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Market spotlight

Trends and prospects

What are the current trends in and future prospects for the insurance and reinsurance markets in your jurisdiction?

The past few years have seen a growing interest in blockchain – the technology which sits behind Bitcoin – with organisations as diverse as banks, shipping companies and manufacturers seeking to leverage the power of blockchain in order to streamline business processes and improve efficiency, thus driving increased profits. The insurance sector uses blockchain primarily in the automation of underwriting and claims handling, where applications for insurance policies, contract terms and claims are recorded in a blockchain. A so-called ‘smart contract’ then selects the applications that should be accepted and the applicable terms, including:

  • pricing;
  • pay premiums on the occurrence of the conditions set out in the contract;
  • identify frauds; and
  • potentially profile customers and claimants in greater detail.

The further development of blockchain-based insurance products, including smart contracts, is one of the major challenges facing (re)insurers.

Another challenge is the substantial growth of and steady investment in insurtech. Many agree that the (re)insurance industry is ripe for disruption, and that insurtech start-ups will be key disruptors. However, insurtech could also be a turning point for an industry that is accused of being slow to innovate.

This goes hand in hand with the impact of artificial intelligence. Being data heavy, the insurance industry is likely to be significantly transformed by artificial intelligence – from determining the best coverage for potential customers and providing computer-generated customer advice to improving claims management processes. Chatbots which use messaging apps have already been introduced to resolve claims and answer simple questions.

The volume and value of personal and often sensitive data which is commonly captured in such environments – including data-rich processes such as underwriting and claims management and fraud prevention – makes adequate data management of paramount importance for (re)insurers. The EU General Data Protection Regulation, which comes into force on May 25 2018, will introduce a strict approach to accountability and compliance with data protection. This implies that (re)insurers will need to consider data privacy throughout the data processing lifecycle and integrate data governance with appropriate safeguards and processes. The risks are substantial, as companies which breach the new laws could face fines of up to 4% of their annual worldwide turnover.

Regulatory framework

Legislation

What is the primary legislation governing the (re)insurance industry in your jurisdiction?

The primary legislation regarding (re)insurance contracts is set out in a number of EU directives which member states must transpose into national law. The supervision of (re)insurers is set out in EU Directive 2009/138/EC (Solvency II) on the taking-up and pursuit of the business of insurance and reinsurance. Under this directive, several implementing measures were adopted, most importantly EU Regulation 2015/2450. With respect to the distribution of (re)insurance products, EU Directive 2016/97/EC on insurance distribution sets the minimum standards which member states must transpose into national law by February 23 2018.

Regulators

Which government bodies regulate the (re)insurance industry in your jurisdiction and what is the extent of their powers?

EU Regulation 1094/2010 established the European Insurance and Occupational Pensions Authority. The authority acts within the powers conferred by this regulation and within the scope of a number of EU directives, including all directives, regulations and decisions based on those acts and of any further legally binding EU act which confers tasks on the authority.

At a national level, the government bodies regulating the (re)insurance industry are the national supervisory authorities in each respective EU member state. The extent of their powers is determined by EU Directive 2009/138/EC (Solvency II) and national insurance supervisory law.

Ownership and organisational requirements

Ownership of (re)insurers

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

Ownership rules apply when:

  • an undertaking seeks authorisation for the taking up of the (re)insurance business; and
  • a holding in a (re)insurer is acquired, disposed of or reduced in the course of the ongoing insurance business.

In the first case, undertakings must notify the home member state’s supervisory authority of the identities of any persons that have qualifying holdings in that undertaking (ie, a direct or indirect holding in an undertaking which represents 10% or more of the capital or the voting rights, or which makes it possible to exercise a significant influence over the management of that undertaking) and of the amounts of those holdings.

The supervisory authority may refuse authorisation if it is unsatisfied as to the qualifications of that person when considering the need to ensure the sound and prudent management of (re)insurer insurance.

In the second case, any natural or legal person or such persons acting in concert that have taken a decision either to acquire, directly or indirectly, a qualifying holding in a (re)insurer or increase such a qualifying holding in a (re)insurer so that the proportion of the voting rights or the capital held reaches or exceeds 20%, 30% or 50%, or the (re)insurer becomes its subsidiary, must first notify the supervisory authority in writing of the (re)insurer in which they are seeking to acquire or increase a qualifying holding, indicating the size of the intended holding along with relevant information.

The same applies in case any natural or legal person that has taken a decision to dispose of or reduce, directly or indirectly, that person's qualifying holding in a (re)insurer so that the proportion of the voting rights or the capital held would fall below 20%, 30% or 50%, or the (re)insurer would cease to be a subsidiary of that person.

On becoming aware of them, the (re)insurer must inform the supervisory authority of their home member state of any acquisitions or disposals of holdings in its capital that cause those holdings to exceed or fall below any of the aforementioned thresholds.

The supervisory authorities may oppose the proposed acquisition only if there are reasonable grounds for doing so or if the information provided by the proposed acquirer is incomplete.

Further, at least once a year (re)insurers must inform the supervisory authority of its home member state of the names of shareholders and members which possess qualifying holdings and the sizes of such holdings.

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

See above.

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?

Every undertaking for which authorisation is sought must adopt one of the legal forms of life and non-life insurers, as well as reinsurer as set out in Annex III of EU Directive 2009/138/EC (Solvency II), depending on the member state in which authorisation is sought.

The most common structure is public limited companies.

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

Corporate governance requirements

(Re)insurers must have an effective governance system in place which provides for sound and prudent business management. That system must include an adequate transparent organisational structure with clearly allocated and appropriately segregated responsibilities, and must transmit information effectively. It must also comply with fit and proper requirements, as well as those regarding risk management, internal control, internal auditing, actuarial functions and outsourcing.

The system must be proportionate to the nature, scale and complexity of the operations of the (re)insurer and subject to regular internal review.

(Re)insurers must have written policies covering at least risk management, internal control, internal audit and, where relevant, outsourcing, and must ensure that those policies are implemented.

Further, they must have at least four specific governance functions, including risk management, internal auditing, compliance and actuarial.

Eligibility criteria for directors and officers

(Re)insurer must ensure that the professional qualifications, knowledge and experience of all persons who effectively run the undertaking or have other key functions are at all times adequate to enable sound and prudent management (fit) and are of good repute and integrity (proper).

To that end, (re)insurers must establish, implement and maintain documented policies and adequate procedures.

The assessment of whether a person is fit includes an evaluation of the person's professional and formal qualifications, knowledge and relevant experience within the (re)insurance sector, other financial sectors or other businesses, and takes into account the respective duties allocated to that person and, where relevant, their insurance, financial, accounting, actuarial and management skills. The assessment of whether members of the administrative, management or supervisory body are fit takes account of the respective duties allocated to individual members to ensure:

  • appropriate diversity of qualifications; and
  • knowledge and relevant experience for managing and overseeing the undertaking in a professional manner.

The assessment of whether a person is proper includes an assessment of that person's honesty and financial soundness based on evidence regarding their character, personal behaviour and business conduct, including any relevant criminal, financial and supervisory aspects.

(Re)insurers must notify the supervisory authority of any changes to the identity of the persons who effectively run the undertaking or are responsible for other key functions, along with all information required to assess whether any new persons appointed to manage the undertaking are fit and proper. Further, they must notify their supervisory authority if any of said persons have been replaced because they can no longer fulfil said requirements.

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?

The taking-up of (re)insurance businesses is subject to prior authorisation. Authorisation must be sought from the supervisory authority of the home member state by the following:

  • any undertaking which is establishing its head office within the territory of that member state; or
  • any authorised insurer that wishes to extend its business to an entire insurance class or insurance classes other than those already authorised.

Authorisation is valid for the entire European Union and permits (re)insurers to pursue business there. It also covers the right of establishment and the freedom to provide services.

(Re)insurers with head offices situated outside the European Union may seek authorisation from the supervisory authority of the member state where they establish a branch (this is one of the requirements such undertakings must meet to be eligible for authorisation).

Financial requirements

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

(Re)insurers must hold eligible basic own funds to cover minimum capital requirements, which have an absolute floor of:

  • €2.2 million for non-life insurers, including captive insurers, unless all or some of the risks included in one of Classes 10 to 15 listed in Part A of Annex 1 of EU Directive 2009/138/EC (Solvency II) are covered, in which case the floor is no less than €3.2 million;
  • €3.2 million for life insurers, including captive insurers;
  • €3.2 million for reinsurers, except for of captive reinsurer, in which case the floor is no less than €1 million; and
  • the sum of the first and second amounts set out above for insurers that, on specific dates, simultaneously pursued life and non-life insurance activities covered by EU Directive 2009/138/EC (Solvency II).

Without prejudice to this absolute floor, the minimum capital requirement must neither fall below 25% nor exceed 45% of the undertaking’s solvency capital requirement. (Re)insurers must hold eligible own funds covering the solvency capital requirement, which is calculated either in accordance with the standard formula pursuant to EU Directive 2009/138/EC (Solvency II) or using an internal model, as approved by the respective home member state supervisory authority.

Do any other financial requirements apply?

(Re)insurers must establish technical provisions with respect to all of their (re)insurance obligations towards policy holders and beneficiaries of (re)insurance contracts. The value of technical provisions must correspond to the amount (re)insurers would have to pay if they were to transfer their (re)insurance obligations immediately to another (re)insurer.

Personnel qualifications

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

The professional qualification requirements depend on the law of the respective member state.

Following EU Directive 2016/97/EC on insurance distribution, (re)insurer employees carrying out (re)insurance distribution activities must possess the appropriate knowledge and ability to complete their tasks and perform their duties adequately. Member states may limit these requirements to (re)insurer employees who are directly involved in (re)insurance distribution. Under the directive, (re)insurer personnel must comply with continuing professional training and development requirements in order to maintain an adequate level of performance corresponding to the role that they perform and the relevant market. Member states may adjust the required conditions with regard to knowledge and ability in line with the particular activity of the (re)insurer and the distributed products.

Further, according to said insurance distribution directive, natural persons employed by a (re)insurer who pursue (re)insurance distribution must be of good repute. As a minimum, they must have a clean criminal record or any other national equivalent in relation to serious criminal offences linked to crimes against property or other crimes relating to financial activities, and they must not have previously declared bankruptcy, unless they have been rehabilitated in accordance with national law.

Business plan

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

Every undertaking seeking authorisation and any (re)insurer seeking authorisation to extend its business to other classes or extend an authorisation covering only some of the risks pertaining to one class must provide the supervisory authority of the home member state with a scheme of operations, including particulars or evidence of the following:

  • the nature of the risks or commitments which the (re)insurer proposes to cover;
  • the kind of reinsurance arrangements which the reinsurer proposes to make with ceding undertakings;
  • the guiding principles as to reinsurance and retrocession;
  • the basic own-fund items constituting the absolute floor of the minimum capital requirements;
  • estimates of the costs of setting up the administrative services and the organisation for securing business, including the financial resources intended to meet those costs; and
  • for risks classified under Class 18 in Part A of Annex I of EU Directive 2009/138/EC (Solvency II), the resources at the disposal of the insurer for providing guaranteed assistance.

In addition to these requirements, for the first three financial years the scheme must include:

  • a forecast balance sheet;
  • future solvency capital requirement estimates based on the forecast balance sheet, as well as the calculation method used to derive those estimates;
  • future minimum capital requirement estimates based on the forecast balance sheet, as well as the calculation method used to derive those estimates; and
  • estimates of financial resources intended to cover:
    • technical provisions;
    • minimum capital requirements; and
    • solvency capital requirements.

In addition to the above, schemes for non-life insurance and reinsurance must include estimates of management expenses other than installation costs – in particular, existing general expenses and commissions – and of premiums or contributions and claims. Life insurance schemes must include a plan setting out detailed estimates of income and expenditure in respect of insurance business, reinsurance acceptances and reinsurance cessions.

Risk management

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

(Re)insurers must have effective risk management systems in place which contain the strategies, processes and reporting procedures required to identify, measure, monitor, manage and continually report on the risks – at individual and aggregated levels – to which they are or could be exposed, as well as their interdependencies.

Risk management systems must be effective and well integrated into the organisational structure and decision-making processes of the insurance or reinsurance undertaking, with proper consideration of the persons who effectively run the undertaking or have other key functions.

Risk management systems must cover the following areas:

  • underwriting and reserving;
  • asset liability management;
  • investment, particularly derivatives and similar commitments;
  • liquidity and concentration risk management;
  • operational risk management; and
  • reinsurance and other risk mitigation techniques.

As part of its risk management system, every (re)insurer must conduct its own risk and solvency assessment.

(Re)insurers must provide for a risk management function that is structured in such a way as to facilitate the implementation of the risk management system.

Reporting and disclosure

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

(Re)insurers must publicly disclose a solvency and financial condition report every year.

Regular supervisory reporting obligations require (re)insurers to submit the following to supervisory authorities:

  • the solvency and financial condition report;
  • the regular supervisory report;
  • the own-risk and solvency assessment supervisory report; and
  • annual and quarterly quantitative templates which specify and supplement the information presented in the solvency and financial condition report and the regular supervisory report.

It is without prejudice to the power of supervisory authorities to require (re)insurers to communicate on a regular basis any other information prepared under the responsibility or at the request of the administrative, management or supervisory body of those undertakings.

Other requirements

Do any other operating requirements apply in your jurisdiction?

The taking up and pursuit of a (re)insurance business is subject to prior authorisation by the competent supervisory authority in the home member state. Under EU Directive 2009/138/EC (Solvency II), such authorisation may be granted where the undertaking fulfils at least the following conditions:

  • it is entitled to pursue insurance business under the relevant national law;
  • it establishes a branch in the member state in which authorisation is sought;
  • it undertakes to establish accounts which are specific to and store all records relating to the transacted business at the place where the branch is managed;
  • it designates a general representative, which must be approved by the supervisory authorities;
  • it possesses assets in the member state in which authorisation is sought that are equal to at least half of the absolute floor in respect of the minimum capital requirements set out in EU Directive 2009/138/EC (Solvency II) and deposits one fourth of that absolute floor as security;
  • it undertakes to cover solvency capital requirements and minimum capital requirements in accordance with EU Directive 2009/138/EC (Solvency II);
  • it communicates the names and addresses of the claims representatives appointed in member states – other than the state in which the authorisation is sought – in which risks other than carrier’s liability are classified under Class 10 in Part A of Annex I of EU Directive 2009/138/EC (Solvency II);
  • it submits a scheme of operations; and
  • it fulfils the governance requirements.

Non-compliance

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

The competent supervisory authority of the home member state may impose remedies and ultimately revoke the (re)insurer's authorisation.

Contracts

General

What general rules, requirements and procedures govern the conclusion of (re)insurance contracts in your jurisdiction?

No general rules govern the conclusion of (re)insurance contracts (ie, how said contracts may be entered into). This is determined by the national law of the respective EU member state. However, there are rules regarding the information which a policyholder must receive before the conclusion of a contract in order to be make an educated decision.

For example, EU Directive 2009/138/EC (Solvency II) provides for general, life insurance and non-life insurance-related information obligations on the insurer towards (potential) policyholders before the conclusion of the contract, as well as additional information where non-life insurance is offered under the right of establishment or the freedom to provide services.

EU Directive 2011/83/EU on consumer rights determines consumer information requirements. Under the directive, traders must provide consumers with certain information for distance and off-premises contracts, as well as for all other contracts, as applicable, with the former exceeding the information requirements of the latter, before the consumer is bound by the contract or any corresponding offer. Further, when transposing the directive into national law, member states had to ensure that consumers had 14 calendar days to withdraw from the contract without penalty and without giving any reason.

EU Directive 2002/92/EC on insurance mediation stipulates that an insurance intermediary must provide customers with specific information before the conclusion of any initial insurance contract. This directive was replaced by the Insurance Distribution Directive (2016/97/EC), which extends these information obligation to the extent that (re)insurers and (re)insurance distributors must provide (among other things) information regarding:

  • the distribution chain;
  • the (re)insurance distributor itself;
  • the (re)insurance product;
  • potential conflict of interests; and
  • remuneration.

Mandatory/prohibited provisions

Are (re)insurance contracts subject to any mandatory/prohibited provisions?

See above.

With respect to insurance contracts, Article 7 of the Rome I Regulation (593/2008) provides for the applicable law governing insurance contracts. Parties may choose one of the following laws only:

  • the law of any member state in which the risk is situated at the time of the conclusion of the contract;
  • the law of the policy holder’s habitual residence;
  • for life assurance, the law of the member state of which the policy holder is a citizen;
  • for insurance contracts covering risks limited to events occurring in a member state other than that where the risk is situated, the law of that member state; or
  • where the policy holder of a contract pursues a commercial or industrial activity or a liberal profession and the insurance contract covers two or more risks which relate to those activities and are situated in different member states, the law of any of the member states concerned or the law of the policy holder’s habitual residence.

Regarding the first, second and fifth points, if member states grant greater freedom of choice with regard to the laws applicable to insurance contracts, parties may take advantage of this freedom.

If the applicable law has not been lawfully chosen by the parties, contracts must be governed by the law of the member state in which the risk is situated at the time of conclusion of the contract. However, this does not apply to reinsurance contracts.

Implied terms

Can any terms be implied into (re)insurance contracts (eg, a duty of good faith)?

This is determined by the national laws and case law of the respective member states.

Standard/common terms

What standard or common contractual terms are in use?

This is determined by the national laws, case law and market practices of and in the respective member states.

‘Smart’ contracts

What is the state of development in your jurisdiction with regard to the use of ‘smart’ contracts (ie, blockchain based) for (re)insurance purposes? Are any other types of financial technology commonly used in the conclusion of (re)insurance contracts?

The development of blockchain-based insurance products is one of the major challenges facing (re)insurers. An insurance giant recently announced that it had launched a blockchain prototype for a global captive insurance programme. The project focuses on professional indemnity and property insurance for a customer with a captive insurance programme with local subsidiaries in the United States, China and Switzerland. The programmes collect premiums from each operating unit, much like an ordinary insurer. Likewise, the captive entity pays out claims as they arise. The insurer administers the captive insurer as a so-called ‘fronting insurer’ and uses its diverse multinational network to ensure global reach and compliance. Blockchain technology automatically connects all parties involved in the insurance programme by using distributed ledger technology, which is shared among all programme participants and can record transactions and data entries. Updates and changes to the data are shared in real time across all users. This creates a much faster, transparent, secure and efficient means of:

  • distributing information;
  • conducting business processing; and
  • recording transactions across multiple parties.

Other insurers are working on similar blockchain-based insurance products at a growing speed.

Breach

What rules and procedures govern breach of contract (for both (re)insurer and insured)?

This is determined by the national laws and case law of the respective member state.

Consumer protection

Regulation

What consumer protection regulations are in place to safeguard the rights of purchasers of insurance products and services?

No general rules govern the conclusion of (re)insurance contracts (ie, how said contracts may be entered into). This is determined by the national law of the respective EU member state. However, there are rules regarding the information which a policyholder must receive before the conclusion of a contract in order to be make an educated decision.

For example, EU Directive 2009/138/EC (Solvency II) provides for general, life insurance and non-life insurance-related information obligations on the insurer towards (potential) policyholders before the conclusion of the contract, as well as additional information where non-life insurance is offered under the right of establishment or the freedom to provide services.

EU Directive 2011/83/EU on consumer rights determines consumer information requirements. Under the directive, traders must provide consumers with certain information for distance and off-premises contracts, as well as for all other contracts, as applicable, with the former exceeding the information requirements of the latter, before the consumer is bound by the contract or any corresponding offer. Further, when transposing the directive into national law, member states had to ensure that consumers had 14 calendar days to withdraw from the contract without penalty and without giving any reason.

EU Directive 2002/92/EC on insurance mediation stipulates that an insurance intermediary must provide customers with specific information before the conclusion of any initial insurance contract. This directive was replaced by the Insurance Distribution Directive (2016/97/EC), which extends these information obligation to the extent that (re)insurers and (re)insurance distributors must provide (among other things) information regarding:

  • the distribution chain;
  • the (re)insurance distributor itself;
  • the (re)insurance product;
  • potential conflict of interests; and
  • remuneration.

Claims

General

What general rules, requirements and procedures govern the filing of insurance claims?

This is determined by the national laws and case law of the respective member state.

Time bar

What is the time bar for filing claims?

This is determined by the national laws and case law of the respective member state.

Denial of claim

On what grounds can the (re)insurer deny coverage?

This is determined by the national laws and case law of the respective member state.

What rules and procedures govern the insured’s challenge of the denial of a claim?

This is determined by the national laws and case law of the respective member state.

Third-party actions

On what grounds can a third party file a claim directly with the (re)insurer?

EU Directive 2009/103/EC relating to insurance against civil liability in respect of the use of motor vehicles and the enforcement of the obligation to insure against such liability provides that any party injured as a result of an accident caused by a vehicle covered by insurance enjoys a direct right of action against the insurance undertaking covering the person responsible against civil liability.

For other (re)insurers, it depends on the wording of the individual (re)insurance contract.

Punitive damages

Are punitive damages insurable?

This is determined by the national laws and case law of the respective member state.

Subrogation

What regime governs (re)insurers’ subrogation rights?

This is determined by the national laws and case law of the respective member state.

Intermediaries

Regulation

How are the services of insurance intermediaries regulated in your jurisdiction?

The Insurance Distribution Directive (2016/97) sets out rules concerning the taking-up and pursuit of (re)insurance distribution activities in the European Union. It replaced EU Directive 2002/92/EC on insurance mediation and substantially expanded the scope of application and the requirements regarding customer information. Member states must transpose the Insurance Distribution Directive into the respective national laws by February 23 2018 at the latest.

The Insurance Distribution Directive applies to any natural or legal person that is established in a member state or wishes to be established there in order to take up and pursue the distribution of (re)insurance products. Under the directive, (re)insurance and ancillary insurance intermediaries must be registered with a competent authority in their home member state. (Re)insurers and their employees need not be registered.

Carrying out (re)insurance distribution activities is subject to the fulfilment of professional requirements on permanent basis:

  • (Re)insurance distributors and employees of (re)insurer carrying out (re)insurance distribution activities must possess appropriate knowledge and ability in order to complete their tasks and perform their duties adequately.
  • Natural persons working in a (re)insurer or (re)insurance intermediary must be of good repute. As a minimum, they must have a clean criminal record or any other national equivalent in relation to serious criminal offences linked to crimes against property or other crimes relating to financial activities and must not have previously been declared bankrupt, unless they have been rehabilitated in accordance with national law.
  • (Re)insurance intermediaries must hold professional indemnity insurance covering all EU territory or some other comparable guarantee against liability arising from professional negligence amounting to at least €1.25 million applying to each claim and in aggregate €1.85 million per year for all claims, unless such insurance or a comparable guarantee is already provided by a (re)insurer or other undertaking on whose behalf the (re)insurance intermediary is acting or for which the (re)insurance intermediary is empowered to act, or such undertaking has taken on full responsibility for the intermediary’s actions. Ancillary insurance intermediaries must hold professional indemnity insurance or comparable guarantees at a level established by the respective member state.
  • Member states must take measures to protect customers against the inability of the (re)insurance or ancillary insurance intermediary to transfer the premium to the (re)insurance undertaking or to transfer the amount of claim or return premium to the insured. Such measures must include one or more of the following:
    • provisions laid down by law or contract whereby monies paid by the customer to the intermediary are treated as having been paid to the undertaking, whereas monies paid by the undertaking to the intermediary are not treated as having been paid to the customer until the customer actually receives them;
    • a requirement for the intermediary to have financial capacity amounting, on a permanent basis, to 4% of the sum of annual premiums received, subject to a minimum of €18,750;
    • a requirement that customers’ monies be transferred via strictly segregated customer accounts and that those accounts not be used to reimburse other creditors in the event of bankruptcy; and
    • a requirement that a guarantee fund be set up.

Any (re)insurance or ancillary insurance intermediary may carry out business in one or more member states under the freedom of services or the freedom of establishment regime after a notification process between the competent authorities of the home and any host member state and the respective (re)insurance or ancillary insurance intermediary has been completed.

Tax

Tax liability

What tax liabilities arise in the conduct of (re)insurance business?

Direct taxation of (re)insurers is a matter of national legislation. There is no harmonised EU tax law in this field.

However, with regard to indirect taxation such as value added tax (VAT), the European Union has harmonised taxation based on VAT directives and a VAT regulation. Article 135(1)(a) of Council Directive 2006/112/EC provides that (re)insurance transactions are exempt from VAT. Therefore, no VAT is chargeable on insurance premiums that the insured pay to the insurer. Likewise, reinsurance premiums paid by insurers to reinsurers are not taxed with VAT. Member states were obliged to transpose the VAT directive into national law.

Insolvency

Regulation

What regime governs the insolvency of (re)insurers?

(Re)insurer insolvency is primarily governed by the laws of the respective home member state. However, EU Directive 2009/138/EC (Solvency II) sets out rules regarding the reorganisation and winding up of insurers. These rules apply only to insurers and branches of third-country insurers situated in EU territories.

Under the directive, reorganisation measures are governed by the laws, regulations and procedures applicable in the home member state. Only the competent authority of the home member state can decide on the reorganisation measures with respect to an insurer, including its branches. These measures, taken in accordance with the legislation of the home member state, are fully effective throughout the European Union, without any further formalities. Where the law of the home member state requires a claim to be lodged in order for it to be recognised or provides for compulsory notification of a reorganisation measure to creditors whose habitual residence, domicile or head office is situated in that member state, the competent authorities of the home member state or the administrator will also inform known creditors whose habitual residence, domicile or head office is situated in another member state.

Where the law of the home member state provides for the right of creditors whose habitual residence, domicile or head office is situated in that member state to lodge claims or submit observations concerning their claims, creditors whose habitual residence, domicile or head office is situated in another member state have the same right.

The decision to open winding-up proceedings with regard to an insurer, the winding-up proceedings and their effects are governed by the applicable law in the home member state.

Only the competent authorities of the home member state can make decisions concerning the opening of winding-up proceedings with regard to an insurer, including its branches in other member states. This decision may be taken in the absence or following the adoption of reorganisation measures and is recognised without further formality throughout the European Union.

Insurance claims take precedence over other claims against the insurer.

Where the opening of winding-up proceedings is decided in respect of an insurer, the authorisation of that undertaking is withdrawn, except to the extent necessary or appropriate for the purposes of winding up.

When winding-up proceedings are opened, the competent authorities of the home member state, the liquidator or any person appointed for that purpose by the competent authorities must without delay individually inform by written notice each known creditor whose habitual residence, domicile or head office is situated in another member state. Creditors may then lodge claims or submit written observations relating to claims and have the right to be informed regularly on the progress of the winding up.

Effect on insureds

How does a (re)insurer’s insolvency affect insureds and the (re)insurer’s obligations to insureds?

EU Directive 2009/138/EC (Solvency II) provides that, where an insurer is wound up, commitments arising out of contracts underwritten through a branch or under the freedom to provide services must be met in the same way as those arising out of the other insurance contracts of that undertaking, without distinction as to nationality as far as the persons insured and the beneficiaries are concerned. Where a reinsurer is wound up, commitments arising out of contracts underwritten through a branch or under the freedom to provide services must be met in the same way as those arising out of the other reinsurance contracts of that undertaking.

Dispute resolution

Litigation

Are there any compulsory or preferred venues for insurance litigation in your jurisdiction?

There are no preferred venues for insurance litigation in the European Union. Compulsory venues are determined on the basis of EU Regulation 1215/2012 (Brussels-1a), which provides for a closed set of rules regarding jurisdiction in matters relating to insurance. An insurer domiciled in a member state may be sued:  

  • in the courts of the member state in which it is domiciled;
  • in another member state in case of actions brought by the policy holder, the insured or a beneficiary, and in the courts for the place where the claimant is domiciled; or
  • for co-insurers, in the courts of a member state in which proceedings are brought against the leading insurer.

An insurer that is not domiciled in a member state but has a branch, agency or other establishment in one of the member states may, in disputes arising out of the operations of the branch, agency or establishment, be deemed to be domiciled in that member state and can therefore be sued in the court of that member state.

In respect of liability insurance or insurance of immovable property, the insurer may also be sued in the courts for the place where the harmful event occurred. The same applies if movable and immovable property are covered by the same insurance policy and both are adversely affected by the same contingency.

On the other hand, the insurer may bring proceedings only in the courts of the member state in which the defendant is domiciled, irrespective of whether it is the policyholder, the insured or a beneficiary.

Where said regulation is not applicable (ie, in purely domestic cases) or where it provides only for the international jurisdiction of the courts of a member state but not specifically for the local jurisdiction of a specific court, the venue for the insurance litigation is determined by the respective national law of that member state.

How are insurance disputes with a cross-border element handled in your jurisdiction?

This depends on the legal systems and civil procedure laws of individual member states. EU law provides for a regime determining whether the national courts of a specific member state are internationally competent to hear a case and, in some cases, also which court has local jurisdiction (Regulation 1215/2012/EU). Where the parties have not or have not validly chosen the substantive law governing a contract, the applicable law is subject to the Rome I Regulation (593/2008/EC); or where this regulation does not apply, the international private law of the respective EU member state.

What issues are commonly the subject of insurance litigation?

The most common issues of insurance litigation are claims for coverage after the (re)insurer has denied coverage or claims for payment of compensation (damages).

What is the typical timeframe for insurance litigation?

The timeframe for insurance litigation depends on the national civil procedure law and the practice of the courts of the member state in which the litigation takes place. This can vary substantially.

Arbitration

What regime governs the arbitrability of insurance disputes?

The arbitrability of insurance disputes is determined by the national laws and case law of the respective member state.