Is it possible to insure risks without a licence or authorisation? (i.e. on a non-admitted basis)?
Insurance & Reinsurance
For the following insurance contracts, foreign insurers may conclude insurance contracts without obtaining the applicable license:
- Reinsurance contracts;
- Marine insurance contracts pertaining to objects such as vessels with Japanese nationality used for international maritime transportation;
- Aviation insurance contracts pertaining to aircrafts with Japanese nationality used for commercial aviation;
- Insurance contract pertaining to launching into outer space;
- Certain insurance contracts covering cargo located within Japan which is in process of being shipped overseas; and
- Overseas travel insurance.
All insurers are required to be authorised to carry on business in Australia. This prohibition applies to both insurers and reinsurers. The IA extends this prohibition to any non-admitted insurer which engages an Australian broker or agent to sell policies. In those circumstances a deeming provision will apply which will treat the non-admitted insurer as being taken to carry on an Australian insurance business, requiring APRA authorisation. Only Lloyd's underwriters are permitted to insure risks without obtaining an APRA authorisation, as they are covered by a specific exemption.
There are also some specific exemptions which apply to specific risks. For example, there is an exemption where the policyholder is a high value insured with annual revenue over AUD 200 million or where the insured risk is an atypical risk. An exemption also applies where a broker certifies that the risk cannot reasonably be placed in Australia and where insurance is required by the laws of a foreign country. A foreign insurer will not require APRA authorisation if an Australian customer has approached it directly.
Yes, non-licensed foreign insurers may lawfully cover risks in Denmark, but importantly they are not allowed to market their products in Denmark, and intermediaries are prevented from facilitating the writing of insurances offered by non-licensed foreign insurers.
As a rule, insurance activity is regulated and requires a special licence. In order to insure risks in Poland a company must be either a Polish insurance company which holds a licence issued by the KNF or an EU-based insurance company holding a relevant licence issued by its home state regulator, which is subsequently passported into Poland.
Non-EU insurers must undergo a special licensing procedure in Poland and may provide insurance services in Poland in the form of so-called main branches. The requirements are similar to those imposed on domestic insurance companies.
According to Article 15 of the IA, interests of Turkish residents can only be insured by companies who are licensed to write coverage in Turkey with limited exceptions such as cargo insurance for the goods to be imported or exported, hull insurance for aircrafts, ships or helicopters that are financed by foreign institutions, protection and indemnity covers for ships, life and travel insurances.
Prior to the introduction of Solvency II, (re)insurance 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 (re)insurers 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 (re)insurers 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. However, simply insuring/reinsuring a policyholder/risk located in the UK does not itself amount to carrying out (re)insurance business in the UK unless activities are also carried on in the UK which amount to the effecting or carrying out of a contract of (re)insurance. Therefore, it is possible for overseas firms to structure their business such that, for the purposes of FSMA, they are not deemed to be carrying on (re)insurance business "in the UK". However, it should be noted that there is a significant amount of case law and regulatory guidance on the question of whether the business of an offshore (re)insurer is deemed to be carried on "in the UK" and the position is ultimately one to be determined on the basis of all the relevant facts and circumstances.
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.
In order to carry on insurance business, an undertaking has to be authorised by BaFin unless it is headquartered in another member state of the EU/EEA. Any authorisation to carry on business obtained in an EU or EEA member state is valid in all other EU and EEA member states (European Passport or Single Licence Principle). Prior to conducting business, an insurer from an EU or EEA member state must notify BaFin of its intention to conduct business.
Third-country insurers wishing to carry on primary insurance business or reinsurance business in Germany are generally subject to authorisation and must establish a German branch office. However, there is an exception with regard to reinsurance business provided in Section 67 para. 1 VAG. According to this exception, the requirement for authorisation and the establishment of a branch office does not apply if primary insurers or reinsurers from third countries carry on reinsurance business in Germany solely through provision of cross-border services and if the European Commission has decided in accordance with Article 172 para. 2 or 4 of Directive 2009/138/EC that the solvency regimes for reinsurance activities carried out by undertakings in the relevant country are equivalent to the regime in that Directive. This currently applies to Bermuda, Switzerland and Japan.
According to BaFin's interpretative decision of 31 August 2016, the authorisation requirement does not apply to insurance by correspondence. Insurance by correspondence applies to reinsurance businesses if, at the instigation of an insurance undertaking situated in Germany, a reinsurance contract is concluded by correspondence with an insurer situated abroad without one of the parties being assisted by a professional intermediary in Germany or by a professional intermediary situated abroad but acting as intermediary in Germany. The initiative to conclude the reinsurance contract must come from the German insurer.
Further, in October 2017, the EU and the USA signed an agreement allowing US reinsurers and EU (re)insurers to conclude a contract without the US reinsurers being required to establish a branch in the respective EU Member State. US reinsurers must fulfil certain capital and local risk-based capital requirements and have to submit certain declarations to the supervisory authority responsible for the EU insurance undertaking.
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 an exception to the general rule, non-licensed insurance companies may offer or provide coverage in Mexico in those cases where the risk covered under the insurance policy may not occur in Mexico or if there is no Mexican insurance company that offers the corresponding insurance product. These exceptions require and are subject to the prior authorization of the CNSF.
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).
Insurers that are not licensed or admitted in a state may cover insureds in that state in one of two ways: (1) the insured purchases a policy out-of-state, with no part of the transaction taking place in the state, e.g., solicitation of the policy, correspondence, and issuance and delivery of the policy; or (2) a non-admitted insurer writes a policy on an excess and surplus lines basis to policyholders that have unique risk profiles or poor loss history and cannot obtain standard coverage from insurers admitted in their state of domicile. While excess and surplus lines insurers are not licensed in the state where they sell their policies, they are allowed to write risks in that state through a broker after the risk is declined by admitted insurers.
A number of states restrict the sale of personal lines business on an excess and surplus lines basis; e.g., individuals in the State of Texas cannot obtain personal automobile insurance from the excess and surplus lines market.
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 , in principle, valid for conducting insurance business within the EU/EEA. However, where such undertakings want to write business in Austria, they have to notify the FMA of the intended establishment of a branch or of the intended commencement of cross-border services (cf. Article 21 and Article 23 VAG, respectively).
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).
The only risks that can be insured by insurers that do not have a license or authorization in Chile are the so-called MAT insurances, i.e., international marine transportation, International commercial aviation, cargo in international transit, and satellites and their cargo. These kinds of insurances may be commercialized in Chile by foreign insurance companies and intermediaries.
MAT is the exception to the general and mandatory rule that foreign insurers and brokers cannot offer or intermediate insurance in Chile.
Nonetheless, Chilean citizens or residents may buy insurance abroad, and approach foreign insurers or brokers for such a purpose. In such cases, foreign insurers may inspect the risks in Chile, participate in the loss adjustment process (if any), pay insurance indemnities, and collect premiums.
The premium to be paid to foreign insurance companies if insurance is bought out of Chile is subject to a 22% withholding tax. This tax would not be applicable in respect of the states that currently have a Tax Treaty Convention in force with Chile.
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).
In this regard, 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. Similarly, a person resident in India may take or continue to hold a general insurance policy issued by an insurer outside India, provided that the policy is held under a specific or general permission of the Central Government.
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 and subject to compliance with the order of preference for cessions. Further, the IRDAI has recently issued “Draft Insurance Regulatory Authority of India (Reinsurance) Regulations 2018” (Reinsurance Exposure Draft) that will apply to both life insurers and general insurers and proposes to revise the norms to be followed for reinsurance placements, and also proposes a revised order of preference of cessions for reinsurance placements by Indian insurers.
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 this context, it is important to mention the recent evolution of reinsurance in Brazil. A radical legislative reform in 2007 removed the former state monopoly over insurance and established a system of competition. In recent years, the legislator has adopted successive measures favourable to the opening of the reinsurance market to foreign capital. CNSP Resolution 325/15 established a timeline for the preferential offer of assignment of reinsurance to local reinsurers (market reserve), for each automatic or optional reinsurance contract, according to the following percentages: (a) 40% until 31 December 2016; (b) 30% as of 1 January 2017; (c) 25% as of 1 January 2018; (d) 20%, as of 1 January 2019; and (e) 15% as of 1 January 2020. In turn, SUSEP Circular 545/17 mitigated the right of preference of local reinsurers vis-à-vis international reinsurers for the purpose of accepting an automatic or optional reinsurance contract.
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 French Insurance Code prohibits non-authorized insurers from insuring risks situated in France.
There are, however, some exceptions, regarding for instance :
- insurance and reinsurance companies whose registered office is in an EEA state (provided they are licensed in their home jurisdiction), or
- inward reinsurance transactions which are carried out on the margin of an insurer’s direct insurance activity.
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.
In principle, insurance and reinsurance undertakings may not pursue insurance businesses in Portugal unless they have been duly licensed by ASF, except if the undertakings are headquartered in an EU member state and have been licensed by their home country competent authority.
However, please note that under articles 245 to 247 of PIRL there might be an exemption from authorisation requirements for reinsurers from third countries that carry on reinsurance business in Portugal without a branch, provided that the European Commission has decided that the solvency regime in that relevant country is at least equivalent to the regime described in the Solvency II Directive.
No, in Italy it is not possible to insure risks without a license or authorization. Foreign insurers which are not based or do not have a General Representative in an EU Member State are forbidden from underwriting risks directly on the basis of the freedom of services principle, but they can still underwrite reinsurance risks without limitation if they have applied and obtained the IVASS’s authorization.