Is it possible to insure risks without a licence or authorisation? (i.e. on a non-admitted basis)?
Insurance & Reinsurance
Prior to the introduction of Solvency II, insurance and reinsurance activity was regulated at an EU level by Directives 88/357/EEC, 90/619/EEC, 92/49/EEC and 92/96/EEC (together “Solvency I”). Under Solvency I it was possible for third-country reinsurers to write business in Ireland on a non-admitted basis subject to compliance with certain conditions. However, these provisions were not carried over into Solvency II. The market has viewed this as an oversight in the legislation and there has been on-going lobbying by the insurance industry to have the 2015 Regulations amended in order to permit third-country reinsurers to write business in Ireland on a non-admitted basis, as was originally provided for under the Solvency I regime.
FSMA prohibits any person from undertaking a regulated activity by way of business in the UK without authorisation. Importantly however, the regime captures commercial activities that take place within the territory but does not capture a situation where an insurer underwrites a risk located in the UK so long as none of the activities linked to writing the business or claims handling actually take place within the territory.
The main rule is that an insurer must be authorised by the FSA to be able to insure risks. However, insurers and reinsurers domiciled in other EEA countries, who carry out insurance operations in Sweden through an established branch, agency or on a freedom-of-services basis, are regulated by the regulatory authority of their respective countries of domicile. They do therefore not need to be authorised by the FSA, though they must still notify the FSA of their activities.
Insurance undertakings may not conduct insurance business in Germany unless or until they have obtained authorisation from BaFin, except for insurance undertakings headquartered in another EU/EEA member state. The authorisation obtained by such insurance undertakings from a home state regulator is valid in all EU/EEA states and an insurance undertaking may subsequent to the notification of BaFin carry on insurance business outside its home state in Germany via branches or through cross-border provision of services.
Importantly however, the term “conduct of insurance business” captures commercial activities by the insurer or reinsurer that are aimed at the German market but does not necessarily apply to every situation where an insurer underwrites a risk located in the Germany.
Insurance and reinsurance undertakings from third countries, i.e. countries that are not member states of either the EU or EEA, are subject to authorisation and normally must establish a German branch office. Section 67 (1) sentence 2 of the German Insurance Supervision Act provides an exemption from authorisation requirements for reinsurers from third countries which carry on solely reinsurance business in Germany without a German branch, and where the European Commission has decided in accordance with Article 172 (2) or (4) of the Solvency II Directive that the solvency regimes for reinsurance activities carried out by undertakings in the relevant country are equivalent to the regime described in that Directive. A similar regime will, upon ratification, apply under the new EU-US agreement on prudential measures regarding insurance and reinsurance.
Furthermore, the authorisation requirement does not apply, if the respective insurance contract is concluded by “reverse solicitation” which is commonly referred to as “insurance by correspondence” (Korrespondenzversicherung). Additional rules apply to third country reinsurers, and in this case certain requirements (such as rating, enforceability and/or collateral) may have to be met for cedants to obtain credit for the reinsurance cover pursuant to the rules under the Commission Delegated Regulation (EU) 2015/35.
Yes, provided that the insurer did not solicit the policyholder in the first place but was contacted by the policyholder or an entity acting for the policyholder, e.g. a broker.
As a general rule, Article 20 of the LISF provides that only those entities duly licensed by the Mexican federal government through the CNSF to operate as insurance companies may undertake active insurance operations within Mexican territory.
If a non-licensed insurance company operates in Mexico on a non-admitted basis and carries out active insurance operations in Mexico, it shall be deemed to be breaching Mexican law and the transaction shall be null and void. Furthermore, such conduct would constitute criminal liability on the part of (i) the non-admitted foreign insurer; (ii) the insurance intermediaries (broker or agent); and (iii) the officers, managers, directors, representatives and agents of the entities referred to in (i) and (ii).
As per Article 28 of the Insurance Law, it is not permitted to insure risks in the UAE with an insurer that is not licensed within onshore UAE. However, insurers may contract for reinsurance with a reinsurer that is not licensed in the UAE. Thus, a reinsurer licensed within a free zone such as the DIFC, may provide its cover to an onshore licensed primary insurer (Insurance Law Article 68).
States generally allow insurers that are not licensed in the state to insure risks on an “excess” or “surplus” lines basis. Excess line insurers are generally authorized to insure large, commercial risks and/or specialty risks for which coverage in the admitted market is unavailable (e.g., terrorism insurance, liability insurance for large infrastructure projects). States restrict the kinds of insurance that may be written on a non-admitted basis. Personal lines insurance, including life, annuities, private passenger automobile and residential homeowner insurance, is usually excluded from permissible surplus lines coverage. State insurance laws generally require that excess and surplus insurers conduct business in a state only through a licensed broker or other licensed person.
Insurers are required to obtain a licence with the FMA, which acts as supervisory institution pursuant to the VAG. The requirements for obtaining a licence are set out in Article 8 VAG. Insurance and reinsurance undertakings must operate under the legal form of either a stock company, a Societas Europaea (SE) or a mutual insurance company. Moreover, the administrative headquarters have to be located in Austria.
A licence will not be granted if the insurance undertaking’s business plan does not fulfil certain requirements (cf. Article 10 VAG). In particular, it must be safeguarded that the undertaking’s obligations towards its customers will be complied with in the long run. Similarly, authorisation will be denied if the insurer does not fulfil the requested minimum capital requirements (see Question 10), is unable to prove it will satisfy solvency capital requirements (see Question 9) or comply with the governance rules set out in the VAG.
An insurer’s or reinsurer’s license to conduct insurance business in one of the member states of the European Union (EU) or the European Economic Area (EEA) is sufficient for conducting insurance business within the EU/EEA.
Branches of foreign insurance undertakings, i.e. those not licensed in the EU/EEA, must provide additional information when applying for a licence in Austria (cf. Articles 16 to 19 VAG).
Yes. Foreign reinsurers can write the following insurances in Chile, without being duly licensed or authorised by the Insurance Regulator: (i) international maritime transport insurance; (ii) international commercial aviation insurance; (iii) international cargo and satellites insurance; and (iv) insurance for the cargo they carry.
Also, any Chilean resident (person or entity) may freely contract any kind of insurance policy with foreign insurance companies (not licensed in Chile) as long as: (a) the insurance is contracted abroad; and (b) the insurance contract is not required by law or qualifies as social security/pension insurance. A withholding tax may apply to premium payment to the foreign insurance company depending on the type of insurance contracted.
Risks located in Switzerland can be covered on a non-admitted basis to a very limited extent only. As a matter of principle, an insurance contract (i) made with a policyholder based in Switzerland or (ii) covering a risk located in Switzerland can only be written by an insurance company that holds a Swiss license. Art 1 para 2 ISO allows non-admitted insurance by companies based abroad in the following cases:
- Cover of risks in connection with shipping on the high-seas, aviation and cross- border transportation;
- Cover for risks abroad (where the policyholder is located in Switzerland);
- Cover for war risks.
It is not possible. The General Law provides that any natural or legal person engaged by its own granting insurance coverages, insurance intermediation and / or other complementary activities must have prior authorization from the SBS and must comply with the established conditions for its constitution and functioning.
Non-admitted insurers are not permitted to directly insure property situated in India or any ship or other vessel or aircraft registered in India.
However, a person resident in India is permitted to take or continue to hold a health insurance policy issued by an insurer outside India provided the aggregate remittance does not exceed the limits prescribed by the Reserve Bank of India (RBI).
Further, a person resident in India may take or continue to hold a life insurance policy issued by an Insurer outside India, provided that the policy is held under a specific or general permission of the RBI.
Non-admitted insurers who are listed with IRDAI as Cross Border Reinsurers can reinsure risks in India in accordance with the IRDAI’s regulations on the reinsurance of life and general insurance business.
In addition to the above, foreign reinsurers are now allowed to access the Indian market and are permitted to set up branch offices in India or operate through service companies set up in India under the IRDAI (Lloyd’s India) Regulations 2016 (Lloyd’s India).
Save for compulsory classes of insurance, there is no prohibition against non-admitted insurers from insuring domestic risks.
However, registered insurance brokers are not permitted to negotiate any insurance contract covering domestic risks with an unlicensed insurer without prior approval from MAS. Such approval would only be granted in respect of exceptional risks or under exceptional circumstances where it is not reasonably practicable for the risk to be placed with a licensed insurer.
Only at reinsurance level, in cases in which the risk is assigned eventual reinsurers, but limited to 10% of the total risk reinsured by the ceding insurer.
A non-admitted insurer can insure Israeli risks provided that the non-admitted insurer is not engaged in insurance business in Israel, i.e. the insurer does not perform acts of solicitation in Israel, does not negotiate the terms of insurance contract from Israel and does not issue the policy in Israel.
The relevant criterion in answering this question is the criterion of the location of the risk contained in Article 15, 36° of the Supervision Act. The location of the risk will depend on the type of insurance contract concerned. If the risk is considered to be situated in Belgium, both the insurer and the insurance intermediary must be licensed (or have passported their licence) in Belgium. As a consequence, it is not possible to insure Belgian risks on a non-admitted basis.
Insurers active on the Belgian market sometimes make use of the so-called “Financial interest clause” or FIC. Such clause is designed to avoid issues that arise related to losses suffered by a subsidiary of a parent company that does not have the local admitted coverage required by the jurisdiction in which the subsidiary is located. The FIC enables the parent company to be covered for its financial interest in its subsidiaries and affiliates’ loss, where no local policy is issued abroad.
The FIC prohibits the conclusion of a direct insurance contract in relation to a person, a property or liability located in France with an insurance company other than those authorised to conduct business in France. Hence, in order to be able to underwrite risks in France, a company must either be authorised by the ACPR or by its EEA home-country regulator. There are however certain exceptions to this principle for marine/air transportation insurance contracts and derogations may be requested from the ACPR in other cases.
Many provinces allow for an exception whereby a person who holds a valid and subsisting special broker’s licence for that class of insurance can place insurance in the province from a non-licensed insurer to obtain coverage that cannot readily be obtained from licensed insurers. Such exception is also subject to the foreign insurer not triggering the federal regulator’s criteria for “insuring in Canada a risk” which would make it subject to OSFI’s jurisdiction and the federal ICA. This test is usually triggered by the combination of two or more criteria such as the promotion of the foreign insurer’s products through local media, inciting a person in Canada to request insurance coverage, receiving in Canada a request for insurance coverage, negotiating from Canada the terms and conditions of insurance coverage, deciding in Canada to bind a foreign insurer, receiving in Canada payment from a policyholder, interacting in Canada with a policyholder, etc.