Authorisation of Reinsurance Companies
Authorisation of Reinsurance Companies
The aim of this Guide is to introduce persons concerned to the authorisation process for reinsurance companies conducted by the Bank of Lithuania, requirements for reinsurance companies being established (legal persons not yet established) or being 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.
A reinsurance company has the right to engage in reinsurance activity, i.e. economic and commercial activity whereby it assumes the risk of the insurer or reinsurer. Reinsurance activity is also an activity where an insurance or reinsurance company other than Lloyd’s association of insurers assumes the risk of any member of Lloyd’s. In the Republic of Lithuania, the right to engage in reinsurance activity can be exercised by reinsurance company established according to the procedure set by the laws of the Republic of Lithuania: public limited liability companies, private limited liability companies or European companies (Societas Europaea), after being granted a licence to engage in reinsurance activity.
The approach of the Bank of Lithuania to the authorisation process for reinsurance 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 reinsurance company licence to contact the Bank of Lithuania as early as possible in their planning process so that we can discuss it together and help assess their proposed business 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 reinsurance 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 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 reinsurance company licence, 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 a reinsurance business licence and submission of all required documents, the supervisory authority takes a decision regarding the issuance of such licence 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 always be clear for both newcomers to the financial sector and experienced specialists, encourages applicants for a licence of a reinsurance Comapny 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) reinsurance comapnies.
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 reinsurance 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 reinsurance 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.
Reinsurance company licence fee
Prior to applying for a licence of a reinsurance 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 2904 (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 a reinsurance company.
1 – Available only in Lithuanian.
Key requirements for a reinsurance company being established or authorised
Taking into account that, at the time of authorisation, the reinsurance company being established or authorised must be prepared to comply with all requirements set for it, as a reinsurance 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 the legal acts regulating reinsurance company activities and their supervision; all correct data established in legal acts or requested additionally must be submitted;
- the authorised capital of a reinsurance company shall not be less than EUR 1,000,000, while the shares of a reinsurance 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 a reinsurance company must be of good repute;
- fitness and propriety of heads of a reinsurance company: the heads of a reinsurance 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 reinsurance company to implement it, while the prospective reinsurance company must, at the time of authorisation, be prepared to provide reinsurance services in a safe and sound manner.
A reinsurance 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 firm must eliminate identified material 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 a reinsurance 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 a reinsurance company must be accompanied by the following:
- the company’s articles of association, the deed of incorporation;
- business plan of an insurance or reinsurance company 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 (rules 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 company, undertakings 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 company;
- documentary proof to the accumulation of the organisational fund of the insurance or reinsurance company 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 company 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 company being established or to form the authorised capital of the insurance or reinsurance company;
- contracts for services concluded in the name of the insurance or reinsurance company whereby it was outsourced to a basic or important function or activity;
- if the insurance undertaking 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 undertaking 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 company 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 undertaking being established or participating in it.
- Where a legal person or legal persons are being reorganised into a new legal entity – insurance undertaking, 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 company, undertakings participating in the firm, other persons and the holders of adequate blocks of shares.
- documentary proof that the money of the insurance or reinsurance company 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 company is the founder of a subsidiary insurance or reinsurance company, 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 company 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 undertaking in the Republic of Lithuania.
Laws and legal acts regulating the activities and authorisation of reinsurance companies
- Republic of Lithuania Law on Insurance2;
- Republic of Lithuania Law on Financial Institutions3;
- Republic of Lithuania Law on Companies4;
- Resolution No 1458 of the Government of the Republic of Lithuania of 15 December 20005;
- 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;
- Law of the Republic of Lithuania on the Prevention of Money Laundering and Terrorist Financing6;
- 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 )7.
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 March–30 June 2017. English version last amended on 12 March 2015.
4 – Lithuanian consolidated version valid as of 1 November 2016. English version last amended on 14 October 2014.
5 – Available only in Lithuanian.