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Ownership and organisational requirements

Ownership of (re)insurers

Are there any restrictions on ownership of or investment in (re)insurers in your jurisdiction, including any limits on foreign ownership/investment?

(Re)insurance business in Denmark requires a licence from the Financial Supervisory Authority (FSA). The licence is issued based on a plan of operations prepared by the (re)insurer. The FSA establishes the rules for the information which must be included in the plan of operations.

Foreign companies must also be licensed by the FSA to carry on (re)insurance business in Denmark. If the foreign company has already been licensed in another EU member state, the regulatory authorities in the home country can notify the FSA and the foreign company can operate in Denmark two months after notification is given. The relevant rules are laid out in Part 5 of the Financial Business Act.

A solvency certificate must also be submitted to the FSA if a foreign company carries on (re)insurance business in Denmark.

Both natural and legal persons contemplating the acquisition of a qualifying holding in a (re)insurer must apply in advance to the FSA for approval of the transaction. This is also the case for situations where a transaction results in an increase in a qualifying holding or if the insurer becomes a subsidiary because of a transaction.

If the insurance business is to be sold, the transaction must be approved by the Danish competition authorities. The rules surrounding such a transaction are complex and expert advice should be sought for a detailed assessment.

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

Title IV of the Financial Business Act regulates the ownership and management of (re)insurers. The Companies Act also applies and contains rules on the registration of and changes in ownership and notifications of significant shareholdings.

The Danish Act on Securities Trading also applies. Very strict requirements apply to the obligations of listed companies to disclose information. There are also rules regarding providing information about any changes to the group of owners.

All persons, both natural and legal, contemplating the acquisition of a qualifying holding in a (re)insurer must apply in advance to the FSA for approval of the transaction. This is also the case in certain situations where a transaction results in an increase in a qualifying holding or if the insurer becomes a subsidiary as a result of a transaction. The FSA has an assessment period of 60 business days. Each year, the insurer must notify the FSA of any new owners that have acquired a qualifying holding in the company. Reference is made to Title IV of the Financial Business Act.

If the insurance business is to be sold, the transaction must be approved by the Danish competition authorities. The rules surrounding such a transaction are complex and expert advice should be sought for a detailed assessment.

Organisational requirements

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

A (re)insurer must be a company and must have a board of directors and an executive board. Insurers must be limited companies, mutual companies or multi-employer occupational pension funds (see Section 12 of the Financial Business Act).

Insurers must also have a structure which ensures that it is able to fulfil its compliance obligations.

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

(Re)insurers must have a board of directors and an executive board. The members of the executive board and the board of directors have a large number of obligations. For example, members must ensure that the (re)insurer always complies with capital and solvency requirements.

Board members must have sufficient knowledge, professional skills and experience to carry out their duties. The member must also have a good reputation and be independent in order to be able to assess and contest decisions. Other requirements for the board can be found in Part 3 of the Securities Trading Act and Part 8 of the Financial Business Act.

The executive board must also ensure that (re)insurers have sufficient expert knowledge to calculate the provisions for insurance. The rules are laid down in Part 8 of the Financial Business Act.

(Re)insurers must be audited and prepare an annual report. Detailed rules regarding audits and annual reports are laid out in Title VI of the Financial Business Act.

Compliance law also stipulates that a (re)insurer must have a compliance officer, a data controller and a complaints officer. Such officers are subject to requirements under special legislation (eg, the requirement to report certain data processing to the Danish Data Protection Agency).

The Committee on Corporate Governance in Denmark has also given recommendations for the corporate governance of listed companies in a regulated market.

Operating requirements

Authorisation procedure

Which (re)insurers must obtain authorisation from the regulator before operating on the market and what is the procedure for doing so?

(Re)insurance business in Denmark requires a licence from the Financial Supervisory Authority (FSA). The licence is issued based on a plan of operations prepared by the (re)insurer. The FSA establishes the rules for the information which must be included in the plan of operations.

Foreign companies must also be licensed by the FSA to carry on (re)insurance business in Denmark. If the foreign company has already been licensed in another EU member state, the regulatory authorities in the home country can notify the FSA and the foreign company is permitted to operate in Denmark two months after notification is given. The relevant rules are laid out in Part 5 of the Financial Business Act.

A solvency certificate must also be submitted to the FSA if a foreign company carries on (re)insurance business in Denmark.

Financial requirements

What are the minimum capital and solvency requirements for (re)insurers operating in your jurisdiction?

Specific rules are laid out in the Financial Business Act, with special reference made in Titles I and V.

Capital and solvency requirements are determined individually based on a (re)insurer’s volume. Danish law distinguishes between Group 1 and Group 2 insurers. Group 1 insurers are big companies, which are calculated (among other factors) according to their annual gross premium. Group 2 companies include all other companies.

Group 1 insurers For Group 1 insurers, the solvency requirement is calculated either based on a standard formula or by using an internal model.

The framework for the calculation of the capital requirement according to the standard formula follows from the Solvency II Directive and the Omnibus II Directive.

The minimum capital requirement must not generally be less than 25% or more than 45% of the company's solvency capital requirement. However, very specific rules and exemptions apply.

Group 2 insurers  For Group 2 insurers, the board of directors and the executive board must ensure that the company has sufficient provisions to cover all insurance obligations to the policy holders and other beneficiaries under the insurance contracts.

Group 2 insurers must always have a basic capital that is at least the equivalent of the highest value of the individual solvency needs.

There are complex rules for calculating the capital and solvency requirements which apply to both Group 1 and Group 2 insurers.

Do any other financial requirements apply?

Yes, the placement and liquidity of the funds of a (re)insurer are regulated. Reference is made to Part 11 of the Financial Business Act.

(Re)insurers must be audited and prepare an annual report. Detailed rules regarding audits and annual reports are laid out in Title VI of the Financial Business Act.

 Personnel qualifications

Are personnel of (re)insurers subject to any professional qualification requirements?

(Re)insurers must have in place specific roles and complete specific functions, including:

  • completing internal audits;
  • putting in place a compliance department; and
  • employing a data controller.

There is also an indirect requirement that (re)insurers employ personnel with the right skills and education.

The board of directors and executive board need not be composed of individuals with specific training or certain professional skills. However, a number of other requirements apply. To qualify to be a member of an executive board or a board of directors, an individual must have the sufficient knowledge, professional skills and experience to carry out his or her duties. The member must also have a good reputation and be independent in order to be able to assess and contest decisions. Other requirements regarding the management of (re)insurers can be found in:

  • Part 3 of the Securities Trading Act;
  • Part 8 of the Financial Business Act; and
  • Part 7 of the Companies Act.

Business plan

What rules and requirements govern the business plans of (re)insurers?

It is a general requirement that a (re)insurer prepares a plan of operations for the business that the company intends to carry on. The plan of operations must be submitted together with the (re)insurer's application to carry on insurance business. The FSA issues the licence to carry on insurance business.

The FSA determines the requirements which must be fulfilled in the plan of operations. In addition, (re)insurance business is subject to a strict framework, which requires that the insurance company report to the FSA regularly.

The compliance legislation which applies to the (re)insurance sector is extensive. Expert assistance should be obtained if detailed knowledge of the rules is required.

Risk management

What risk management systems and procedures must (re)insurers adopt?

Section 108 of the Financial Business Act stipulates that the executive board must ensure that (re)insurers have sufficient expert knowledge to calculate the provisions for insurance.

(Re)insurers are subject to strict capital and solvency requirements. The companies' risk management must comply with such rules.

It is a general requirement that (re)insurers have procedures for each business area describing the risk management in the area (among other things).

Reporting and disclosure

What ongoing regulatory reporting and disclosure requirements apply to (re)insurers?

Strict requirements apply to (re)insurer reporting to authorities (eg, the FSA). The purpose of this reporting is to ensure that the (re)insurer meets capital and solvency requirements.

(Re)insurers must report on almost all business areas. Complaints against an insurer must also be reported.

In specific situations, (re)insurers are obliged to disclose information on their own initiative (eg, if the basis of calculation for the company's capital and solvency requirements changes).

A duty of disclosure for listed companies under the current regulation of the markets and other disclosure of detailed information in other legislation monitoring also apply.

Other requirements

Do any other operating requirements apply in your jurisdiction?

All issues concerning (re)insurers are regulated in Denmark. The insurance market is a regulated market, which means that (re)insurance business is subject to numerous requirements.

(Re)insurers are subject to a large number of operating requirements. When a company has received a licence to carry on a (re)insurance business, a detailed structural framework applies to the (re)insurer's actions.

(Re)insurers are subject to many other requirements. For example, (re)insurers must always comply with rules on good practice which apply to the actions that an insurer may take.

(Re)insurers must also comply with the Act on Processing of Personal Data. (Re)insurers handle a large amount of sensitive data and the Data Protection Agency supervises compliance with the personal data protection rules.

The Securities Trading Act also contains rules for the operation of regulated markets. Special reference is made to Part 4 of the act.

(Re)insurers are generally required to have procedures in place for each business area, describing the risk management in the area, among other things. The regulation of (re)insurers under Danish law is extensive.

Non-compliance

What are the consequences of non-compliance with the operating requirements applicable to (re)insurers?

If insurance is effected before a licence to carry on insurance business and registration has been made, the licence has been issued and the registration made, the individuals who have effected the licence or who are responsible are jointly and severally liable for the performance of the contract. However, the insurer may accept the liability no later than four weeks after registration.

If the rules for (re)insurers are not complied with, the FSA has certain powers. For instance, an order may be issued which stipulates that the (re)insurer will be subject to strict supervision. Ultimately, the (re)insurer could risk losing its licence to carry on (re)insurance business in Denmark.

The members of the executive board and the board of directors of a (re)insurer may incur liability if the management of the (re)insurer does not fulfil necessary requirements. Such liability is assessed in accordance with the rules on professional liability.

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