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?

Specific requirements apply to (national or international) owners of a qualified participating interest – namely, those who directly or indirectly hold at least 10% of the share capital or voting rights or who are by other means in a position that makes it possible to exercise a significant influence over the company’s management. The owners of a qualified participating interest must be reliable and meet the requirements of sound and prudent management. As part of the application to set up an insurance undertaking, certain documents relating to owners of qualified participating interests must be submitted to check suitability – in particular, annual accounts for the previous three financial years for stakeholders required to provide annual accounts, together with a group structure and consolidated financial statements for the previous three financial years where the stakeholder belongs to a group of companies. The lack of suitability of the holder of a significant interest is a compelling reason for refusing permission to conduct business as an insurance undertaking.

Further, supervisory law provides for certain notification requirements in relation to the acquisition of qualified participating interests, particularly if certain thresholds are met or fallen short of (eg, 20%, 30% or 50% of the voting rights or share capital). The notification must be made without undue delay.

On the German insurance market, significant investment can be seen at present, particularly in the insurtech field.

What regulations, procedures and eligibility criteria govern the transfer of control of/acquisition of a stake in a (re)insurer?

The acquisition of an insurer is subject to strict legal requirements aimed at safeguarding the interests of policyholders. In essence, no policyholder may be put at a disadvantage by the sale of a company. If the interests of the policyholders are not sufficiently safeguarded, the Federal Financial Supervisory Authority (BaFin) (as the competent regulatory authority) can prohibit the planned acquisition. BaFin examines every notification of an intended acquisition of an insurer. The acquirer must submit extensive information before BaFin will formally ascertain that the notification is complete and open the so-called ‘owner control procedure’. During this procedure, BaFin will examine, among other things, the acquirer’s business model and general reliability. In particular, it will evaluate whether the acquirer offers an effective risk management system. In addition, BaFin will review the acquirer's solvency and ability to sufficiently capitalise the insurer. Another focus of this audit is the technical and operational feasibility of the transaction in order to ascertain the acquirer's ability to adequately manage the acquired portfolio. The duration of the procedure depends on the individual acquisition.

Organisational requirements

Must (re)insurers adopt a certain legal structure in order to operate? If no mandatory company organisation applies, what are the common structures used?

Permission to set up an insurer may be granted only to public limited companies, including European companies, mutual insurance associations and public bodies and institutions.

Do any particular corporate governance requirements apply to (re)insurers, including any eligibility criteria for directors and officers?

In general, (re)insurers must establish an effective and adequate transparent organisational structure with a clear allocation and appropriate segregation of responsibilities. (Re)insurers must have written guidelines in place, taking into account their specific risk profile. To monitor compliance regarding administrative and accounting procedures, an internal control framework with appropriate internal reporting arrangements at all levels of the undertaking must be established. (Re)insurers within the framework of the requirements may decide which organisational structure is appropriate for them. The process organisation must ensure that processes and their interfaces associated with risks are adequately controlled and monitored. This initially requires that all processes must be assessed from a risk perspective. The documentation of the organisational and process structure must be maintained, kept up to date and archived for at least six years. The entire executive board must regularly assess the business organisation and ensure that necessary changes are implemented in due course. While outsourcing of business tasks is generally possible, the (re)insurer remains responsible for complying with the requirements at all times and on all levels.

Persons who effectively run the undertaking or perform other key functions (ie, members of the management and supervisory board or other persons appointed to represent the undertaking, as well as persons who are responsible for the four mandatory key functions) must be reliable and professionally qualified (ie, fit and proper). The four mandatory key functions are:

  • the independent risk management function;
  • the compliance function;
  • the internal audit function; and
  • the actuarial function.

Professional competence is measured on professional qualifications, knowledge and experience, adequate theoretical and practical knowledge of insurance business and sufficient managerial experience to ensure the sound and prudent management of the enterprise.

The number and succession of board membership is also regulated. Any person who already acts as managing director of two insurance undertakings, pension funds, insurance holding companies or insurance special purpose vehicles cannot be appointed as managing director, except for companies of the same group of companies (appointment in this case is subject to BaFin approval). In addition, former management board members cannot be appointed as supervisory board members if two former managing directors of the enterprise are already members of the same supervisory board. Finally, more than five supervisory board mandates with companies under BaFin supervision are prohibited, except for companies within the same group.