Authorisation of Insurance Companies
Authorisation of Insurance Companies
The aim of this Guide is to introduce persons concerned to the authorisation process for insurance companies conducted by the Bank of Lithuania, requirements for insurance companies being established (legal persons not yet established) or authorised (already established legal persons), set out the approach of the Bank of Lithuania to new market participants, set out a list of the documents to be submitted with an application for authorisation, and to identify other major aspects of authorisation.
An insurance company has the right to engage insurance activity, i.e. economic-commercial activity whereby the risk of other persons’ losses is assumed on the basis of an insurance contract or it is sought to protect property interests of these persons in any other way upon occurrence of insured events, by using, for the security of those interests, the insurer’s assets covering technical provisions and other assets, only holding an authorisation for insurance or reinsurance activity issued by the supervisory authority.
The approach of the Bank of Lithuania to the authorisation process for insurance companies, as well as for other institutions, is, as far as possible, an open one and normally begins well before an application for an authorisation is submitted to it. We encourage all applicants who actively seek a licence to contact us as early as possible in their planning process so that we can discuss it together and help assess their proposed operating plans. This allows us to be clearer in explaining the authorisation process and its meaning, our requests, requirements, expectations and all other major aspects that may affect the authorisation process.
The following basic stages in the authorisation process can be singled out:
- the pre-application stage: introducing the representatives of a prospective insurance company to the regulation applied in Lithuania, pre-application meetings and discussions with specialists of the Bank of Lithuania, a concise discussion of the list of submitted documents and their contents;
- submission of an application to the Supervision Service of the Bank of Lithuania (hereinafter ‘Supervision Service’): the Supervision Service, within 5 business days, reviews whether all necessary documents have been submitted and, where no formal deficiencies are identified, accepts the application for consideration;
- assessment of an application for a licence: where all required documents have been submitted and no obvious formal deficiencies have been identified, the Supervision Service reviews the application and the contents of documents. Our experience shows that submitted documents in only exceptional cases do not contain deficiencies of some sort; therefore, the Supervision Service usually submits comments to the applicant for a licence of an insurance company, asking to submit additional information or documents. In such a case, the time limit for review is extended;
- issuance of a licence or refusal to issue a licence: after finishing assessment of submitted documents, the Board of the Bank of Lithuania analyses summary information submitted by the Supervision Service and takes a decision regarding the issuance of a licence or refusal to issue it.
Within 6 months of applying for an authorisation for insurance activity and submission of all required documents, the supervisory authority takes a decision regarding the issuance of a licence of an insurance company and notifies the applicant in writing thereof.
Where the supervisory authority requires additional documents and information, the time limit is calculated from the day on which all documents and information necessary for taking a decision were received.
Where a suspicion arises that the authorised capital, organisational fund and/or minimum guarantee fund may have been paid up in cash of illegal origin, the terms are suspended and will only be applicable again upon receipt of a conclusion from the State Security Department of the Republic of Lithuania.
The Bank of Lithuania, knowing that the legal acts regulating the authorisation process may not be clear for both newcomers to the financial sector and experienced specialists, encourages applicants for a licence of an insurance company to contact the Bank of Lithuania at an early stage. The Bank will provide more detailed information about the authorisation process and the requirements for prospective (existing) insurance companies.
The representatives of firms who participated in pre-application meetings with representatives of the Bank of Lithuania more than once emphasised the benefits of such meetings, as they helped get the answers to the questions that arose. The number of pre-application meetings is subject to the applicant’s experience and knowledge. The attendees to such meetings typically include at least two specialists from the Bank of Lithuania; however, more specialists may be required to attend as well.
During the pre-application meeting, the Bank of Lithuania aims at discussing the following:
- Who the applicant is and what kind of entity it will be?
- Who are (will be) the shareholders, holders of voting rights and investors of the prospective management company and what is their country of origin?
- How advanced or developed is the applicant’s proposition? In some cases it may be too early to have a meeting.
- Is the applicant part of a larger group?
- Who will be responsible for running the business?
- Summary of the applicant’s operating plan.
- Details of the products/services, target markets, delivery channels, pricing policy, and the corresponding regulated activities that will be applied for.
- Funding sources of the insurance company;
- Anticipated staffing levels.
- Key outsourcing arrangements.
It is our view that the process works well if the above information is provided to us in the form of a presentation ahead of the first meeting. We therefore urge prospective applicants to answer all the above questions before the anticipated meeting to be able to talk in detail in this regard and also to be prepared to be challenged on any aspects of their plans.
Insurance company licence fee
Prior to applying for a licence of an insurance company it is necessary to pay into the account of the State Tax Inspectorate (STI) a state levy for the granting of the licence, which currently is EUR 2,904 (the sizes of levies were established by Resolution No 1458 of the Government of the Republic of Lithuania of 15 December 20001).
The procedure for the generation of orders to the income collection accounts of the STI via online banking and the numbers of the income collection accounts are available on the STI website. The documentary proof to the payment of the levy must be submitted to the Supervision Service together with an application for a licence of an insurance company.
1 – Available only in Lithuanian.
Key requirements for an insurance company being established or authorised
Taking into account that, at the time of authorisation, the insurance company being established or authorised must be prepared to comply with all requirements set for it, as an insurance company in operation, the Bank of Lithuania requests that detailed data is submitted already at the time of application. Nevertheless, when assessing the critical aspects that may determine authorisation, the following basic elements can be singled out:
- fitness of submitted documents: the documents submitted must comply with the requirements of legal acts regulating the activities of insurance company and their supervision; all correct data established in legal acts or requested additionally must be submitted;
- the authorised capital of an insurance company shall not be less than EUR 1,000,000, while the shares of an insurance company shall only be registered and paid up in cash, and shall not be paid up with borrowed funds of funds of illegal origin;
- the founders of an insurance company must be of good repute;
- fitness and propriety of heads of an insurance company: the heads of an insurance company must be of good repute and possess the qualification and experience necessary to properly perform their duties.
- the business plan must correspond to the possibilities of the founders (shareholders or holders of voting rights) of the insurance company to implement it, while the prospective insurance company must, at the time of authorisation, be prepared to provide insurance services in a safe and sound manner.
An insurance company must comply with the requirements established by the Republic of Law on Insurance and subordinate legislation.
Assessment of submitted documents
Prior to submission of documents to the Supervision Service, we recommend that you should perform a self-control test, which will help determine whether all necessary documents have been prepared.
The process usually involves verification and assessment by a number of specialists from the Supervision Service and other structural units of the Bank of Lithuania to assist in the formation of a common opinion and in reaching a decision about the application. During the assessment period, the following processes are also carried out:
- regular communication and meetings with representatives of the applicant firm (when required);
- submission of comments by the Supervision Service, according to which the insurance company must eliminate identified deficiencies; Upon request of additional information or data, the decision must be taken within 6 months of the receipt of the additional documents and data.
All applicants for a licence of an insurance company have direct access to Bank of Lithuania specialists, who are experts in assessing submitted documents. We are on hand to take applicants through the authorisation process, inform about the progress of the process, and aim to ensure a cooperation-based relationship between the Bank of Lithuania and financial market participants during both the authorisation process and after it.
Documents and information to be submitted to the Bank of Lithuania
According to Article 15 of the Law on Insurance, an application for a licence of an insurance company must be accompanied by the following:
- the company’s articles of association, the deed of incorporation;
- business plan of the insurance or reinsurance corporation of a contents and form set forth by the supervisory authority;
- documentary proof that the firm’s fit basic own funds to cover the minimum capital requirement are not below the absolute lower threshold established in Article 40(4) of the Law. The funds of the organisational fund are excluded from calculation of minimum capital. Applicants must submit documentary proof to the formation of minimum capital in cash and the sources of receipt of this cash;
- documentary proof that the firm will further hold fit own funds to cover the solvency capital requirement (financial documents, bank statements, contracts, etc.);
- documentary proof that the firm will further hold fit basic own funds to cover the minimum capital requirement (financial documents, bank statements, contracts, etc.);
- documentary proof that the firm will be able to comply with the requirements for the management system laid down in section 2 of this Chapter and in other legal acts (descriptions of procedure, policy and strategy descriptions, etc.);
- information in the form set by the supervisory authority about the persons in control of the insurance or reinsurance corporation, companies participating in the firm, other persons and the holders of adequate blocks of shares. In addition, firms must submit, in the form established by the supervisory authority, information on the members of the supervisory and management bodies of controlling legal persons and participating firms;
- information, in the form established by the supervisory authority, on the Chairman and other members of the Supervisory Board, Chairman of the Board and other members of the Board of the insurance or reinsurance corporation;
- documentary proof to the accumulation of the organisational fund of the insurance or reinsurance corporation in cash, the use of the organisational funds and its balance;
- documentary proof to the payment up of the shares of the insurance or reinsurance corporation being established in cash;
- information on the origin of the funds of the organisational fund and of the funds used to pay up the shares of the insurance or reinsurance corporation being established or to form the authorised capital of the insurance or reinsurance corporation;
- contracts for services concluded in the name of the insurance or reinsurance corporation whereby it was outsourced to a basic or important function or activity;
- where the insurance company intends to engage in the activity set forth in Article 7(3)(10) of the Law on Insurance (other than carrier third party liability insurance) – documentary proof that the insurance company has appointed a representative in each other European Economic Area country to address claims (specifying the full name or the title and address of the representative).
Where the founder of an insurance or reinsurance corporation is a legal person, the following must be submitted in addition:
- copy of the founder’s-legal person’s registration certificate or another equivalent document;
- audited financial statements of the founder-legal person for the last financial year together with the auditor’s report. This provision does not apply where the founder is not a firm in control of the insurance company being established or participating in it.
Where a legal person or legal persons are being reorganised into a new legal entity – insurance company, or where a public limited liability company, private limited liability company or a European company (Societas Europaea) are changing their previous activity into insurance or reinsurance activity, it is not required to submit the documents set forth in Article 15(2)(10) of the Law on Insurance, but the following must be submitted additionally:
- a description of the terms of reorganisation, the decision to reorganise the legal person or change the type of its activity;
- a copy of each legal person’s registration certificate or another equivalent document, description of the previous activity, audited financial statements for the last financial year together with the auditor’s report;
- information in the form set by the supervisory authority about the persons in control of the insurance or reinsurance corporation, companies participating in the firm, other persons and the holders of adequate blocks of shares;
- documentary proof that the money of the insurance or reinsurance corporation is not below the organisational fund and the authorised capital set out in this Law, as well as data on the origin of this money;
- data on the payment by each legal person of taxes and of the repayment of debts to creditors.
Where a third country insurance or reinsurance corporation is the founder of a subsidiary insurance or reinsurance corporation, it must additionally submit:
- the authorisation for insurance or reinsurance activity granted by the third country supervisory authority or an equivalent document;
- the permit of the third country supervisory authority to establish the insurance or reinsurance corporation in the Republic of Lithuania or information that the third country supervisory authority does not object to the establishment of a subsidiary insurance or reinsurance company in the Republic of Lithuania.
Laws and legal acts regulating the activities and authorisation of insurance companies
- Republic of Lithuania Law on Insurance2;
- Republic of Lithuania Law on Companies3;
- Law of the Republic of Lithuania on the Prevention of Money Laundering and Terrorist Financing4;
- Resolution No N-31 of the Insurance Supervisory Commission of 16 March 2004 on Adoption of the Procedure for the Keeping of the List of Tied Insurance Intermediaries;
- Resolution No N-33 of the Insurance Supervisory Commission of the Republic of Lithuania of 23 March 2004 on the Adoption of the Classification of Life Assurance and Non-Life Insurance Businesses;
- Resolution No 58 of the Board of the Bank of Lithuania of 6 May 2004 on the approval of the General Regulations on the Submission and Examination of the Applications for Authorisations of the Financial Market Participants Supervised by the Bank of Lithuania and on the Granting of the Authorisations (62 KB );
- Resolution No 03-259 of the Board of the Bank of Lithuania of 13 December 2012 on the Rules of Issuance of the Insurance and Reinsurance Business License, the Rules of Issuance of the Business License of a Foreign Country Insurance or Reinsurance Undertaking Branch, and the Confirmation of the Form of Liabilities to Provide Information;
- Resolution No 03-181 of the Board of the Bank of Lithuania of 14 November 2013 on approval of the Guidelines on the Assessment of Members of the Management Body and Key Function Holders of the Financial Market Participants Supervised by the Bank of Lithuania (93.4 KB );
- Resolution No N-8 of the Insurance Supervision Commission of the Republic of Lithuania of 29 January 2008 on the Approval of the Description of Procedure for the Calculation of Votes Held by Persons that Directly or Indirectly Control Shares of an Insurance Company or a Reinsurance Company;
- other legal acts.
2 – Lithuanian consolidated version valid as of 1 March 2017. English version last amended on 1 January 2016.
3 – Lithuanian consolidated version valid as of 1 November 2016. English version last amended on 14 October 2014.
4 – Lithuanian consolidated version valid as of 1 December 2016. English version last amended on 17 January 2008.