Prudential requirements and ratios
The Bank of Lithuania sets prudential requirements for insurance business.
Prudential requirements applicable to insurance undertakings
An insurance undertaking must form sufficient technical provisions to discharge all of its liabilities under insurance contracts.
An insurance undertaking must also meet capital requirements.
The solvency capital requirement is calculated considering both current activity and planned activity for the next 12 months, as well as the overall risk of an insurance undertaking (insurance risk, market risk, credit risk, operational risk). The solvency capital requirement shows how much capital an insurance undertaking has to hold to ensure that it will be able to cover unexpected losses and meet its liabilities to insurance policy holders within the next 12 months with a 99.5 per cent probability of default. An insurance undertaking must calculate the solvency capital requirement at least on an annual basis, it also has to monitor and ensure coverage of the solvency capital requirement with eligible own funds on a permanent basis.
The minimum capital requirement is the minimum amount of capital needed for taking up and pursuit of insurance business. The minimum capital requirement cannot be below 25 per cent or above 45 per cent of insurance or reinsurance undertaking’s solvency capital requirement; however, it cannot be less than:
- EUR 2,500,000 – for an insurance undertaking engaged in non-life insurance activities;
- EUR 3,700,000 – for an insurance undertaking engaged in life assurance activities;
- EUR 3,700,000 – for an insurance undertaking engaged in insurance activities of at least one insurance class specified in paragraphs 10–15 of Article 7(3) of the Law on Insurance;
- EUR 3,600,000 – for a reinsurance undertaking.
An insurance or reinsurance undertaking must invest all assets in line with the prudent person principle. An insurance or reinsurance undertaking has to invest all of its assets, particularly those covering the minimum capital and solvency capital requirements, ensuring the security, quality, liquidity, profitability and availability of the entire investment portfolio. An insurance undertaking must invest assets covering technical provisions in a manner appropriate to the nature and duration of insurance and reinsurance liabilities.
Prudential requirements applicable to insurance intermediary undertakings
Activity of insurance intermediary undertakings is regulated by the Republic of Lithuania Law on Insurance.
Capital requirements for insurance broker undertakings:
- Authorised capital must not be below EUR 18,750.
- Equity capital must not be below 4 per cent of an insurance broker company’s insurance premiums received over a financial year and payable to insurers, but not below EUR 18,750.
Requirements for the activities of insurance broker undertakings:
- An insurance broker company must open a separate bank account where only the funds of insurance policy holders, insured persons, beneficiaries and injured third persons, as well as funds of insurers to be paid out to these persons are to be transferred.
- They must have professional indemnity insurance not below EUR 1,250,000 for one insured event and EUR 1,850,000 for all insured events during the year.