Global Growth: Entering new insurance markets

Global Growth Entering new insurance markets International corporate insurance 1 Contents Bahrain 3 Cambodia 5 China 7 Dubai International Financial Centre 9 Gibraltar 11 Hong Kong 13 India 15 Indonesia 17 Japan 19 Lloyd’s 21 London Market 23 Malta 25 Malaysia 27 Mongolia 29 Myanmar 31 Pakistan 33 Philippines 35 Qatar 37 Qatar Financial Centre 39 Saudi Arabia 41 Singapore 43 South Korea 45 Switzerland 47 Taiwan 49 United Arab Emirates 51 USA 53 Vietnam 55 2 As insurers/reinsurers start to look beyond their domestic, often mature, markets for growth opportunities they face an almost overwhelming choice in terms of which markets to consider, the structures available and the advantages and disadvantages of each. If you are looking to set up a new insurance underwriting business, location is a critical issue – not just where you want to be doing business, but also the speed of set up and the regulatory environment in which you will operate. There is no doubt that London (of which the Lloyd’s market is a major component) is one of the most pre-eminent insurance centres in the world, with around 15% of global industrial risks being placed there. Over the last five years a steady stream of foreign insurers – from both mature markets such as the US and Japan, as well as emerging economies such as China - have, either through acquisition, start-up or joint venture, established themselves in this insurance hub. But a range of other jurisdictions are making themselves attractive for start-ups; such as Zurich and Gibraltar, and increasingly Singapore for South East Asia. An insurer/reinsurer looking to establish themselves needs to consider a number of different issues when looking at various locations – the time taken to obtain authorisation, capital requirements and the ability to do business around the world. For example the main advantage of Gibraltar or Malta is the speed of set-up. From the decision to apply for a licence to it being granted is typically between three and six months, whereas in the United Kingdom it would take that long just for the regulator to consider the application. Over the last 20 years, Bermuda has proved to be a popular domicile – particularly for reinsurance businesses. The island’s ability to respond to capacity shortages through the rapid creation of new carriers has been demonstrated time and time again. It combines rapid regulatory approval, an attractive tax environment and a geographic position that is convenient for both the US and Europe. Singapore too has made clear its ambitions to be a regional insurance hub and has taken steps to position itself as the market of choice in South East Asia. This Report aims to offer a high level review – by region – of the opportunities and challenges available to an insurer/ reinsurer. We hope that you find this Report useful as part of your international underwriting strategy. If you have any follow up questions or would like to get in touch with a member of our Global Corporate Insurance Group then please do contact us. Kind regards Andrew Holderness Global Head of Corporate Insurance, Clyde & Co LLP E: [email protected] 3 Bahrain Regulator Central Bank of Bahrain (CBB). Key market facts – The Bahrain market (all classes) is ranked at 82 in the world in terms of gross premium size and the Bahrain non-life market is ranked at 84 General information – Population 1,346,613 (July 2015 est.) – Population growth rate 2.41% (2015 est.) – Median age 31.8 years – GDP real growth rate 4.5% (2014 est.) Bahrain 4 Licences – Following a consultation process, the CBB decided not to pursue the proposal to permit the establishment of composite companies, subject to certain provisos. The position therefore remains that an insurance company cannot transact short-term (general) insurance business and long-term insurance business at the same time, except in the case of captive insurers or pure reinsurers, or takaful companies, which may transact general and family takaful business within the same company – There are strict fund separation rules, however, and takaful general and family funds have to be managed as though they were two separate licensed companies Regulatory capital requirements – The insurance rulebook incorporates regulations for the calculation of solvency and capital requirements. – Branch – reduced capital requirements apply depending on the type of insurance business Start-up – The Commercial Companies Law 21/2001 requires commercial registration with the Ministry of Commerce prior to applying for an insurance licence from CBB – Public joint stock companies must be 51% owned by Bahraini nationals under the Commercial Companies law. Holding company structures are permitted, although the CBB does not supervise holding companies but instead the insurance companies owned by holding companies Acquisition Bahraini closed joint stock companies can be 100% owned by a foreign entity under the terms of the Commercial Companies Law 2001. Tax – There are no taxes, other than corporation tax levied on oil companies and social security payable by individuals – The Bahrain Institute of Banking and Finance is funded by a levy on the annual payrolls of banks and insurance companies in Bahrain – Bahrain has no taxes on personal or corporate income, sales, capital gains, estates, interest, dividends or fees but stamp duty is payable on property transfers 5 Cambodia Regulator Insurance Division of the Financial Industry Department of the Ministry of Economy and Finance (MEF). Key market facts – Remains a relatively underdeveloped market, with a small number of insurers – GWP of USD 52.98 Million in 2014, approximately a 27% growth from 2013 – The insurance market in Cambodia is driven primarily by income from one-off projects, rather than annually renewable businesses – Insurance penetration into the Cambodian population, both for personal and commercial line, has been minimal – Life insurance business only started in Cambodia in 2012 General information – Population 15,708,756 (July 2015 est.) – Population growth rate 1.58% (2015 est.) – Median age 24.5 years – GDP real growth rate 7% (2014 est.) Cambodia 6 Licences Insurers must be licenced by the MEF. Regulatory capital requirements – Minimum Capital Requirement equal to USD 7 million for life or general insurance companies. – 10% of registered capital is deposited with the National Treasury – Minimum solvency margin of 50% of the registered capital during the first year of operation and thereafter adjusted based on annual net premiums Start-up – Locally incorporated risk carriers only. Branch offices of foreign insurers are not permitted to conduct insurance business Acquisition – 100% foreign ownership is permitted Recent changes Insurance Law No NS/RKM/0814/021 became effective on 4th February 2015 to replace the previous 2000 law. Other facts – Cambodia has a young population, with 96% of its approximately 15.7 million inhabitants being under the age of 65 years – The economy of Cambodia is highly dollarised and the vast majority of transactions are conducted in USD. Fees and taxes are required to be paid in KHR – Compulsory cession of 20% of each risk to Cambodia Re 7 China Regulator China Insurance Regulatory Commission (CIRC). Key market facts – China has become the sixth largest insurance market in the world with the premium income exceeding RMB 2,000 billion in 2014 – There are 73 life insurers and 67 non-life insurers admitted to conduct direct insurance business in China according to statistics published by the CIRC as of end of year 2014 General information – Population 1,367,485,388 (July 2015) – Population growth rate 0.45% (2015 est.) – Median age 36.8 years – GDP real growth rate 7.3% (2014 est.) China 8 Licences Insurance providers must be authorised by the CIRC to conduct insurance business in China. Reinsurance business could be conducted on a nonadmitted basis. Three new domestic reinsurance companies have been set up and applied for authorisation in 2015. Regulatory capital requirements – Minimum registered/working capital of RMB 200 million or equivalent (to be paid in cash) Start-up – Foreign insurance companies are only permitted to establish wholly foreign owned P&C insurance companies. For life insurance companies, the total foreign shareholding cannot exceed 50% Acquisition In accordance with the M&A Measures promulgated in 2014, foreign insurance institutions may participate in the market by acquisition and the acquisition of equity or shares is now not limited to 25%. The foreign insurance institution who acquires more than 25% of the equity or share of an insurance company shall meet the criteria such that having 30 year insurance history, having maintained a representative office in China for more than two years, and having total assets not less than USD 5 billion for the year prior to the transaction and etc. Other important regulations – Industrial Guidance Catalogue for Foreign Investment (2011) and Administrative Measures for Insurance Policy – Premium Rate of Life Insurance Companies (2011) – Administrative Measures for Insurance Policy and Premium Rate of Life Insurance Companies (2012) – Regulations on Administration of Foreign-Invested Insurance Companies (2002) – Provisions for the Administration of Insurance Companies (2009) – Administrative Measures for Equities of Insurance Companies (2010) – Provisions for the Administration of Reinsurance Business (2010) Upcoming legislation – State Council’s Several Opinions for Accelerating the Development of Modern Insurance Industry (2014) – Supervision Measures on Internet Insurance Business (2015) – Regulations on China Risk Oriented Solvency System (C-ROSS) (2015) – Draft Supervision Measures on Insurance Institution Informatization (2015) Other facts – The census population as at end of year 2014 was about 1.368 billion – China is now the second largest economy in the world with GDP growth is expected to be around 6.5% for year 2016 – The Chinese insurance market is still largely dominated by domestic players like the People’s Insurance Company of China. While recent amendments to the Insurance Law of China (promulgated in 1995 and amended in year 2002, 2009 and 2014) and the State Council’s Opinions for Accelerating the Development of Modern Insurance Industry have encouraged more foreign insurance companies to operate in China, they currently represent a small market share, around 4.5% for year 2014 – In October 2015 the new C-ROSS solvency system was implemented. – Distribution is mainly in the hands of direct sales forces and agents, with the tele-call centres and internet sales of insurance growing fast 9 Dubai International Financial Centre Regulator Dubai Financial Services Authority (DFSA). Key market facts The DIFC continues to grow as one of world’s top international financial centres: – 862 active registered companies had a presence in the DIFC, with 322 regulated and 539 non-regulated companies, and over 90 retailers – The DIFC operates mainly as a wholesale reinsurance market and in contrast to their UAE registered counterparts, DIFC insurers are not permitted to write direct insurance for UAE risks – In respect of regulated firms operating out of the DIFC, approximately 30% are from the Middle East, 10% from Asia, 41% from Europe; 16% from North America and 3% from the rest of the world – The DIFC is also home to 21 of the top 30 global banks, six of the 10 largest insurers, six of the 10 top law firms and eight of the top asset managers in the world 10 Licences Composite insurance is not permitted. However, insurers can conduct long term insurance business as well as general insurance business where the general insurance business is restricted to accident and sickness cover. Regulatory capital requirements – Branch and locally domiciled insurer – USD 10 million, subject to risk-based prudential requirements – Requirement to hold capital locally may be waived Start-up Representative Office, Branch and locally (DIFC) domiciled insurer – 100% foreign ownership permitted. Acquisition Insurance/reinsurance companies in the DIFC can have up to 100% foreign ownership. Other important regulations – DFSA Rulebook – Prudential Insurance Module (PINS) – Although authorised firms can now obtain a DFSA licence to deal with retail clients, local law provisions currently restrict DIFC insurance firms from providing direct insurance for UAE-based risks, save where the risk is located in the DIFC district Upcoming legislation Nothing from the DIFC but there is a consultation paper regarding change of control applications/ notifications on the DFSA website. Tax – 0% corporate tax rate on income and profits (guaranteed for a period of 50 years). A wide network of double taxation treaties is available to UAE incorporated entities, including those in the DIFC – There are no withholding taxes Other facts – The DIFC Court; a common-law based court, has recently had its jurisdiction extended to parties outside the DIFC who elect to have their disputes dealt with in the DIFC 11 Gibraltar Regulator Financial Services Commission. Key market facts – Gibraltar is a self-governing United Kingdom overseas territory – There are over 60 insurance companies licenced in Gibraltar General information – Population 29, 258 (July 2015 est.) – Population growth rate 0.24% (July 2015 est.) – Median age 34.2 years – GDP real growth rate 6% (2008 est.) Gibraltar 12 Licences Direct insurers require separate life and non-life licences. There have been no composite insurers in Gibraltar since Eurolife Assurance (International) Ltd went into liquidation in October 2006. New composite companies cannot be formed under current legislation. New composite companies cannot be formed under current legislation. – PA and health can be written as a life or non-life class – Separate licences to write inwards reinsurance are not required Regulatory capital requirements – The Financial Services (Insurance Companies) Act 1987 does not specify a minimum share capital but the Insurance Supervisor must be satisfied that the insurer will have adequate financial resources to support the business plans and meet the required guarantee fund – The minimum guarantee fund varies according to the type and class of insurance business to be written Start-up This can typically take between three and six months. Acquisition There are no restrictions on foreign ownership. Foreign companies can operate through local subsidiaries, branches or underwriting agents. Tax – There are no policy taxes or special charges in Gibraltar – Motor insurers must contribute to a variable levy to pay for the motor guarantee fund – All companies operating in Gibraltar, except for utility and energy companies, will pay 10% corporation tax on operational profits, thereby lifting the tax exempt status for companies only operating offshore – There is no Value Added Tax (VAT) Other facts – Under EU legislation, Gibraltar insurers can provide or “passport” insurance services into other EU states under either provision of services, or by setting up a branch in the relevant EU State – Other benefits include no VAT, lower taxation and solvency requirements 13 Hong Kong Regulator Insurance Authority (IA). Key market facts – Lloyd’s is an authorised insurer in Hong Kong and has participated in the Hong Kong market for many years – According to facts released by the Office of the Commissioner of Insurance the general insurance sector recorded moderate growth and significant profit in 2009. Whilst total gross premiums increased by 6.9% to HKD 28,565 million, the underwriting profit boosted by 87.4% to HKD 2,408 million in 2009 – A total of 117 insurers reported to the IA on their Hong Kong general insurance business for 2009 General information – Population 7,141,106 (July 2015 est.) – Population growth rate 0.38% (2015 est.) – Median age 43.6 years – GDP real growth rate 2.5% (2014 est.) Hong Kong 14 Licences – Only insurers and insurance intermediaries, i.e. insurance agents and insurance brokers, are regulated in Hong Kong – Life and non-life insurers are authorised on a class-byclass basis, though the statutory minimum capital is the same for monoline and multiline companies – Reinsurance companies are not allowed to write direct insurance – Lloyd’s underwriters can write direct insurance and reinsurance business in Hong Kong. Lloyd’s has six syndicate service companies and 15 independent coverholders operating in Hong Kong Regulatory capital requirements Minimum paid-up capital is HKD 10 million for life and nonlife insurers and HKD 20 million for composite insurers. Start-up – Can be licensed as a direct insurer in Hong Kong either as a foreign insurer licensed in Hong Kong or a specially incorporated company licensed in Hong Kong – Process of being licensed by the IA anywhere between six – ten months – No restrictions on shareholdings for foreign companies – However, if the insurer is a foreign incorporated company it must have an authorised. representative in Hong Kong. If the company is incorporated in Hong Kong must have a company secretary based in Hong Kong – Branches of foreign insurers are permitted Acquisition – No person shall hold more than 15% of an authorised insurer incorporated in Hong Kong unless: (i) he has served a notice on the IA that he proposes to become a controller of an insurer; and (ii) the insurer has before the expiration of three months not served a notice of objection on that person or the period of three months has expired without an objection being served by the IA – No shareholding restrictions for foreign companies Recent and upcoming changes – The Financial Services and Treasury Bureau announced on 30 January 2012 that the government would proceed with the establishment of a life and non-life policyholders’ protection scheme. A bill establishing the policyholders’ protection fund will be passed in the 2012-13 legislative session with the scheme coming into effect from 2013-14 at the earliest – Proposed establishment of an Independent Insurance Authority by 2014/15 – Discussions in respect of amending the risk based capital framework in Hong Kong 15 India Regulator Insurance Regulatory and Development Authority of India (IRDA). Key market facts – Private sector insurers have been allowed into the sector since 2000 – 24 Life insurance companies and 284 general (non-life) insurance companies are licensed by IRDA – Insurance penetration much lower than global average and a CAGR of around 30% expected in the insurance industry General information – Population 1,282,975,954 (December 2015 est.) – Population growth rate 1.2% (2014 est.) – Median age - 27 years – GDP real growth rate 7.3% (2014 est.) India 16 Licences Mandatory registration (license) to be availed from the IRDA. Regulatory capital requirements – Life Insurance: Rs 100 crore (USD 15.15 million approx.) – General Insurance: Rs 100 crore (USD 15.15 million approx.) – Reinsurance: Rs 200 crore (USD 30.3 million approx.) Start-up – Registration of an insurance company is a two staged process (requisition for application followed by application for certificate of registration) and can take from three months to six/eight months – Branches of foreign insurers are not permitted. However, foreign reinsurers have recently been permitted to set up branches in India to undertake reinsurance. The IRDA is also presently considering implementation of regulations that will pave way for the setting up of Lloyd’s India where syndicates of Lloyd’s UK may register themselves with the IRDA to access the Indian reinsurance market Acquisition Currently, foreign investment in an Indian insurance company is capped at 49%. Investment that will result in foreign holding being above 26% will need to be approved by the Foreign Investment Promotion Board. Transfer of shares of an insurance company to a non-resident requires prior approval of the Reserve Bank of India. Any change in excess of 1% in the shareholding (i.e. paid up capital) of an insurance company also requires a prior written approval of the IRDA. Recent and upcoming changes Most activities in the insurance sector are regulated by the IRDA through regulations that include: – In 2015, a series of major insurance sector reforms were implemented in the country. These reforms have led to significant interest in the Indian insurance space along with a large increase in flow of foreign capital. The IRDA continues to mull over the finer points involved in the implementation of some of the reforms, which when brought in to force will have long term implications on structures of insurance distribution channels, access to reinsurance and type of insurance products available to policyholders Other facts – Insurance sector is relatively nascent in India will face challenges as insurance penetration increases and the industry becomes more sophisticated – The IRDA is also playing a more pro-active role and is trying to assert its role 17 Indonesia Regulator The Financial Services Authority (OTORITAS JASA KEUANGAN; OJK), supervises the insurance industry and ultimately regulates all financial institutions. Key market facts – Fourth most populous country in the world – GDP of USD 888.6 billion with a 5% growth rate from 2014 – Insurance penetration rates remain low, reflecting the insurance industry’s large potential for growth – Local insurers have traditionally dominated the Indonesian market – Bancassurance arrangements are playing an increasingly significant role in the distribution of insurance products General information – Population 255,993,674 (July 2015 est.) – Population growth rate 0.92% (2015 est.) – Median age – 29.6 years – GDP real growth rate 5% (2014 est.) Indonesia 18 Licences Insurers must obtain a licence in order to conduct insurance business. Regulatory capital requirements Insurers and reinsurers are required to meet the following minimum capital requirements. Insurer Reinsurer IDR 100 billion IDR 200 billion Sharia insurer Sharia reinsurer IDR 50 billion IDR 100 billion – Risk Based Solvency Regime – Solvency margin ratio of 120% or more, insurers and reinsurers with a solvency margin of less than 120% (but greater than 100%) will be given the opportunity to address the deficiency within an agreed timeframe Start-up – Market entrants must form a locally licensed risk carrier as a joint venture – Branches of foreign insurers are not permitted Acquisition – Foreign ownership is limited to a maximum of 80% of a joint venture operation (however it is possible for foreign shareholders to increase their ownership stake beyond this limit through a subsequent injection of further funds). It is rumoured that this limit may be lowered in the near future – MOF approval needed for change of shareholding Recent and upcoming changes – Law No 40/2014 known as the New insurance law was passed by parliament on the 23rd September 2014 and become effective from 23rd October of the same year. It introduced wide ranging requirements including the following: a.A foreign shareholder must be an insurance company transacting the same line(s) of business as the locally licenced company or a holding company having at least one subsidiary transacting the same line(s) of business as the locally licensed company b.Every insurance company will have to appoint at least one ‘controller’ approved by the OJK c. Service providers (including actuaries and accountants) to insurers to be registered by the OJK d. A party can only be a ‘controlling shareholder’ of one insurance company in Indonesia Other facts – Indonesia has the largest Muslim population in the world, yet the gross premiums of total sharia insurance remain a small fraction of total insurance market premiums, highlighting significant growth opportunities – Increasing minimum capital requirements are likely to drive further consolidation within the market and trigger M&A opportunities 19 Japan Regulator Financial Services Agency of the Japanese. Government (FSA) (although officially power is held by the Prime Minister). Key market facts – The market has been gradually stabilising from the earthquake and subsequent tsunami in March 2011, with dramatic rate increases in the property and catastrophe (earthquake) classes of insurance – As of March 2015 there are 28 domestic insurance companies, 17 foreign branches, 9 insurance holding companies and 41 cooperative insurance carriers – The Japanese non-life market is likely to contract with the ageing and shrinking of the population General information – Population 126,919,659 (July 2015 est.) – Population growth rate -0.16% (2015 est.) – Median age – 46.5 years – GDP real growth rate -0.1% (2014 est.) Japan 20 Regulatory capital requirements – Minimum Capital Requirement of JPY 1 billion for locally licenced insurance companies – Licenced branches of foreign insurers are required to submit JPY 200 million as a deposit and to hold assets in Japan equivalent to the aggregate of their underwriting reserves and outstanding loss reserves – Risk based capital regime for solvency with a minimum acceptable ratio of 200% Start-up Permitted to establish a local risk carrier or to open a branch of a foreign insurer. Acquisition – No foreign ownership restrictions – Prior approval of FSA to become an insurance holding company (more than 50%) or to acquire 20% or more of an insurer (15% or more if the acquirer will have substantial influence) Recent and upcoming changes – Development of new solvency regime Revised calculation of the solvency margin ratio in relation to reinsurance ceding commission once the revised Ordinance for the Enforcement of the Insurance Business Law comes into effect on 31st March 2016. Other facts – Regulatory restrictions on out bound investment by Japanese insurers were recently eased – Mutually supportive cross-shareholdings underpin many client-insurer relationships – System is not conducive to litigation 21 Lloyd’s Regulator Financial Services Authority, Lloyd’s of London. Key market facts – 80 Lloyd’s syndicates – 52 Lloyd’s managing agents – USD 24 billion of premium capacity for 2012 Major lines – 37% Reinsurance – 22% Property – 20% Casualty – 7% Marine – 6% Energy – 5% Motor – 3% Aviation 22 Licences – Lloyd’s does business with over 200 countries and territories worldwide – Licences to write direct insurance in over 75 territories around the world – Eligible surplus lines insurer in all US jurisdictions except for Kentucky and US Virgin Islands – Licensed to write direct business in Illinois, Kentucky and the US Virgin Islands – Accredited reinsurer in all US states How to enter the market – Participate as an underwriting member underwriting on several existing Lloyd’s syndicates (Spread Corporate Member) – Establish dedicated Lloyd’s syndicate that underwrites specific types of business(Corporate Syndicate) – Establish a special purpose syndicate to reinsure some or all of the business of an existing Lloyd’s syndicate (SPS) – Acquire a shareholding interest in an existing Lloyd’s Managing Agency (Acquisitions) – In terms of speed to launch, Lloyd’s expects a new syndicate application to take anything between four to six months to secure “in principle” approval from Lloyd’s, depending on the complexity of the business plan Spread corporate member – Most syndicates at Lloyd’s will not offer surplus capacity on this basis – Those syndicates that may wish to may not have any surplus capacity – Any surplus capacity is likely to be expensive Corporate syndicate – A new syndicate must make a positive contribution to the Lloyd’s franchise and to start a syndicate you need to persuade the Performance Management Directorate at Lloyd’s of your business case – and their standards are notoriously tough – They place a particular emphasis on the fact that a new entrant needs to demonstrate “its accretive value to Lloyd’s as a whole”, essentially doing business that is not currently written in the market and having the relevant market expertise SPS – Can be on a whole account or particular line of business basis – The commutation provisions will need to be agreed between the parties to provide a clear exit – If the host syndicate is supported by third party capital then their approval may be required Acquisitions – Limited number of managing agents available to be acquired – There are likely to be more than one buyer interested in acquiring the chosen Lloyd’s managing agent – Likely to inherit the historical underwriting liabilities Access to business – Risks are brought into the market by 178 Lloyd’s broking firms – This distribution allows a new entrant to be immediately connected to a first class flow of business Regulatory capital requirements – Lloyd’s will calculate the syndicate’s economic capital assessment based on the full business plan for the first 12 months – Any new syndicate will be subject to a 20% new syndicate capital loading for the first three years of account Security rating Syndicates operating at Lloyd’s have access to the market’s collective rating from Fitch and Standard & Poor’s (A+) and AM Best (A). 23 London Market Regulator Financial Services Authority (FSA). Key market facts – In 2010 the UK insurance market accounted for 7% of worldwide premiums – In 2001 the FSA was put into place and a risk based capital requirement introduced 24 Licences – A London market operation offers the ‘passporting’ provisions of the EU Insurance Directive into the member states of the European Economic Area and the ability to participate directly in those markets – Authorisation is granted in one or more of 18 non-life classes Regulatory capital requirements The main piece of UK insurance legislation currently in force is the Financial Services and Markets Act 2000. Start-up – The Financial Services and Markets Act 2000 sets out the conditions that must be fulfilled before the PRA can grant authorisation to transact insurance business – Insurance organisations in the UK may be limited companies, public limited companies or mutuals Acquisition Provided that they meet the criteria for authorisation, there are no restrictions on foreign insurers establishing branches or subsidiary companies. Tax – Insurance premium tax was introduced in the Finance Act 1994 and applies to all non-life direct business with some exceptions – The main rate of corporation tax is 20% for the financial year commencing 1 April 2015. 25 Malta Regulator Malta Financial Services Authority (MFSA). Key market facts – Malta is an independent state, full EU member and a Eurozone member – There are more than 60 insurance undertakings, including protected cells, authorised to carry on business of insurance in Malta – International corporations such as Vodafone, BMW, Nissan, Peugeot-Citroen, RWE, E-ON, and HSBC Life have established their captive operations in Malta – Major names in the insurance management sphere including AON, Willis, Marsh and JLT are present in Malta, as well as a number of international and local independents – The ‘Big Four’ audit firms are present in Malta General information – Population 413,965 (July 2015 est.) – Population growth rate 0.31% (2015 est.) – Median age 41.2 years – GDP real growth rate 3.5% (2014 est.) Malta 26 Licences The Insurance Business Act (IBA) regulates the authorisation of insurance companies in Malta. Regulatory capital requirements Insurance companies authorised in terms of the IBA are required to maintain a “minimum guarantee fund”, calculated as one-third of the solvency requirement, subject to a minimum equivalent to the “own funds” requirement. The own funds requirement varies between EUR 1.1 million to EUR 3.5 million, (soon to be increased to EUR 1.2 million to EUR 3.7 million), depending on line of business. Certain combined direct and reinsurance writers may require a higher level of own funds. Authorised insurance companies are required to maintain a margin of solvency in accordance with the EU Solvency regime, as implemented in Malta by the Assets and Liabilities Regulations. The solvency margin is roughly 26%, if calculated on a historical claims made basis, or 18%, if calculated on a premiums basis. Start-up The authorisation process is handled by the MFSA and is subject to a statutory maximum application period of six months for insurance undertakings and three months for captive (re) insurance undertakings. The commencement of the relevant statutory authorisation time-frame is subject to the MFSA being satisfied that they have received all necessary documentation for the process to commence. Promoters of insurance companies submit an application to the MFSA accompanied by supporting documentation including a Scheme of Operations, outlining the business and financial strategy of the applicant together with financial projections and Personal Questionnaires for the proposed qualifying shareholders, directors and controllers of the company. Company incorporation with the Registry of Companies takes 1-2 days, once the MFSA has issued its “in principle” approval. Acquisition – There are no restrictions on foreign ownership – Persons seeking to acquire (or divest of) a qualifying holding (10%) in Maltese (re)insurance companies are required to notify the MFSA and seek their approval – The notification required to be submitted would need to be accompanied by prescribed supporting documentation including personal/corporate questionnaires to assess “fit and properness” – The MFSA is subject to fixed statutory periods within which to process and approve such notifications in line with the EU Acquisitions Directive Other important regulations (Re)insurance companies authorised in terms of the IBA may exercise the European treaty rights of freedom of establishment (branch) and freedom to provide services (cross-border) in any EEA Member State by following a straight forward passporting procedure. Malta is the only full EU Member State with protected cell company legislation and incorporated cell company legislation. In terms of these laws, a company may establish within itself a cell for the purpose of segregating and protecting the cellular assets of the company. Claims of creditors with respect to cells are protected from claims of creditors of other cells and the core. Incorporated cell company legislation endows cells with separate legal personality. Malta also permits inward and outward redomiciliation of companies including (re)insurance companies. Upcoming legislation Malta will implement the provisions of the Solvency II Directive as from 2014, being the anticipated date of implementation. Tax – Malta adopts a full-imputation of dividend taxation system with a corporate tax rate of 35% – A system of refunds applies. Subject to conditions being met, shareholders may claim a 6/7ths refund of the 35% tax rate paid resulting in a net tax of 5% – Malta has an extensive double-tax treaty network – Malta offers attractive personal tax rates for high net worth individuals and highly qualified individuals relocating to Malta, useful in the context of relocation of an executive team into Malta – No stamp duty (premium tax) payable where risk/ commitment situate outside Malta. Insurance businesses are VAT exempt without credit 27 Malaysia Regulator Bank Negara Malaysia (BNM). Key market facts – Insurance is a key driver of the Malaysian financial services sector – The takaful industry has experienced significant growth over the past several years with government encouragement to develop Malaysia as an Islamic financial hub – The market comprised 33 conventional insurance companies of which 19 were general, five were composites and nine non-life – The Labuan offshore sector comprised 19 insurers (of which 12 were non-life, two composite and five life), 45 reinsurers and takaful companies and 37 captives – In July 2015, it was announced that Lloyd’s is to apply for an onshore licence to write reinsurance business in Malaysia General information – Population 30,513,848 (July 2015 est.) – Population growth rate 1.442% (2015 est.) – Median age – 27.9 years – GDP real growth rate 6% (2014 est.) Malaysia 28 Licences – Licences are issued by the Minister of Finance on the recommendation of the BNM – Current suspension on issuing new licenses – While there has been a freeze on conventional insurance licences for many years, the BNM is prepared to authorise new takaful players Regulatory capital requirements – Minimum capital requirement of RM 100 million for insurers – Risk-based capital framework for solvency with target ratio at 130% or above for insurers Start-up – Branches of foreign insurers are not permitted – Foreign ownership restrictions lead to the establishment of joint ventures Acquisition – Foreign ownership of insurers is capped at 70%, with higher percentages considered on a case by case basis – Minister of Finance or BNM approval (depending on the type of insurer) is required for all acquisitions or dispositions of over 5% – BNM encourages mergers and acquisitions among existing insurers to consolidate the market 29 Mongolia Regulator Financial Regulatory Commission (FRC). Key market facts – The insurance market in Mongolia is expected to evolve in the coming years, in line with the fluctuating fortunes of the mining industry continues to grow, generating a sharp increase in GDP per capita – The first life insurance company in Mongolia was established in 2008 – The private insurance market is currently undergoing development with around 17 general insurance companies and one life insurer is in small market – No major foreign insurers operate in Mongolia at present General information – Population 2,992,908 (July 2015 est.) – Population growth rate 1.31% (2015 est.) – Median age – 27.5 years – GDP real growth rate 7.8% (2014 est.) Mongolia 30 Licences Insurers must obtain a licence from the FRC to operate in Mongolia. Regulatory capital requirements The minimum statutory capital requirements in Mongolia are as follows: – MNT 2 billion (USD 1.48 million) for general insurers – MNT 3 billion (USD 2.22 million) for life insurers – MNT 10 billion (USD 7.41 million) for reinsurers – General insurers to have solvency ratio of 125% or more – FRC requires general insurers to raise capital to MTN 5bn and reinsurers to raise capital to MTN 15bn by the end of 2016 Start-up – Local risk carriers may be established – Branches of foreign insurers require special approval Acquisition – Approval is needed for acquisition of 10% or more of the ordinary shares of an insurer – Foreign ownership is permitted Recent and upcoming changes Plans to require professions to be required to maintain professional indemnity insurance. Other facts – Permission required for fronting – General prohibition on non-admitted insurance 31 Myanmar Regulator Insurance Business Supervisory Board, under the direction of the Ministry of Finance and Revenue. Key market facts – In July 2015 it was reported that three Japanese insurers which have long had representative offices in Myanmar had been granted licences to provide insurance to companies operating in the Thilawa Special Economic Zone, but that no further licences would be issues until 2016 – Reuters estimates that the annual gross written premium in Myanmar could reach USD 1.6 billion in the life and general insurance sectors – Subject to certain limitations, the US have authorised: – The provision of previously-prohibited financial services to Myanmar – Investment in Myanmar – The EU have lifted trade and financial sanctions against Myanmar – Since Myanmar’s sweeping nationalisation in the 1960s, only Myanma Insurance (the state-owned insurer) has been conducting insurance business in Myanmar – 12 private companies were granted licences in September 2012 to offer insurance services in Myanmar General information – Population 56,320,206 (July 2015 est.) – Population growth rate 1.01% (2015 est.) – Median age – 28.3 years – GDP real growth rate 8.5% (2014 est.) Myanmar 32 Licences – Myanmar Insurance has 48 classes of insurance business – 12 private companies which were granted licences in September 2012 will only be to entitled to write one or more of the following classes of business: – Life assurance – Fire insurance – Comprehensive motor insurance – Cash-in-transit insurance – Cash-in-safe insurance – Fidelity insurance – Myanmar Insurance remains the only insurer allowed to write the business of state-owned enterprises and handle classes such as compulsory moto, marine, aviation and energy. It also has a monopoly on reinsurance – Non-admitted insurance is not permitted in Myanmar. The law provides that insurance must be purchased from local authorised insurers unless specific approval is obtained from the Ministry of Finance and Revenue – Insurers are required to apply to the Insurance Business Supervisory Board for a business licence – Intermediaries must also obtain authority to conduct insurance business. However, there are currently no brokers licensed in Myanmar, and this is unlikely to change in the near future. Brokers active in Bangkok, Singapore and elsewhere provide services to the Myanmar market for larger accounts and arrange fronting facilities with Myanma Insurance Regulatory capital requirements – Minimum paid-up capital for life insurance company and non-life insurance company is MMK 6 billion (USD 7 million) and 40 billion kyat (USD 57 million) respectively – Minimum paid-up capital for composite insurance company is MMK 46 billion – 10% of the paid-up capital must be deposited at the Myanmar Economic Bank and 30% must be used to purchase Government Treasury Bonds – Insurance companies are also required to meet solvency margin and reserve requirements Start-up The Special Economic Zones Law was enacted on 23rd January 2014, and states that foreign insurance companies and insurance companies set up as a joint venture with a foreign partner are able to operate an insurance business within the special economic zones. Acquisition Foreign ownership is permitted in theory, although no foreign owned companies have to date been established. Recent and upcoming changes In April 2015, Myanma Insurance announced that foreign insurance companies wishing to do business in the Special Economic Zones would be required to pay a licence fee of USD 30,000, unless they have already paid a fee to establish a representative office, and that any such insurers would be obliged to adopt the premium rates set by the Insurance Business Regulatory Board. 33 Pakistan Regulator Securities and Exchange Commission of Pakistan (SECP). Key market facts – Modest level of insurance penetration – Approximately 42 registered non-life insurers and reinsurers, and nine life insurers – 65% of GWP is written by the top five players – Life market dominated by state insurer – Limited penetration by foreign insurers – Growing takaful industry General information – Population 199,085,847 (July 2015 est.) – Population growth rate 1.46% (2015 est.) – Median age – 23 years – GDP real growth rate 4% (2014 est.) Pakistan 34 Licences Insurers licensed by SECP. Regulatory capital requirements – For life insurance companies, the minimum paid-up capital must be PKR 500 million by 31st December 2015, increasing by PKR 50 million at six-monthly intervals until it reaches PKR 700 million by 31st December 2017 – For non-life insurers, the minimum paid-up capital has to be PKR 300 million by 31st December 2015, increasing by PKR 50 mn at six-monthly intervals until it reaches PKR 500 million by 31st December 2017 – Deposit required with the State Bank of Pakistan of the higher of PKR 10 million and 10% of the insurer’s paid-up capital – Solvency Margin Regime – Minimum Solvency Margin is greater of: – PK 125 million in excess of liabilities on or after the 31st December 2013 and PKR 150 m on or after the 31st December 2014 – 20% of net premium (with maximum reinsurance deduction of 50%) – 20% of unexpired risk plus outstanding claims Start-up – Wholly owned locally incorporated risk carriers are permitted – Foreign companies may also operate as a subsidiary joint stock company or as a branch office in Pakistan Acquisition 100% foreign ownership permitted, subject to investment restrictions of USD 4 million of paid up capital, USD 2 million of which is to be brought in from overseas Recent and upcoming changes The SECP has announced planned increases in the minimum paid-up capital requirements for life insurance and non-life insurance companies. The increases, will take place incrementally in six monthly intervals until December 2017. Other facts The SECP believes the microinsurance industry to be underdeveloped and has set up committees to research into ways of further developing the industry. A statutory notification of the Securities and Exchange Commission Microinsurance Rule 2014 was issues on 19 February 2014 and came into immediate effect upon its publication, and states that microinsurance (by whatever name called) shall be exclusively practised by entities which have received a separate certificate of registration from the SECP. 35 Philippines Regulator Insurance Commission (IC), a government agency under the aegis of the Department of Finance. Key market facts – Rapidly growing economy – Low market penetration for conventional insurance products partly due to public lack of confidence in the industry – Highly concentrated market – Nat Cat Territory – Rapid growth of microinsurance General information – Population 100,998,376 (July 2015 est.) – Population growth rate 1.61% (2015 est.) – Median age – 23.2 years – GDP real growth rate 6.1% (2014 est.) Philippines 36 Licences Insurers are required to be licenced with the IC. Regulatory capital requirements – Republic Act No 10607 provides for increases of the following future minimum amounts (of net worth comprised of paid-up capital, retained earnings, unimpaired surplus and any revaluation of assets approved by the regulator) in accordance with a timetable for implementation: 1.By 31st December 2016 – PHP 550 million 2.By 31st December 2019 – PHP 900 million 3.By 31st December 2022 – PHP 1.3 billion – The Risk Based Capital regime sets out a minimum of capital requirement of 100%, with a target of 125% – Solvency margin rules require a surplus of least 10% of the total amount of the net premium written during the preceding calendar year Start-up Foreign insurers may establish a local risk carrier or a branch of the foreign insurer. Acquisition – Foreign ownership is permitted as a joint venture with an established company, investment in an existing company or through a branch office – 100% foreign ownership is permitted, subject to IC approval – No person, other than an authorised domestic insurer, may acquire control (greater than or equal to 40%) of any domestic insurer without obtaining the prior approval of the IC Recent and upcoming changes – Following the implementation of Republic Act No 10607 in 2014, working parties have been established within the regulator’s office to prepare detailed implementing regulations relating to financial regulatory issues such as risk based solvency, net worth requirements and asset revaluation – A new domestic insurer (life or general) must have paid up capital of at least PHP 4000,000,000 Other facts – The Philippines Insurance and Reinsurance Association issued a paper in 2010 requesting abolition of stamp duty on non-life policies and of sales tax on accident and health insurance – All non-life insurers cede excess risks in the local market before resorting to foreign reinsurance placements. They are required to show commissioner first before placing facultative reinsurance abroad. Requirement to offer the National Reinsurance Corporation a 10% share of all outward treaties – Insurance buyers are generally not permitted place their business with non-admitted insurers abroad. Accordingly, foreign insurers tend to opt for fronting in the Philippines 37 Qatar Regulator Ministry of Business & Trade. Key market facts – Qatar had the highest cession rate (57%) in the Gulf Cooperation Council countries General information – Population 2,194,817 (July 2015 est.) – Population growth rate 3.07% (2015 est.) – Median age 32.8 years – GDP real growth rate 4% (2014 est.) Qatar 38 Licences – According to the 1966 Insurance Law of Qatar, an insurance company is required to obtain an insurance licence prior to commencing insurance activities – Pursuant to an amendment in 1971 to the 1966 law, no new licences will be issued for foreign insurers. New insurers are able to set up in the Qatar Financial Centre (see separate entry) Regulatory capital requirements The 1966 law originally required an insurance company to have a minimum capital of 1.5 million Rupees. However, amendments with respect to joint stock companies have been introduced and the relevant minimum capital is QAR 2 million for private joint stock companies, and QAR 40 million for public joint stock companies. Start-up Local insurance companies are required to be constituted as joint stock companies. Acquisition Foreign ownership in local insurance companies is restricted and may only be permitted pursuant to a decision by the Council of Ministers. Other important regulations – In addition to the 1966 insurance law, the participation of foreign investors in the local market is governed by the Foreign Investment Law (Law No (13) of 2000) – The composition and governance requirements for joint stock companies are set out in the Commercial Companies Law (Law No (5) of 2002) Upcoming legislation Shortly after the creation of the Qatar Financial Centre discussion have been taking place in relation to creating a single unified regulator for the financial services sector in Qatar. However, no details of the single regulator have been released. Tax Qatar currently has flat 10% tax regime that applies to foreign investors with a permanent establishment in Qatar, and a withholding regime (up to 7%) that applies to foreign investors that are not established or registered in Qatar. Other facts Qatar recently approved a draft Social Health Insurance law that would introduce universal healthcare coverage for residents and visitors by 2014. The scheme will be rolled out in five distinct phases, with the initial phase starting in November 2012. 39 Qatar Financial Centre (QFC) Regulator Qatar Financial Centre Regulatory Authority (QFCRA). Key market facts – The QFC Authority (QFCA) has adopted a strategic approach that aims to make the QFC the insurance, reinsurance, and captive insurance hub for the region – Foreign insurance companies seeking to establish for the purposes of doing business in Qatar currently must incorporate (or register) in the QFC 40 Licences Authorisation by the QFCRA; licence by the QFCA. Regulatory capital requirements – Insurance – USD 10 million – Reinsurance – USD 20 million – Captives: – Class 1 – USD 150 000 – Class 2 – USD 400 000 (unless the QFCRA determines another amount) – Class 3 – USD 250 000 – Class 4 – USD 1 million (unless the QFCRA determines another amount) Start-up An insurance company may take the form of a limited liability company, a branch of a foreign company, a protected cell company, or a captive. Acquisition 100% foreign ownership is permitted in the QFC. Other important regulations – Prudential Insurance Rulebook (PINS) – Captive Insurance Business Rules 2011 (CAPI) – Conduct of Business Rulebook (COND) Tax – Generally all QFCA licenced firms are subject to a flax 10% tax rate – A 0% concessionary rate is applied to the chargeable profits of reinsurance and captive insurance businesses Other facts – More than 150 new businesses have come to the QFC since its establishment and it continues to attract the world’s leading financial institutions to participate in the Qatari market – Entities licenced in the QFC are permitted to do business in or from the QFC (including within the State of Qatar) 41 Saudi Arabia Regulator Saudi Arabian Monetary Agency (SAMA). Key market facts – In 2015 the Saudi non-life market was ranked 51 in the world in terms of gross premium – SAMA reconfirmed that the only insurance and reinsurance companies now operating in the country are those duly licensed under the Cooperative Insurance Companies Control Law promulgated by Royal Decree No M/32 dated 02 06 1424H – 31 07 2003 (Cooperative Insurance Companies Control Law). All other companies have now left the market General information – Population 27,752,316 (July 2015 est.) – Population growth rate 1.46% (2015 est.) – Median age 26.8 years – GDP real growth rate 3.5% (2014 est.) Saudi Arabia 42 Licences Companies are permitted to apply for licences to write: – General insurance (non-life), and/or – Health insurance and/or – Protections and savings insurance As at 2014, there were 35 (re)insurers registered with SAMA. Unofficially, SAMA is operating a moratorium on issuing new insurance licenses. Regulatory capital requirements Locally domiciled insurer – SAR100 million (USD 26.7 million) for direct insurance and SAR200 million (USD 53.4 million) for reinsurers. Start-up – Locally domiciled insurer – the law requires minimum 51% ownership by Saudi nationals; albeit there is one company in which foreign interests exceed 90%. Ownership structures vary according to Saudi interests involved (e.g. bank, trading company etc.) and typically international insurers are only permitted a share of less than 30% – Insurance companies must operate in the Kingdom on a co-operative basis. Until 2003, Saudi Arabia only had one registered insurance company (NCCI – Tawuniya). However, following the issue of the new insurance law, 26 new insurance companies have been registered to date. SAMA has established rules for permitted shareholding in Saudi insurance companies. Every insurance company is required to offer between 25%–40% of its shares to the public – At present, no branches of foreign insurers are currently permitted, although Saudi Arabia’s accession to the World Trade Organisation in November 2005 did include a commitment to permit such branches. It is not anticipated that this commitment will be implemented Acquisition The Cooperative Insurance Companies Control Law stipulates that insurers or reinsurers established as Saudi joint stock companies can have up to 49% foreign ownership, but in practice foreign ownership is usually less than 30%. Other important regulations – Cooperative Insurance Companies Control Law 2003 – Anti-money Laundering & Combating Terrorism Financing Rules 2012 – Investment Regulations 2012 – Online Insurance Activities Regulation 2011 – Insurance Intermediaries Regulation 2011 – The Regulation of Reinsurance Activities 2010 – Regulations for Supervision and Inspection Costs 2009 – Risk Management Regulation 2008 – Anti-Fraud Regulation for the insurance companies 2008 – Insurance Market Code of Conduct Regulations 2008 – Implementing Regulations 2005 Upcoming legislation – Actuarial Work Regulation for Insurance & Re-Insurance Companies – Draft published 08/10/2011 – Audit Committee Regulation in Insurance and/or Reinsurance Companies – Draft published 23/07/2011 – Outsourcing Regulation for Insurance, Reinsurance & Insurance Service Providers – Draft published 17/07/2010 Tax Saudi and foreign shareholders are treated differently for tax. Other facts At 27.6 million people and growing, Saudi Arabia is the largest insurance market in the GCC and one that has developed substantially since insurance business was first permitted in the 1990s. Penetration remains low (less than 1%). CAGR 2005 to 2009 was reported as being 38%, and 12% in 2010. 43 Singapore Regulator Department of the Monetary Authority of Singapore (MAS). Key market facts – The Singapore domestic general insurance industry continues to display solid growth, with offshore outstripping. – Lloyd’s Asia is located in Singapore. Over the past ten years, Lloyd’s Asia has grown exponentially – Singapore has very successfully built its reputation as the foremost regional insurance and reinsurance hub General information – Population 5,674,472 (July 2015 est.) – Population growth rate 1.89% (2015 est.) – Median age – 34 years – GDP real growth rate 2.9% (2014 est.) Singapore 44 Licences – Licences may be issued for a company to operate as a general, life or composite insurer or reinsurer – Both life and non-life insurers write personal accident and health business, however, non-life insurers may only issue contracts valid for less than five years. Health insurance is classified as life business Regulatory capital requirements For the purposes of Section 9 (1) (c) of the Insurance Act, the paid-up share capital of an insurer or reinsurer or, where it does not have a share capital, the paid-up share capital of its head office, shall be an amount not less than: – SGD 5 mn (USD 3.83 million) for a direct general insurer selling only accident and health short-term business – SGD 10 mn (USD 7.66 million) for a composite direct insurer – SGD 25 mn (USD 19.15 million) for a reinsurer These amounts apply to both domestic and foreign companies. For a captive insurer, the minimum capital requirement is SGD 400,000 (USD 306,476) Start-up – No restrictions on foreign shareholders – If incorporated in Singapore must have a Singapore resident director – If incorporated outside of Singapore insurers may establish a local branch which must have two local agents – Must be authorised by the MAS in order to carry on insurance business in Singapore. Process takes typically around six – ten months Acquisition – No restriction on foreign shareholdings in an insurance company – Directors/shareholders to be fit and proper and approved by the MAS – Change of control approval requirements: No person to enter into an agreement to acquire shares of a registered insurer that is incorporated in Singapore by virtue of which he/she would become a ‘substantial shareholder’ without a prior written approval of the MAS. A person has a substantial shareholding in a locally incorporated company if he/she has an interest or interests in one or more voting shares in the company and the total votes attached to that share or those shares are not less than 5% of the total votes attached to all the voting shares in the company – Control of take-overs: No person shall obtain ‘effective control’ of an insurer that is incorporated in Singapore without the prior written approval of the MAS Recent and upcoming changes In 2014, the MAS published their second Consultation Paper which outlines their proposals for the RBC2 framework, and aims to increase the risk requirements on insurers (compared to the existing risk based capital framework introduced in 2004) and to improve risk sensitivity of the framework to more accurately reflect the different risk profiles of insurers. The new rules under RBC2 are stated to take effect in 2017. The MAS has also proposed changes to the existing Guidelines on Outsourcing and published two Consultation papers on outsourcing in September 2014 – a Consultation Paper on Outsourcing and a Consultation paper on Guidelines on Outsourcing. In brief, the proposed changes will expand the scope of material outsourcing and will enhance MAS oversight of service providers. It is not clear when the proposed changes will take effect at the present time. 45 South Korea Regulator Financial Services Commission (FSC) Financial Supervisory Service (FSS). Key market facts – There has been a slow-down in the expansion rate of the Korean non-life insurance industry: this grew by between 10% and 20% a year between 2005 and 2012 but then by an estimated 3.8% in 2013 and only 5% in 2014 – The Korean market has shown more resistance to rate increase than the overseas reinsurance market – Most domestic risks experience have been showing a stable or reducing rate environment General information – Population 49,115,196 (July 2015 est.) – Population growth rate 0.14% (2015 est.) – Median age – 40.8 years – GDP real growth rate 3.3% (2014 est.) South Korea 46 Licences All insurers are required to obtain a licence from the FSC. Regulatory capital requirements – Minimum Capital Requirements are based on lines of business written (between 5 billion KRW and 30 billion KRW per line) subject to a maximum of 30 billion KRW – Risk based capital regime, with ratio of over 100% – Foreign branches are required to maintain an operating fund of 3 billion KRW, subscribed in cash and retain assets in Korea up to the value of their technical reserves and solvency margins Start-up Branches of foreign insurers and wholly owned subsidiaries are both permitted. Acquisition – No foreign direct investment restrictions. – Prior approval of FSC to acquire more than 10% Recent and upcoming changes Significant changes to the regulations required have been recently implemented – For example, all insurers will be required to prepare and implement an ORSA policy in 2017, based on 2016 financial data – A number of minor amendments to the Insurance Business Supervision Regulation and the Enforcement Decree of the Insurance Business Law came into effect in December 2014 and January 2015, which includes the strengthening of the solvency margin requirement by 2016 and the alignment of the interest rate used for reserve valuation (insurers with a high solvency margin will be allowed to use an interest rate up to 0.25% higher in order to allow an element of competition Other facts – In May 2012, the FSS introduced guidelines in respect of cross-border sales of insurance policies in South Korea. The amendments implemented a new FSS reporting regime and requirement to file annual sales reports of cross-border business and annual financial statements with the FSS for un-licensed foreign insurers writing cross-border business on a non-admitted basis – The Korea Deposit Insurance Corporation has set up a deposit insurance fund to protect policyholders and other customers in the event of an insurer default. Coverage is currently capped at KRW 50 million per policy 47 Switzerland Regulator Federal Financial Market Supervisory Authority (FINMA). Key market facts Switzerland has the 16th largest insurance market in the world with 162 insurance companies domiciled here: – 21 life insurance – 79 non-life – 27 reinsurance – 35 reinsurance captives General information – Population 8,121,830 (July 2015 est.) – Population growth rate 0.71% (2015 est.) – Median age 42.1 years – GDP real growth rate 1.9% (2014 est.) Switzerland 48 Licences – A licence to transact insurance business in or from Switzerland or for a reinsurance business domiciled in Switzerland is issued by the FINMA – Licences are issued for one or several classes other than for reinsurance. A direct licence enables a company to write the same line of reinsurance Regulatory capital requirements Minimum capital requirements: – CHF 8 million (USD 8.8 million) for the majority of nonlife classes – CHF 3 million (USD 3.3 million) for legal insurance and some agricultural classes In addition to the minimum capital requirement, an “organisation fund” equal to between 20% and 50% of the share capital has to be set up to cover costs of incorporation, to absorb any excessive new business strains and to allow for any unexpectedly large losses. The fund may be liquidated after three years with the consent of the Federal Office of Licence. Start-up – Any company planning to write insurance business in Switzerland needs to obtain authorisation from the regulator, FINMA, in accordance with Art 4 VAG. Authorisation can be given for one or more classes of business – Companies must be in joint stock (Aktiengesellschaft) or co-operative (Genossenschaft) form Acquisition Foreign companies may participate in the market by way of a branch, subject to the approval of the Swiss supervisor. Upcoming legislation In September 2011, the Swiss Federal Council approved the draft revision of the Insurance Contract Act (VVG). The draft will now pass to the Federal Assembly. Tax – There is a levy on insurers to finance the Regulator – There are taxes and charges applicable depending on the class of insurance 49 Taiwan Regulator Insurance Bureau of the Financial Supervisory Commission (FSC). Key market facts – Overcrowded market dominated by local insurers – There are approximately 18 locally registered direct insurers in Taiwan, made up of 14 local companies and four branches of overseas insurers, and four representative offices of Japanese insurers and five of international reinsurers in Taiwan – Regulator encouraging life insurers to raise capitalisation – Significant Nat Cat Exposure General information – Population 23,415,126 (July 2015 est.) – Population growth rate 0.23% (2015 est.) – Median age – 39.7 years – GDP real growth rate 3.8% (2014 est.) Taiwan 50 Licences Insurers licensed by FSC Regulatory capital requirements – Minimum Capital Requirement of NTD 2 billion – Branches of foreign companies are required to maintain a minimum operating fund of NTD 50 million and post a bond with the national treasury of 15% of working capital – Risk Based Capital Regime, with ratio target of 200% or more Start-up Branches of foreign insurers and wholly owned subsidiaries are both permitted. Acquisition – No foreign direct investment restrictions – Prior approval from the FSC must be obtained if more than 10%, 25% or 50% of an insurer is being acquired Recent and upcoming changes – Following amendments to the Insurance Act by the Legislative Yuan on the 4th June 2014, the FSC will have the power to take over a company whose results show a material deterioration such that it would be incapable of meeting its obligations, in the event that the approved improvement plan fails – Companies must now elect independent directors and establish an audit committee of the board of directors – The FSC introduced new initiative in its ‘Programme to make Taiwan’s insurers more competitive’. The programme covers life, non-life and health insurance, but the major topics addresses for the non-life market including a review of risk-based capital requirements, reduced supervisory burden for companies with good compliance, risk management and corporate governance records and promoting online sale distribution and specialised product innovation Other facts – The Stabilisation Fund is established by the insurance companies to stabilise the market and safeguard the interests of the insured parties. The Fund may provide loans to insurers who are experiencing business difficulties, or it may advance claims payments to the insureds or beneficiaries if an insurer is unable to meet the payment 51 United Arab Emirates Regulator Insurance Authority (IA). Key market facts – The UAE is served by 29 national insurance companies and 27 foreign insurance companies General information – Population 5,779,760 (July 2015 est.) – Population growth rate 2.58% (2015 est.) – Median age 30.3 years – GDP real growth rate 4.6% (2014 est.) United Arab Emirates 52 Licences – A UAE insurer can undertake either “general insurance” or “life insurance” in the UAE. Composite insurance is no longer permitted. Transition arrangements for companies undertaking composite business have not been announced – Separate regulations for takaful business were formally issued and came into force in late 2010 Regulatory capital requirements Branch and locally domiciled insurer – AED 100 million (USD 27.25 million), whilst for reinsurers the requirement is AED 250 million (USD 68.12 million). This is currently a transitional requirement and insurers/ reinsurers have until 31 January 2013 to comply. An Insurance Authority guarantee of between AED2 million and six million is also required. Start-up An indefinite moratorium on the processing of all new insurance and broker licence applications has been in place since December 2008. Unless specific circumstances dictate otherwise (there were two new local insurers established and publicly listed in 2011), the UAE insurance market is therefore currently limited to insurers and brokers already licensed by the Insurance Authority. Acquisition Local insurance companies must be established in the form of a public shareholding company, and at least 75% of their shares must be owned by UAE citizens. Other important regulations – Branch – 100% foreign ownership permitted – Locally domiciled insurer – foreign ownership limited to 25% – Insurers must be registered with the Insurance Authority to underwrite direct insurance of UAE – based risks. There is no restriction on foreign companies writing reinsurance of UAE cedants Upcoming legislation – The Insurance Authority had issued certain draft regulations concerning the following: – Registration of Insurance Agents – Registration of Insurance Brokers – Registration of Inspection experts and loss adjusters – Instructions for accounting policies of insurance companies – Instructions to insurance companies for the basis of calculating technical provisions – Instructions pertinent to investing rights of policyholders – Instructions pertinent to the solvency margin and the minimum guarantee fund of Insurance Companies Tax – There is no VAT in the UAE – There is no federal tax legislation on companies: each emirate has its own corporate tax system – There are taxes and charges applicable to nonlife business Other facts – An Emiratisation requirement stipulates that companies operating in the insurance sector must employ UAE nationals accounting for 5% of their workforce in their first year of operations, increasing by 5% year-on-year (subject to a minimum of 2 nationals in the first year and a minimum of 12 nationals in the fourth year). No maximum percentage was stated in the Insurance. Authority’s latest circular on the matter, but in previous announcements it is stated that from the fifth year of operations, the percentage requirement is to be determined by the Insurance sectors Human resources development committee – Insurers have been told they will no longer be able to offer insurance on a composite basis and must split their activities by July 2015. No guidance as to how this will be achieved for listed companies has been issued 53 USA Regulator – Insurance is regulated by individual US states and territories – Federal Insurance Office (FIO) is only an advisory office within the US federal government, although various US federal agencies and regulators can touch upon the insurance business as well (such as for privacy protection) Key market facts – Largest insurance market in the world in terms of revenue – Between USD 1.1 and USD 1.2 trillion of insurance premiums are written annually – Home to some of the biggest market participants in the world – Insurance a key part of the US financial services sector – Highly regulated industry General information – Population: 322,758,891 (December 2015 est.) – Population growth rate: 0.75% (December 2015 est.) – Median age: 37.8 years – GDP real growth rate: 2.17% (2015 est.) USA 54 Licences – Insurers must typically obtain a license in relevant lines of business in each US state in which they wish to write business – Similarly, insurance intermediaries such as insurance agents and brokers must also be properly licensed in each US state in which they wish to conduct business – Conduct of insurance business requiring a license is typically defined broadly under the US states’ insurance laws and can include contacts into a state via telephone, e-mail, internet or mail – There are exceptions from the licensing requirement for certain types of businesses (for instance, reinsurance does not require a license in most states) Regulatory capital requirements – Minimum capital and surplus requirements for insurers differ among the US jurisdictions and by lines of business – In addition to the minimum capital and surplus requirements, risk-based capital requirements apply Start-up – Branches of non-US insurers and wholly-owned subsidiaries of foreign holding groups are permitted – Establishing a new insurer and having it licensed across the country can take several years; an alternate approach is to buy a “shell” insurer (i.e., an insurer with licenses but with little to no existing business) Acquisition – No restrictions on foreign ownership of an insurance company or establishing a US branch (although certain restrictions on government ownership can be relevant) – Non-US insurers may be licensed in some US states by entering the United States through a US branch Recent and upcoming changes – The regulation of cybersecurity in the insurance industry is set to become ever more stringent after a series of high profile data breaches – Alternative capital is becoming an increasing part of the reinsurance industry, however greater scrutiny has been brought to direct investment in insurers by private equity companies and hedge funds – Non-US reinsurers from “qualified jurisdictions” can benefit from reduced capital for reinsurance requirements 55 Vietnam Regulator The Ministry of Finance. Key market facts – Total non-life for the first four months of 2015 was USD 455.2 million, 16.5% higher than for the corresponding period in 2014 – Market comprises 29 non-life companies, 17 life insurers and 2 reinsurance companies, 1 branch of a foreign nonlife insurer and 12 insurance brokers. It is dominated by four large local insurers, Bao Viet, Bao Minh, and PVI and PJICO who control just over 60% of the total nonlife premiums – It is estimated that only about 6 million of Vietnam’s 90 million people currently have life insurance coverage, which represents a huge growth potential – Restrictions on premium investments present a major challenge. Foreign exchange provisions are a particular challenge ensuring that insurers are limited to investing their premiums onshore only General information – Population 94,348,835 (July 2015 est.) – Population growth rate 0.97% (2015 est.) – Median age – 29.6 years – GDP real growth rate 6% (2014 est.) Vietnam 56 Licences – All licenses may be obtained for one, several or all nonlife classes – Licences are usually granted for either life or all nonlife classes – The Ministry of Finance can restrict the insurer to specific classes depending on the financial strength of the company – Composite insurance licenses are no longer granted Regulatory capital requirements – For a non-life insurer, a capital requirement of VND 300 billion is stipulated, which enables a company to write all lines of business except aviation insurance, petroleum insurance and satellite insurance. If it wishes to write one or all of these additional insurances an additional VND 50 billion for each type of insurance must be paid up – For life insurers the minimum legal capital requirement is approximately VND 600 billion – For a branch of a foreign insurer an amount of VND 200 billion is required – The minimum capital requirement for a reinsurer is VND 400 billion (in the case of a general and health reinsurer) and VND 700 billion (in the case of a life and health reinsurer) Start-up – There are four methods of forming an insurer in Vietnam (i) as a 100% foreign owned company; (ii) a joint venture company with a Vietnamese company; (iii) a branch office; and (iv) a representative office (although a representative office may not carry on insurance business a branch is permitted to carry on insurance business) – The Ministry of Finance will make any decision whether to grant a licence within 60 days of receipt of the application. The insurer must begin operations within 12 months of the Ministry of Finance’s approval Acquisition Purchase of any stake in an existing Vietnamese insurer will require extensive internal and external authority approvals. The precise procedural requirements for effecting such an acquisition will differ depending on: – Whether the target entity already has foreign investors and an Investment Certificate for an approved project – Whether the investor is acquiring existing equity by way of transfer, or newly issued equity – The form of the target entity (whether a single or multiplemember limited liability company, or a shareholding company) Clyde & Co LLP www.clydeco.com Clyde & Co LLP is a limited liability partnership registered in England and Wales. Authorised and regulated by the Solicitors Regulation Authority. © Clyde & Co LLP 2016 CC009375 - February 2016 Our offices *Associated offices 45 Offices across 6 continents 360+ Partners, over 1,800 fee earners and 3,000+ staff For full office details please refer to the Clyde & Co website www.clydeco.com/locations/offices Asia Pacific Beijing Brisbane Chongqing Hong Kong Jakarta* Melbourne Mumbai* New Delhi* Perth Shanghai Singapore Sydney Ulaanbaatar* Europe Aberdeen Dundee Edinburgh Glasgow Guildford Leeds Oxford Madrid Manchester Nantes Nwecastle London Paris Piraeus Americas Atlanta Caracas Montreal New Jersey Newport Beach New York Rio de Janeiro* São Paulo San Francisco Toronto Middle East/ Africa Abu Dhabi Cape Town Dar es Salaam Doha Dubai Johannesburg Riyadh Tripoli Clyde & Co offices Associated offices