In This Issue:
Kazakhstan amends its insurance
27 July 2018
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Kazakhstan Amends its Insurance Legislation
On 2 July 2018, Kazakhstan adopted a number of amendments to the
country's insurance legislation, including the Insurance Law,1 the Civil Code of
Kazakhstan and a number of other insurance-related laws (the "Insurance
Amendments "2). Most of the Insurance Amendments came into effect on 15
July 2018, while some of them will become effective from 1 October 2018, 16
December 2018, 1 January 2019 and 16 December 2020.
1. New Types of Insurance
(i) Professional liability insurance
With effect from 1 January 2019, the Insurance Law will provide for a new
class of insurance -- professional liability insurance, which is intended to
protect professionals who carry out their business on the basis of a specific
license or permit, and/or who have expertise or qualification in a specific area
(e.g., accountants, lawyers and physicians). This new class was added
because general liability insurance policies do not usually offer protection to
professionals against claims arising out of business or professional practices
such as negligence or malpractice.
The coverage focuses on errors or omissions in the service provided or
product sold by the policyholder. Coverage will include damages caused to
third parties, but will not include defense costs in a related lawsuit. The
legislation will require certain professionals to obtain professional liability
insurance (e.g., starting from 1 January 2020, advocates and "legal counsel"
must obtain professional liability insurance3).
(ii) Insurance of space objects and liability of their owners
The Insurance Amendments also provide for two additional new classes of
insurance: (a) insurance of space objects (e.g., satellites), and (b) insurance
of civil liability of owners of space objects.
1 Law "On Insurance Activity" dated 18 December 2000 (the "Insurance Law").
2 Law "On Making Amendments and Additions to Certain Legislative Acts of the
Republic of Kazakhstan on Insurance and Insurance Activities, Securities Market"
dated 2 July 2018 and Law "On Making Amendments and Additions to Certain
Legislative Acts of the Republic of Kazakhstan Relating to Currency Regulation and
Currency Control, Risk-Oriented Supervision over Activities of Financial Organizations,
Protection of Rights of Consumers of Financial Services and Improving the Activity of
the National Bank of the Republic of Kazakhstan" dated 2 July 2018.
3 Articles 36 and 77 of Law "On Advocate Activities and Legal Support" dated 5 July
2018, which Articles become effective from 1 January 2020. For purposes of this Law,
"legal counsel" is a member of a local bar association.
2 Legal Alert 27 July 2018
(iii) Mandatory insurance of tourists
Currently, travel agents are required to arrange for insurance of tourists
travelling abroad only if such insurance is required by the law of the
destination country or by an international treaty. Thus, this type of insurance is
voluntary, rather than mandatory.
Starting from 1 January 2019, the Tourism Law4 will require travel agents to
arrange for insurance of each tourist travelling abroad, and, pursuant to the
Insurance Amendments, tourist insurance will become a mandatory type of
This mandatory tourist insurance will cover accidents causing death or injury
and/or sudden acute illness or health deterioration that requires emergency
Presumably, tourists travelling abroad without the participation of a travel
agent will not be obliged to obtain insurance policies (unless such policies are
required by the law of the destination country). Also presumably, travel
agents will not be required to arrange for this insurance for persons travelling
abroad for reasons other than tourism.
2. Blacklisted Foreign Insurers
The Insurance Amendments authorize the National Bank of Kazakhstan (the
"NBK") to maintain a list of "blacklisted" foreign insurance/reinsurance
companies, and prohibits local insurance companies from reinsuring risks with
those blacklisted re/insurers.
The NBK may include a foreign re/insurance company on the list if it:
− fails to pay the insurance proceeds to the insured following a court
order ordering payment; or
− fails to provide information, or provides incomplete or misleading
information, to the NBK with respect to reinsured risks, premiums and
other material terms of a reinsurance contract.
The list will be posted on the NBK's website (http://nationalbank.kz). As of the
date of this Legal Alert, the NBK has not yet posted it.
3. Use of Foreign Brokers in Ceding Insurance Abroad
(i) Use of Foreign Brokers by Kazakhstani Insurers
Prior to the Insurance Amendments, foreign insurance brokers were able to
provide insurance brokerage services to Kazakhstani insurance companies on
a cross-border basis without restrictions.
As of 15 July 2018, a local insurance (reinsurance) company can cede
insurance to a foreign reinsurer through intermediation of a foreign insurance
broker only if that foreign insurance broker has a subsidiary in Kazakhstan
which operates as an insurance broker on the basis of a license issued by the
4 Law "On Tourism Activities in the Republic of Kazakhstan" dated 13 June 2001 (the
3 Legal Alert 27 July 2018
NBK.5 This effectively restricts a foreign broker from providing services to
Kazakhstani insurance companies unless the foreign broker has a licensed
broker subsidiary in Kazakhstan.
The NBK explained the need for this change by the fact that the overwhelming
majority of reinsurance contracts were concluded with the participation of
foreign insurance brokers (who are not Kazakhstani taxpayers). The change
is intended to increase the role of local brokers in ceding insurance abroad.
Thus, a local insurance company has effectively three options to cede
insurance abroad: (a) directly to a foreign reinsurer without participation of a
broker; (b) with participation of a foreign broker, but only if the foreign broker
has a licenced subsidiary broker in Kazakhstan; or (c) through a local broker
(who in turn can engage a foreign broker).
(ii) Use of Foreign Brokers by Kazakhstani Insurance Brokers
Previously, Kazakhstani insurance brokers were allowed to engage any
number of foreign insurance brokers in ceding insurance to foreign reinsurers.
Using several foreign brokers is often necessary where a risk is being ceded
to reinsurers located in different countries.
The Insurance Law, as amended by the Insurance Amendments, now
prohibits local brokers from ceding insurance to foreign reinsurers through
more than one foreign insurance broker.
This restriction appears to apply both where the local broker engages several
foreign brokers (i.e., horizontally) and where the local broker engages one
foreign broker who in turn engages other foreign brokers (i.e., vertically).
4. Representative Offices and Branches of Foreign Brokers
The Insurance Amendments permit foreign insurance brokers to open
representative offices in Kazakhstan. No consent from the NBK is required for
this. However, the representative office must submit to the NBK, within 30
business days after registration, a number of documents, including a
confirmation from the financial regulator in the foreign broker's home country
that the foreign broker has a valid insurance brokerage license and that the
foreign regulator does not object to its opening a representative office in
Kazakhstan. A representative office is not allowed to carry out insurance
Starting from 16 December 2020, foreign insurance brokers will be entitled to
open branches in Kazakhstan, subject to obtaining consent of the NBK. They
will be allowed to carry out insurance brokerage business. Local insurance
companies will be permitted to cede insurance to foreign reinsurers either
through a foreign broker (which has a licensed subsidiary broker in
Kazakhstan) or through a Kazakhstani branch of a foreign insurance broker.
The NBK will determine qualification requirements for foreign brokers who
wish to register their branches in Kazakhstan, as well as regulations
regulating the insurance brokerage business of their branches.
5 Article 9.9 of the Insurance Law.
4 Legal Alert 27 July 2018
5. Receiving Brokerage Fees from a Parent Foreign Broker
Prior to the Insurance Amendments, the Insurance Law provided that where
an insurance broker provided intermediary services to a Kazakhstani insured,
the brokerage fees must be paid only by that insured.6 Accordingly, the broker
was not entitled to receive fees from any party other than the insured. It
further provided that in the event an insurance broker and/or its local or
foreign affiliate arranged both insurance and reinsurance of the same risk, the
brokerage fee must be paid to the broker and/or its affiliate only by the
This, however, was not in line with the business practices of many
international insurance brokers. It is often the case that international brokers
have global clients who pay a single fee to that international broker for
servicing their business world-wide, which fee is then divided and distributed
to subsidiary brokers which are located in other countries and undertake local
servicing of such global clients. In such cases, the local insurance broker may
not receive any fees from the local insured, but only a portion of the fees paid
by the global client offshore.
The Insurance Amendments have changed this to provide that where an
insurance broker and its local or foreign affiliated broker arranged insurance
and/or reinsurance of the same risk, the local insurance broker and its
affiliated foreign broker are allowed to determine how to distribute brokerage
fees between themselves.7 Thus, it is now possible for a Kazakhstani broker
(a subsidiary of an international broker) to receive brokerage fees from its
parent international broker for the local broker's work in Kazakhstan.
In the event the broker has arranged only for the insurance (or reinsurance) of
a risk without participation of an affiliated broker, the general rule will still
apply, i.e., that the broker can receive fees only from the insured (or the
cedent, as the case may be).
6. Prohibition on Participation of Insurance Brokers and
Agents in State Procurements
The Insurance Amendments prohibit insurance brokers from participating in
state procurements under the State Procurements Law8 for insurance contract
brokerage services. The State Procurements Law applies to procurements of
goods, works and services by state bodies, state-owned enterprises, legal
entities in which the state owns 50% or more of the shares and their affiliated
entities. Thus, those entities will need to seek insurance coverage directly
from insurance companies without participation of insurance brokers.
However, insurance brokers can still provide services to those entities other
than intermediary services (e.g., advisory services).
The State Procurements Law does not apply to procurements by Samruk-
Kazyna, national holdings, national management companies, their affiliates,
the NBK and its subdivisions and subsidiaries, and certain other state-owned
entities, which carry out procurements under specific regulations or their
internal rules. As of the date of this Legal Alert, insurance brokers are not
prohibited from participating in procurements carried out by those entities and
6 Article 17.7 of the Insurance Law.
7 Article 17.8 of the Insurance Law.
8 Law "On State Procurements" dated 4 December 2015 (the "State Procurements
5 Legal Alert 27 July 2018
providing insurance brokerage services to them. It is impossible, however, to
rule out that those entities would also adopt internal regulations prohibiting
brokers from participation in procurements for insurance brokerage services.
A stronger restriction applies to insurance agents, who are expressly
prohibited from participation in procurements carried out not only under the
State Procurements Law, but also in procurements carried out by state-owned
entities that are not subject to the State Procurements Law, including Samruk-
Kazyna and its group members, the NBK and its subdivisions and
subsidiaries, and a number of other state-owned companies.
7. Minimum Capital and Shareholders Equity Requirements
for Insurance Brokers
Previously, the Insurance Law and subordinated NBK regulations established
the minimum amount of charter capital of an insurance broker (KZT10 million).
The Insurance Amendments provide that the NBK will determine not only the
minimum amount of the charter capital, but also the minimum amount of the
broker's net capital (shareholders equity).
The NBK indicated that it may increase the minimum amount of the charter
capital to KZT 100 million, presumably not earlier than in 2019.
8. Investment Portfolio Management
Starting from 1 October 2018, life insurance companies will be entitled to
receive investment portfolio management licenses. This will allow life
insurance companies to enter into insurance contracts with insureds providing
for the participation of the insureds in investments, pursuant to which the
insurance company will be allowed to manage assets composed of certain
portions of insurance premiums received for purposes of investment.
9. Direct Insurance by Foreign Insurers
(i) New Exceptions
Kazakhstani law generally prohibits Kazakhstani individuals and legal entities
from obtaining insurance coverage from foreign insurers with respect to risks
located in Kazakhstan.9 As a result, Kazakhstani entities have to first obtain
insurance coverage from local insurers, which, in turn, may reinsure the risks
with foreign reinsurers.
Starting from 16 December 2018, the Insurance Law will allow Kazakhstani
entities to obtain insurance coverage directly from foreign insurers with
respect to commercial aviation, launching and freight of space objects
(including satellites), sea transportation (except with respect to vessels
providing coastal shipping services) and risks relating to transportation of
goods by ground and related liability.
This will allow local air carriers and maritime and ground cargo transportation
companies to obtain insurance policies directly from foreign insurers, without
the need to first engage a local insurance company.
(ii) Payment of Insurance Proceeds from Foreign Insurers
9 Article 5-1.1 of the Insurance Law.
6 Legal Alert 27 July 2018
As noted in the preceding section, Kazakhstani law generally prohibits
Kazakhstani residents from obtaining insurance policies from foreign insurers
with respect to risks located in Kazakhstan. In order to enforce this prohibition,
the Insurance Law prohibited Kazakhstani banks from (a) transferring
insurance premiums from Kazakhstani legal entities and individuals to nonresident
entities, and (b) transferring insurance proceeds payable under
insurance policies from non-residents to Kazakhstani legal entities and
individuals. The restriction made it impossible for Kazakhstani companies and
individuals to receive insurance proceeds from foreign insurers under life and
other insurance policies via Kazakhstani banks.
This provision has been amended by the Insurance Amendments so that local
banks are now permitted to transfer insurance proceeds from foreign insurers
to Kazakhstani residents. Thus, even if the insurance policy was obtained
from a foreign insurer in breach of the Insurance Law, local insureds will
nevertheless be able to receive insurance proceeds thereunder.
Local banks are still prohibited from transferring insurance premiums to
foreign insurers, which is not in line with the right of certain local companies
(air carriers, maritime and ground cargo transportation companies) to seek
insurance coverage directly from foreign insurers, as discussed in the
10. Separate Licensing of Insurance and Reinsurance
Currently, the NBK issues licenses permitting the carrying out of "insurance
activity," which includes both insurance and reinsurance on specific classes of
insurance. Starting from 1 January 2019, the Insurance Law will provide for
two separate licenses, one permitting carrying out insurance business and the
other permitting carrying out reinsurance business.
Similarly, the Insurance Law currently provides for a single insurance
brokerage license which allows an insurance broker to arrange both insurance
and reinsurance policies for its clients. Starting from 1 January 2019, there will
be two separate types of insurance brokerage of licenses: (a) for insurance
brokerage and (b) reinsurance brokerage. An insurance broker can obtain one
or both types of licenses.
11. Concluding Insurance Contracts Electronically
Starting from 1 January 2019, insurance contracts may be concluded
electronically. The Insurance Law and a number of laws relating to mandatory
insurance were amended to provide for the general mechanism for entering
into insurance contracts electronically, while more detailed requirements and
procedures will be adopted by the NBK before the amendments enter into
* * *
This LEGAL ALERT is issued to inform clients and other interested parties of
time sensitive legal developments which may affect or otherwise be of special
interest to them. The comments above do not constitute legal advice or
opinion and should not be regarded as substitute for detailed legal advice in
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