outsourcing. These policies are reviewed annually and require prior approval by the administrative, management or supervisory body.
(Re)insurers must take reasonable steps to ensure continuity and regularity in the performance of their activities, including the development of contingency plans. Directors and officers are subject to fit and proper criteria, including integrity and professional capacity requirements. To assess whether these criteria are met, the ACPR will take into account the training and professional experience acquired by such persons, including as a board or committee manager. Where a person has exercised previous mandates, competence is presumed from his or her past experience.
Which (re)insurers must obtain authorisation from the regulator before operating on the market and what is the procedure for doing so?
French undertakings Undertakings which have their head office in France must apply for a (re)insurance licence before conducting (re)insurance activities in France.
To obtaining this licence, they must make initial contacts and file a complete application (in French language) with the French Prudential Supervision and Resolution Authority (ACPR). The application comprises legal, technical and financial sections.
The ACPR must reach its decision within six months from the date of receipt of a complete application. If it does not grant authorisation within that timeframe, the application is deemed to have been rejected.
In order to grant a licence, the ACPR will assess, notably:
- the fitness and properness, expertise and experience of the persons running or overseeing the undertaking;
- the administrative, technical and financial resources of the undertaking to meet the objectives of its business plan (ie, its scheme of operations); and
- the share capital structure and quality of the shareholders.
On the grounds of the ‘single licence’ principle, (re)insurers duly licensed in France may passport their licence in other EU countries on either a freedom-of-services or freedom-of-establishment basis.
Foreign undertakings (Re)insurers which have their head office in an EU member state other than France can apply the single licence principle and operate (re)insurance business in France on the basis of their home member state licence, subject to compliance with the passporting procedure as implemented in their home member state.
Non-EU insurers may carry on insurance business in France only having established a French subsidiary or branch, and having obtained a licence from the ACPR. Non-EU reinsurers are not subject to prior ACPR licensing requirements and may carry on reinsurance business in France subject to specific obligations (eg, the obligation to post collateral with French cedents).
What are the minimum capital and solvency requirements for (re)insurers operating in your jurisdiction?
(Re)insurers must comply, at all times, with the minimum capital and solvency requirements provided under the Solvency II Directive.
Do any other financial requirements apply?
Although not strictly speaking financial requirements, (re)insurers are subject to specific rules in relation to their investments, which must comply with the ‘prudent person’ principle and additional specific rules (as the case may be).
Are personnel of (re)insurers subject to any professional qualification requirements?
(Re)insurers must ensure that all persons effectively running the undertaking or having other key functions fulfil the specific requirements applicable to them at all times.
Requirements for insurers Persons managing and administering insurers (including members of the board and key function holders) are subject to integrity and professional capacity requirements. To assess whether such conditions are fulfilled, the ACPR will take into account the training and professional experience acquired by such persons, including as a board or committee manager. Where a person has exercised previous mandates, competence is presumed from his or her past experience.
Requirements for reinsurers Similar professional qualifications as those applicable to insurers apply to persons managing and administering reinsurers (including members of the board and key function holders).
What rules and requirements govern the business plans of (re)insurers?
As part of the licence application, (re)insurers must submit a business plan (also known as a ‘scheme of operations’), including:
- detailed projections on revenue, losses, technical results, net results, technical provisions and solvency data;
- a description of contemplated activities (eg, the nature of the risks covered, target clients, prices, distributions modalities and contemplated reinsurance programme); and
- the administrative, technical and financial resources.
For three years following authorisation, the (re)insurer must provide the ACPR with an update each semester on its progress towards implementation of the scheme of operations.
What risk management systems and procedures must (re)insurers adopt?
Pursuant to the Solvency II Directive, (re)insurers must have in place an effective risk-management system comprising strategies, processes and reporting procedures necessary to identify, measure, monitor, manage and report – on a continuous basis – the risks at an individual and aggregated level, to which they are or could be exposed, and their interdependencies. In particular, the risk-management system must comprise policies addressing:
- underwriting and reserving;
- asset liability management;
- liquidity and concentration risk management;
- operational risk management; and
- reinsurance and other risk-mitigation techniques.
The risk-management system must be effective and well integrated in the organisational structure and decision-making processes, and a risk-management function – structured in such a way as to facilitate the implementation of the risk-management system – must be provided for.
Reporting and disclosure
What ongoing regulatory reporting and disclosure requirements apply to (re)insurers?
(Re)insurers are subject to numerous reporting requirements, mainly stemming from the Solvency II Directive – Pillar 3 requirements. Some of these requirements can be fulfilled by the parent company on behalf of the group. For example, the Own Risk and Solvency Assessment and the Solvency and Financial Conditions Report can – subject to prior ACPR authorisation – cover the group and the totality or a subsection of the entities comprising the group. Other reports, including the Regular Supervisory Report and the Actuarial Report, must be filed both on a solo basis and at group level; while the National Specific Statements must be prepared on a solo basis only.
Do any other operating requirements apply in your jurisdiction?
The ACPR has issued numerous recommendations which directly impose operating requirements on (re)insurers and additional reporting obligations (eg, in relation to unclaimed life insurance contracts) may apply.
What are the consequences of non-compliance with the operating requirements applicable to (re)insurers?
(Re)insurers that fail to comply with applicable legal and regulatory requirements may be subject to:
- disciplinary penalties determined by the ACPR – ranging from a warning to a withdrawal of licence and/or a fine up to a maximum amount of €100 million; and/or
- criminal penalties – for example, the carrying on of (re)insurance activities in France without authorisation is a criminal offence punishable by a fine of up to €375,000 and other penalties (eg, prohibition to conduct business in France) if committed by a legal person.
What general rules, requirements and procedures govern the conclusion of (re)insurance contracts in your jurisdiction?
Insurance contracts The rules governing insurance contracts (eg, obligations of the parties, contractual and pre-contractual information obligations, modalities of conclusion, amendments to and termination of the contract) are primarily laid down in Book I of the French Insurance Code. Most of these rules are mandatory; therefore, the parties to the insurance contract cannot derogate from these provisions.
In addition, the general contract law principles set out in the French Civil Code apply to insurance contracts in relation to matters which are not expressly governed by – or to the extent that they are not derogated from – the French Insurance Code (eg, default interest, civil liability arising from a breach of the duty to advise and information obligations, evidence of the contract and criminal infringement).
The French Consumer Code, the Commercial Code and the Monetary and Financial Code may also apply to insurance contracts, depending on the nature of the policyholder and the class of insurance.
Reinsurance contracts Reinsurance contracts are not subject to the French Insurance Code provisions on insurance contracts and neither the French Insurance Code nor any other law provides for specific rules or mandatory provisions applying to reinsurance contracts. Reinsurance contracts are therefore subject to the general contract law principles applicable to all contracts.
Are (re)insurance contracts subject to any mandatory/prohibited provisions?
Insurance contracts In principle, insurance contracts fall within the scope of contractual freedom of the parties; however, they are subject to rules which impose a specific formalism. For example, insurance policies must be in writing and exclusions, nullities and forfeitures must be in bold and extremely clear print. Further, mandatory information (eg, contact details of the parties, a description of the risk insured, duration of the cover, applicable law and the name and address of the regulatory body) must be included in contract.
Additional mandatory information may be required depending on the risks covered under the policy.
Reinsurance contracts In the absence of specific rules applying to reinsurance contracts, the provisions of such contracts must comply with those applicable to all contracts.
Numerous clauses are generally included in reinsurance contracts as part of best market practice; however, the amount depends on the complexity of the reinsurance contract. For example, longevity reinsurance contracts require more sophisticated clauses.
Can any terms by implied into (re)insurance contracts (eg, a duty of good faith)?
Insurance implied terms A number of the French Insurance Code provisions in relation to insurance contracts are deemed to be imperative (ie, parties are subject to such provisions regardless of those of the insurance contract). For example, the insured may not benefit from coverage if it voluntarily caused the harmful event covered under the insurance contract, irrespective of the provisions of the contract.
Reinsurance implied terms Although the French Insurance Code provides no specific regulations applicable to reinsurance contracts, such contracts remain subject to the general provisions and concepts applicable under French contract law. For example, reinsurance contracts must be entered into and executed in good faith.
What standard or common contractual terms are in use?
The French Prudential Supervision and Resolution Authority (ACPR) operates no prior control on the company or products to be distributed in France. However, French legislature has imposed the use of standard contractual clauses in certain insurance sectors, mostly with respect to mandatory insurance policies, such as those for motor liability or construction insurance. Professional liability insurance contracts are also subject to the provision of compulsory clauses.
Professional associations may recommend clauses to be included in insurance contracts. The French Federation of Insurance provides for standard clauses (eg, with respect to economic penalties) and even full terms and conditions for certain types of insurance (eg, marine and aviation insurance).
What is the state of development in your jurisdiction with regard to the use of ‘smart’ contracts (ie, blockchain based) for (re)insurance purposes? Are any other types of financial technology commonly used in the conclusion of (re)insurance contracts?
In France, ‘smart’ contracts are not yet legally defined or deemed to be technically and legally mature. A number of initiatives have been launched (eg, the Blockchain Insurance Industry Initiative B3i launched by (re)insurers and aimed at exploring the potential of distributed ledger technologies); however, these remain in the development phase and no blockchain-based ‘smart’ contracts are known to have been put into practice in the French market. The European Insurance and Occupational Pensions Authority recently stressed that it would closely monitor blockchain developments in the insurance industry and expects that blockchain will first be implemented in commercial lines and the reinsurance business. Insurtechs are developing in France.
What rules and procedures govern breach of contract (for both (re)insurer and insured)?
Consequences of breach by insurer The penalties applicable for breach of contractual provisions are provided directly in either the French Insurance Code or the insurance contract (in application of the code). Policyholders and insureds may introduce judicial proceedings to obtain payment of their claims and monetary compensation if and when they have suffered damage as a result of the contractual breach. This supposes that they can show the breach, the damage suffered and a causal link between both. If the breach is redundant, the ACPR may consider whether the insurer fails to comply with applicable regulations and impose disciplinary penalties for such breach.
Consequences of breach by insured The main types of breach that may be committed by the insured and the consequences of such are as follows:
- Non-payment of insurance premiums – in relation to non-life insurance contracts, after 10 days following the due date of the premium, the insurer must send the insured a formal notice to pay the premium within 30 days. After the expiry of such period, the insurer may suspend coverage and terminate the contract 10 days thereafter, if the premium has not been paid. No similar provision applies to life insurance contracts, which may be terminated under specific circumstances only.
- Failure to notify a loss within the period provided under the insurance contract – subject to express provisions in the insurance contract, the insurer may refuse to pay the benefits if it can show that the delayed declaration has caused it to suffer damage. This does not apply to life insurance contracts.
- Negligent or non-voluntary omission or misrepresentation modifying the risk or decreasing the risk assessment made by the insurer – if the insurer has knowledge of such an omission or misrepresentation:
- before the loss, it may either pursue the insurance contract after having increased the premium (if accepted by the insured) or send a registered letter to the insured to notify the termination of the contract within 10 days after such notice, and reimburse the insured the premium paid for the outstanding cover period; or
- after the loss, the insurance benefit will be reduced proportionally to the difference between the premium that has been paid and the premium that the insured would have paid, had it correctly declared the risk.
- Intentional or voluntary omission or misrepresentation modifying the risk or decreasing the risk assessment made by the insurer – the insurance contract is null and void, and (in relation to non-life insurance) the insurer can keep the premiums that have been paid and request payment of the premiums due.
What consumer protection regulations are in place to safeguard the rights of purchasers of insurance products and services?
Provisions aimed at consumer protection in relation to insurance contracts are laid down in the French Insurance Code and, more generally, in the French Consumer Code. Under the general ‘treating the customer fairly’ principle, customer-facing documentation – including insurance policies – must be fair, clear and not misleading.
Provisions which are deemed to be unfair are null and void, and where policy terms are unclear, they should be interpreted in the sense most favourable to the consumer.
What general rules, requirements and procedures govern the filing of insurance claims?
When incurring a loss covered under an insurance policy, the insured must make a claim to the insurer. The policy may provide for a delay, under which the claim should be issued and documentation to be provided by the claimant in relation to the loss incurred. It should also be emphasised that the burden of proof relies on the claimant. The insurer may reduce the payment of the benefit or refuse to pay a late claim (if and when covered) only if the right to such a denial is expressly provided for in the insurance policy and the late claim caused damages to the insurer.
What is the time bar for filing claims?
Insurance The time bar for actions arising from an insurance contract (including claims by the insured against the insurer) is two years after the occurrence of the event giving rise to the action.
A limitation period of 10 years applies in relation to:
- life insurance contracts where the beneficiary is different from the policyholder; and
- insurance contracts covering personal injury where the beneficiaries are heirs of the deceased insured.
Reinsurance Reinsurance contracts are not subject to the French Insurance Code provisions on insurance contracts and therefore are not subject to the time bar applying to insurance contracts. As such, the general five-year time bar provided for contracts under the Civil Code applies.
Denial of claim
On what grounds can the (re)insurer deny coverage?
The grounds on which coverage can be denied include:
- fraudulent claims;
- expiry of the claim period (subject to specific conditions);
- absence of coverage or exclusion; and
- loss pre-existing the conclusion of the insurance contract.
What rules and procedures govern the insured’s challenge of the denial of a claim?
No specific provisions under the French Insurance Code govern the insured's challenge of a claim denial.
Usually, the insured will try to reach an amicable solution with the insurer's claim settlement or ombudsman services, or have recourse to a third-party mediator (eg, the mediator of the French Insurance Federation) before initiating judicial proceedings. The parties to the insurance contract may also agree on alternative dispute resolution (eg, arbitration).
On what grounds can a third party file a claim directly with the (re)insurer?
A third party may file a claim directly with an insurer in two situations:
- Where the beneficiary under the policy is different from the policyholder, it can make a claim if and when the event covered under the policy materialises, despite being a third party to the policy.
- In relation to liability insurance policies, third parties that have incurred damages for which the insured would be liable may make a direct claim to the insurer. The insurer may oppose the third party on the same conditions, limits of cover and exclusions provided under the policy that it would invoke against the policyholder or insured.
A third party may also have recourse to a derivative action to make a claim on behalf of the policyholder in relation to property insurance. However, such a claim would ultimately benefit the policyholder, rather than the third party. The recourse to such action may also be contemplated in the context of reinsurance.
Are punitive damages insurable?
French law does not recognise punitive damages or exemplary damages in relation to civil (eg, tort) proceedings. However, criminal judges can issue fines, the amount of which would not benefit the victim.
Civil judges can grant damages only up to an amount which they consider would be necessary to repair the loss incurred by the claiming party, on the basis of the ‘full compensation’ principle.
Market practice in France excludes coverage of punitive damages and therefore must exclude coverage of insureds that may be sentenced to punitive damages abroad.
What regime governs (re)insurers’ subrogation rights?
The insurer which paid the indemnity is (subject to exceptions) subrogated, up to the amount of such indemnity, to the rights and actions of the insured against third parties which caused the damage that triggered the insurance coverage. The insurer may be partially or fully discharged of its liability against the insured when the subrogation cannot be operated in favour of the insurer because of the insured.
The French Insurance Code provides no specific rules in relation to reinsurers’ subrogation.
How are the services of insurance intermediaries regulated in your jurisdiction?
The French Insurance Code defines ‘insurance mediation’ as any activity "introducing, proposing, assisting with the conclusion of insurance contracts, or performing preparatory work to the conclusion of insurance contracts". Management, expert appraisal and liquidation of claims are not considered to be insurance mediation.
French insurance intermediaries carrying on business in France must – subject to exemptions – register with the insurance intermediaries' register held by the Organisme pour le Registre des Intermédiaires en Assurance. Registrations must be renewed each year.
As part of the registration application, intermediaries must evidence that they meet professional capacity and good repute requirements, and hold professional liability insurance and (as the case may be) a special financial guarantee.
Under the French Insurance Code, insurance intermediaries are subject to various conduct of business obligations (including information and duty to advise obligations) which regulate how the intermediary deals with its customers.
Non-compliance with applicable insurance mediation regulations exposes intermediaries to criminal or disciplinary penalties.
Criminal penalties include:
- up to two years’ imprisonment (for corporate officers) and/or a fine of up to €6,000 (€30,000 for legal persons) for a breach of provisions relating to the registration, professional capacity, professional indemnity, financial guarantee obligations; or
- a fine of up to €3,000 per contract (capped at €6,000) if contracts with insurers which are not duly authorised or have not been granted passporting rights to carry on insurance business in France are mediated.
Disciplinary penalties are issued by the French Prudential Supervision and Resolution Authority (ACPR) against the insurance intermediary (or, if the insurance intermediary is a legal entity, its corporate representatives), depending on the gravity of the breach. These range from a warning to the prohibition of carrying on insurance mediation activities in France. In addition, insurance intermediaries can be subject to pecuniary penalties (either instead of or in addition to administrative penalties), the amount of which depends on the seriousness of the breach and is capped at €100 million.
The EU Insurance Distribution Directive due to be implemented before 23 February 2018 will substantially amend the existing regulations applicable to insurance intermediaries. In particular, the scope of the directive will be extended to (re)insurers directly selling (re)insurance to their customers and impose additional conduct of business obligations.
What tax liabilities arise in the conduct of (re)insurance business?
Corporate tax (Re)insurers carrying on (re)insurance activities in France are subject to corporate income tax at the standard rate of 33.33% (progressively decreasing to 28% by 2020). An additional surcharge of 3.3% assessed on the corporate income tax may apply if the annual turnover of (re)insurers exceeds the €7.63 million threshold – leading to an aggregate French corporate income tax rate of 34.43%.
Tax on insurance contracts In principle, an insurance premium tax is applicable to insurance contracts concluded by French or foreign insurers which cover either risks located in France or risks relating to an industrial, commercial or agricultural establishment in France.
The insurance premium tax is assessed annually, based on the amount of all sums due by the policyholder to the insurer in consideration of the guarantee provided by the latter. The insurance premium tax rate varies between 7% and 33% depending on the category of risks covered in the insurance policy. Exemptions may apply depending on the nature of the agreement (eg, life insurance and reinsurance agreements).
Depending on the circumstances (eg, the location of the insurer), insurance premium tax must be paid by the insurer, the French insurance intermediary or the French policyholder, which are jointly and severally liable for payment. Insurance premium tax must be paid together with the filing of a 2787 tax form.
Other taxes Life insurance contracts In principle, life insurance policyholders are subject to French individual income tax on the income realised as part of their life insurance contracts on the partial or total surrender of such contracts. However, if formally requested by the policyholder, life insurers may have to levy the individual income tax owed by the policyholder, at a rate that depends on the duration of the contract.
Similarly, sums paid by insurers to beneficiaries in cases of the policyholder’s death may be subject to a specific tax to be levied by life insurers.
Surplus of reserves Non-life insurers are also subject to pay a specific tax (at a rate of 0.4% per month) when they cancel reserves made over previous fiscal years for the payment of potential damages insurance claims. Reinsurers are exempt from this tax.
Miscellaneous taxes Insurers may also be liable to pay additional contributions to several guarantee funds (eg, automobile guarantee funds and guarantee funds for victims of terrorism and natural and technological disasters).
Value added tax (VAT) (Re)insurance transactions, as well as services provided by (re)insurance intermediaries in respect of such transactions, are VAT exempt.
What regime governs the insolvency of (re)insurers?
(Re)insurers suffering solvency or financial issues are subject to general insolvency and specific regulations set forth in the Commercial Code and the French Insurance Code respectively.
The French Prudential Supervision and Resolution Authority (ACPR) may order different measures, depending on the extent of the (re)insurer’s financial distress, with the aim to preserve or restore the (re)insurers' financial situation. Such measures include temporary prohibition of carrying out certain operations, automatic transfer of portfolios or placement under provisional administration, or withdrawal of the licence.
(Re)insurers may also benefit from the Commercial Code procedures applicable to any commercial company (ie, the insolvency prevention procedures which are the ad hoc mandate and the conciliation proceedings), subject to the ACPR’s prior consent, and receivership or liquidation (triggering the withdrawal of licence of the liquidated company). These measures are issued either at the request of the ACPR, by a court acting on its own or following a request from the public prosecutor.
The Sapin II transparency and anti-corruption reform authorises the government to adopt a resolution regime specific to the insurance sector, including the obligation to have a preventive recovery plan in place and implemented under the authority of the ACPR. This regime will likely be implemented soon.
Effect on insureds
How does a (re)insurer’s insolvency affect insureds and the (re)insurer’s obligations to insureds?
In opening of liquidation proceedings, insureds, policyholders, adherents or beneficiaries are exempted from the obligation (to which creditors are normally subject) to notify the liquidator of the amounts owed to them. Insureds have a preferential right in the assets of the liquidated undertaking. The guarantee fund, to which insurers providing life insurance or insurance covering the risk of bodily injury must contribute, may step in and indemnify insureds where the insurer is unable to face its obligations.
Are there any compulsory or preferred venues for insurance litigation in your jurisdiction?
Judicial proceedings Disputes relating to the payment of sums owed under an insurance contract must be brought before the court of the place of residence or head office of the insured, with the exception of:
- disputes relating to insurances covering property-related risks – for which the competent court is the court of the place where the insured property is located; and
- insurances covering risks relating to accidents of any nature – for which disputes may be brought before the court of the place where the harmful event occurred.
Mediation Various mediation procedures have been set up in the French market, including one put in place by the French Federation of Insurance and the Pool of Mutual Insurance Companies, and a similar procedure set up by broker associations, aimed at facilitating the settlement of claims with customers.
Disputes between professionals (acting as commercial entities) and (re)insurers or intermediaries, or between (re)insurers and intermediaries, may be settled under the usual mediation procedure (eg, the mediation procedure offered by the French Centre for Insurance and Reinsurance Arbitration).
How are insurance disputes with a cross-border element handled in your jurisdiction?
The handling of cross-border litigation depends on the nature of the cross-border element (eg, the place of location of the risk, the nationality of the parties and the law applicable to the insurance contract).
Whether French courts have jurisdiction over a cross-border litigation involving a defendant located in an EU or European Free Trade Association (EFTA) member state depends on the provisions of EU Regulation 1215/2012 and the Lugano Convention. When the defendant is located in a non-EU or non-EFTA country, French general conflict law applies.
What issues are commonly the subject of insurance litigation?
The key issue that is commonly the subject of insurance litigation relates to the provision of false, incomplete or misleading information or advice by the insurer regarding the insurance product and false or incomplete statements by the insureds, at the time of either the subscription of the insurance or the filing of a claim.
What is the typical timeframe for insurance litigation?
This depends on the complexity of the litigation. First-instance litigation procedures usually last from six to 18 months, appeals against the first-instance decision one to two years, and appeals against court of appeal decisions before the French Supreme Court 12 to 15 months.
What regime governs the arbitrability of insurance disputes?
Arbitration clauses may be provided for in insurance contracts entered into between professional parties, rather than consumers. It is common practice in France to include arbitration clauses in reinsurance agreements. Arbitration proceedings are subject to the provisions of the arbitration tribunal selected by the parties. This can be an ad hoc tribunal or a pre-existing arbitration institution (eg, the International Chamber of Commerce). The French Centre for Insurance and Reinsurance is an arbitration institution specialised in insurance and reinsurance arbitrations in France.