23-04-2013

Insurance & Reinsurance

Authors

  • Naim Isufi, MBA, LLM, ACII
    Managing Partner at ISUFI International & Associates Law Firm

Introduction

Insurance activity is exercised by an insurance company with headquarters in the territory of Republic of Albania, licensed by Financial Supervision Authority and/or by a branch of a foreign insurance company licensed by Financial Supervision Authority.

Insurance company means a legal person with headquarters in Republic of Albania, licensed by Financial Supervision Authority to exercise insurance activity based on Law No. 9267, date 29/07/2004 “On Activity of Insurance, Reinsurance and Brokerage in Insurance and Reinsurance”issued pursuant to Articles 78 and 83, item 1 of the Constitution of Republic of Albania and they are organized according to the Law “On Commercial Companies”.

Restriction of insurance company scope -Insurance company or branch of a foreign company limit the activity scope only to activities of insurance, reinsurance and operations arising directly from these activities, excluding any other commercial activity. Insurance activity is exercised in accordance with the article No. 7 of the law No. 9267, date 29/07/2004 “On Activity of Insurance, Reinsurance and Brokerage in Insurance and Reinsurance”. Insurance company which exercises non-life insurance can not exercise life insurance activity at the same time.

I. Incorporation of an insurance company, Legal form, Capital and Legal Reserve

  • Legal Form

Insurance company is incorporated as a public limited company, headquartered in Republic of Albania, in accordance with provisions stipulated in the Law “On Commercial Companies”.

  • The right to participate as a shareholder in an insurance company

Shareholder of an insurance company is a natural or legal person that meets the requirements of Law No. 9267, date 29/07/2004 “On Insurance, Reinsurance and Brokerage in Insurance and Reinsurance”and requirements set by the Financial Supervision Authority.

  • Insurance company capital

Insurance company capital consists of constitutive capital and additional capital. In any case, Capital is required to be not less than 3 million Euro (Guarantee Fund). This limit increases depending on insurance classes as defined in Article 7 and 98 of Law No. 9267, date 29/07/2004. Guarantee Fund by classes is given in more details below.

Constitutive Capital

Insurance company should have a constitutive capital, not including contributions in kind, not less than specified values of guarantee fund, which are as follows:

1. Guarantee fund of insurance company is equal to 1/3 of required solvency level.

2. Guarantee fund of an insurance company, within the non-life insurance classes, can not be lower than the following minimal limits:

a) 100 million ALL if company exercises the activity in classes 10, 11, 12, 13 and 15, according to the above classification.

b) 70 million ALL if company exercises the activity in classes 1, 2, 3, 4, 5, 6, 7, 8.16 and l8, according to the above classification;

c) 50 million ALL if company exercises the activity in classes 9 and 17, according to the above classification;

d) 350 million ALL if company covers all or some of the risks of class 14 defined above, if total annual premiums for this class exceeds 35 million ALL or 4 percent of total annual premiums of insurance company;

d) 200 million ALL if company covers all or some of the risks of class 14, provided for above, if total annual premiums for this class, for each of the last three recent years of activity, does not exceed 35 million or 4 percent of total annual premiums of insurance company.

3. In any case, the guarantee fund of a reinsurance company can not be less than 180 million ALL.

4. The minimal limit of company guarantee fund covering the risks of some classes of non­life insurance, must be equal to the value of minimal limit of guarantee fund of insurance class, for which the highest limit is provided for.

5. Guarantee fund is deposited in a special bank account with the same name, in one of the banks in the territory of Republic of Albania, where the company has its headquarters.

6. Guarantee Fund is invested only within the banking system: treasury bonds and deposits with maturity time of not less than 1 year.

7. Administration and cases of intervention in insurance company guaranty fund are provided for by a Decree of Council of Ministers.

The following elements are included in calculation of constitutive capital of an insurance company:

a) paid stock capital;

b) security reserve, which does not belong directly to insurance contracts in force or those which have been in force;

c) insurance company provisions (statutory and specified in the statute) which do not belong directly to insurance contracts in force or those which have been in force;

d) undistributed profits inherited from previous years;

d) undistributed profit belonging to exercise year, after deducting taxes, other contributions and paid dividends, after profit amount is verified by chartered accountant of insurance company.

f) exercise year losses and inherited losses and arrears.

Additional capital

In addition to constitutive capital, insurance company must have additional fund to cover costs of constitution and administration, which in any case should not be less than 5 percent of constitutive capital.

II. Organization of insurance companies

  • Licensing of insurance company

In order to exercise insurance activity, Authority should license the company and branch of foreign company. The license is not limited in time, it is not transferable and it is not purchasable. License is issued for an insurance class and it covers the entire class, unless the company wants to cover only part of the risks pertaining to the insurance class under provisions of letter “A”, mentioned in the Introductory section of this material. License is also issued according to the classification provided for in letter “B”.

Licensing phases

Licensing of insurance activity involves two phases:

a) preliminary approval;

b) license.

The right to start exercise of insurance activity arises only after insurance company and branch of foreign insurance company are provided with a license by the Authority

Licensing requirements for “activity exercise”

Insurance company submits to the Authority a written request to exercise insurance activity, which is associated with:

a) incorporation act;

b) draft statute;

c) proposed name and address of its headquarters;

d) list of shareholders, information on type of shares, data on nominal value of shares, percentage of participation in stock capital and confirmation from relevant authorities for payment of tax liabilities by shareholders;

d) information on the source of capital of shareholders in the form specified by Authority in its regulations;

f) activity program, drafted in accordance with Article 24;

e) list of proposed members of governing bodies, accompanied by relevant information, in accordance with requirements of Chapter IV of this Law;

h) organizational structure in the center and branches along with the list of persons proposed for key managers in the center;

f) certificate of deposit of half of constitutive capital provided for in Article 17 of this Law;

g) draft contracts for assignment in undertaking of specific functions of insurance activities to third parties, if company has planned such enterprises;

k) names of banks with which it will operate.

Authority has the right to request additional information, besides the above, failure to give it comprises a reason for refusing preliminary license approval.

  • Insurance company bodies

Governing bodies of insurance company are:

a) assembly of shareholders;

b) supervisory board;

c) directorate.

The law provides that people who will work in the governing bodies of the insurance company should meet certain legal and professional criteria. Regarding General Assembly of the shareholders, the shareholders should meet reliability and legal criteria, Supervisory Board Members should be professionally capable and reputable persons, the Directorate is required to consist of some basic functions, which are Board of Directors, Internal Audit Committee, Actuary, Lawyer, accountant, person responsible for treatment and evaluation of claims arising from insurance contracts, etc.

Authorized actuary - insurance company or branch of a foreign company is required to appoint an authorized actuary and to notify the Authority for it. If insurance company does not appoint an authorized actuary within 3 months from the date the position remains vacant or if it appoints an unauthorized person, authorized actuary appointment is made by Authority. Criteria and conditions for granting and withdrawal of actuary authorization and duties are stipulated in Regulation No. 67, date 27/07/2009 “On licensing of authorized actuaries of insurance companies”, as amended by Board Decision No. 76, date 29/06/2011, approved by Board of Financial Supervision Authority.

Internal Control Committee - is an organizational unit of insurance company. This unit operates separately from other units of organizational structure of insurance company; it is under the supervisory board and reports to it.

Accountant expert -Insurance company or branch of a foreign company appoints as auditors only authorized legal persons approved by Authority. Chartered accountant of an insurance company or branch of a foreign company is a a chartered accountants company.

Criteria and procedures for companies of chartered accounting experts, to be appointed by insurance companies are stipulated in Regulation No. 7, date 08.02.2007 “On chartered Accounting Experts”, amended by Board decision No. 81, date 30.08.2010, amended by Board decision No. 98, date 28.07.2011, approved by FSA Board.

III. Functioning of insurance market

Insurance market and insurance company activity is exercised in accordance with:

  • Law No. 9267, date 29/07/2004 “On Insurance, Reinsurance and Brokerage in Insurance and Reinsurance”, as amended by Law No. 9685, date 26/02/2007 “On some amendments to Law No. 9267, date 29/07/2004 “On Insurance Reinsurance and Brokerage in Insurance and Reinsurance”;
  • Law No. 10076, date 12/02/2012 “On Compulsory Insurance in Transport Sector” as amended by Law No. 10455, date 21/07/2011 “On Some Amendments to Law No. 10076, date 12/02/2009 “On Compulsory Insurance in Transport Sector”;
  • Civil Code of Republic of Albania, Chapter XXIII INSURANCE.
  • Regulations approved by Financial Supervision Authority.

Insurance and Reinsurance Brokers

Insurance brokerage activity is exercised by agents or companies of agents and brokerage companies. Agent and broker should be provided with a license issued by the AMF in order to exercise the brokerage activity. While both activities, that of the broker and the agent are incompatible with each other, so they cannot be exercised by the same entity.

  • Agent and company of agents

Agent is a natural person licensed by the Authority, acting on behalf of the insurance company or branch of a foreign company.

Company of agents is constituted as a public limited company with the seat in Republic of Albania, licensed by Authority to exercise insurance brokerage activities.

Agent or licensed company of agents exercises activities on behalf of an insurance company or branch of a foreign company, unless the contract between the agent or the company of agents and insurance company or branch of a foreign company provides otherwise. More specifically the term agent means a person who acts on behalf of another, in other words also ordering party. Under Article 950 of Civil Code, with the agency contract, one party undertakes continuously and with remuneration, to enter into contracts in a given area, on behalf of the other party, qui facit per alium, facit per se (one that does something by means of another, does it for himself ). Agent to some extent is an autonomous collaborator of an insurance company, which means that the agent performs professionally and with his risk a supporting activity of commercial character, such as the insurance activity is.

Insurance agent activity can be exercised by other entities that carry out activities in the field of services, provided they employ agents licensed by Authority.

Agents are divided into two main groups in independent agents who serve on the basis of commission obtained by contract for one or more insurance companies and dependent agents who sell insurance on behalf of and for the account of one insurance company and not as independent agents which represent some of them. DCM No. 79, date 28.01.2008, “On provision of criteria and procedures for the licensing of insurance brokers and regulations for supervision of their activity, and cases of license refusal”

Agency contract

Agency contract is regulated by Chapter XIII of Civil Code, by Chapter V of Law No. 9267, date 29.07.2004, “On insurance activity, reinsurance and brokerage in insurance and reinsurance “ and other bylaws. Agent should follow the directives of the client (insurance company), which has the right to control the work and activity.

  • AMF removes the Official Authorization for the Agent for the exercise of insurance activity when it violates the law.

Sub-agency is an agency contract with which the insurance agent commissions another entity (sub-agent) to execute the order, that is, the sale of insurance policies against a commission payment. Usually, sub-agent has no relations with the insurance company. The agent itself is responsible before the insurance company.

  • Broker and Brokerage Company

Broker is a natural person authorized by Authority, which exercises brokerage in insurance and reinsurance on behalf of brokerage company.

Brokerage company is constituted as a public limited company with headquarters in Republic of Albania, licensed by Authority to conduct insurance and reinsurance brokerage activities with minimal capital 5 million ALL. Licensed brokerage company exercises brokerage in insurance and reinsurance on behalf of and for the account of the insured.

Banks may exercise insurance brokerage company activities, with a prior approval of Bank of Albania and licensed by Authority.

Function of broker in insurance company: Broker is the entity which performs professionally the activity that consists in signing an insurance agreement between an insurance or reinsurance company and an entity by assisting in determining the contract content and cooperating in managing and executing it. Even in brokerage company, broker functions are exercised on behalf of brokerage company by natural persons, partners or shareholders which are brokers authorized by Authority.

Brokerage company is paid with commission by insurance company under insurance contracts sold for its account, unless the agreement entered into between the broker and the insured stipulates otherwise.

Authority licenses brokers if they meet the reliability and professional capacity criteria. These criteria, procedures and terms of license validity, cases of its refusal, and rules for supervision of brokers are provided for by a Decree of Council of Ministers. License for exercise of brokerage is not transferable and not purchasable. It is issued for a fixed time term, excluding brokerage companies.

DCM No. 79, date 28.01.2008, “On provision of criteria and procedures for the licensing of insurance brokers and regulations for supervision of their activity, and cases of license refusal” and Regulation No. 165, date 23.12.2008 “On Licensing of Brokerage/Advisory Companies, of Broker and Investments Adviser”, approved by FSA Board provide for licensing of brokerage companies.

Private pensions market

Introduction

“Voluntary pension fund” is a group of assets owned by members of a pension fund or in other words it is a financial institution that deals with the collection of contributions from entities and individuals, their management, by investing and returning them to members in the form of a pension.

“Company managing the voluntary pension fund” is a joint stock company, constituted in accordance with law on commercial companies and licensed by Authority to manage one or several pension funds.

Voluntary pension fund is established and functions pursuant to Law No. 10197, date 10.12.2009 “ON VOLUNTARY PENSION FUNDS” issued pursuant to Articles 78 and 83, item 1 of the Constitution, at the proposal of Council of Ministers.

Legal form of pension fund

Pension Fund is a group of assets, established under a contract and without legal personality, consisting of contributions and their investment, after deducting all fees. Pension fund is owned jointly by several persons, with separate ownership and where property parts are represented by quotas in the pension fund. Each quota represents ownership of proportional share of assets in the pension fund.

Pension fund management

Pension fund management is exercised by management company on the basis of the contract signed with the members of the fund and aims to increase assets of the latter. Pension fund investment is made in accordance with provisions of pension fund contract. When pension fund assets are related to such rights and obligations as the right to vote, management company represents the rights and obligations arising from these assets before third parties. In the exercise of voting right or other rights related to pension fund assets, Management company is led exclusively and only by the best interests of pension fund members. Management Company performs the following functions:

  • it prepares the model contract for each pension fund it manages. This contract is used for all members in a pension fund. Any change in pension fund contract should be signed by the member and it is valid only after meeting certain conditions as provided for by article 6 of Law No. 10 197, date 10.12.2009;
  • before starting to promote the pension fund and pension fund contract with any person, and not later than 31 March of each year, it should publish a prospectus, which contains true and correct information about the pension fund t manages. Information should be updated.

Prospectus Contents:

Contents of contract and prospectus are provided for in detail in Regulation No. 2, date 13.01.2011 “On Contents of Pension Fund Contract and Prospectus.”

Legal structure of management company

Management company is constituted as a joint stock company with unlimited duration, with at least 51% of shares or voting rights owned by banks or financial institutions. Its organization is made according to the system with one management level, pursuant to Law on Commercial Companies. Management company should be headquartered in Albania and can not be a branch of a foreign company. The sole activity of a management company is pension fund management. at any time, Management company, should have a capital of at least 15 625 000 ALL, which represents the registered stock capital. Licensing of management company. Management Company is licensed by FSA after management company completes and fulfills all criteria and requirements of Article 24, 25 and 26 of Law No. 10 197, date 10.12.2009. Regulation No. 25, date 23.02.2011 “On reporting of activity of pension fund management company to AMF “ Regulation No. 24, date 23.02.2011 “On separation of activities of management company of voluntary pension fund”

  • Supervision

FSA (Financial Supervision Authority) is the regulatory and supervisory entity of insurance activities in Albania. AMF also has the duty to examine markets of credit titles and supplementary pensions. So, pursuant to Law No. 9572, date 03.07.2006, “On Financial Supervision Authority”, the Authority activity scope is to regulate and supervise the following markets:

a. market of titles, or in other words, of securities and activity of this market, including activities of entities related to investments in titles that operate in this market;

b. insurance market and activity of this market, which includes all activities of insurance, reinsurance, brokerage and operations arising from these activities;

c. market of supplementary pensions and activity of this market, which includes all activities of supplementary pensions insurance, provided by private institutes of supplementary pensions;

d. other non-bank financial activities, as provided for by special laws of the field. (Albania Post sh.a. and other private entities, such as Grupi Unioni Financiar sh.a. exercise non-bank financial activities).

Decision making body of Authority is its Board, which consists of 7 members, of which 1 chairperson, 2 vice chairpersons and 4 other members. These members are appointed by Parliament of Albania.

Financial Supervision Authority is the only institution that supervises the activities provided for in this law, in order to protect the interests of the insured. Authority exercises supervision on activities of insurance company, branch of foreign company, insurance agents, agencies, brokers and domestic or foreign brokerage companies.

This supervision is exercised on activities of insurance companies, branches of foreign companies, insurance agents, insurance agencies, brokers domestic or foreign brokerage companies. FSA exercises also the supervision of activity of legal persons with which an insurance company is a participant. Financial Supervision Authority exercises such supervision in cooperation with supervisory authorities of these entities. Responsibilities of Authority are a) maintenance of a stable, efficient, transparent and honest insurance market, to protect the interests of the insured; b) assurance that insurance sector operates on a sound financial basis; c) implementation of policies in insurance field; d) proposal for improvements in insurance field legislation; d) public awareness for importance and benefits of insurance market; f) establishment and strengthening of relations with corresponding authorities and other domestic and foreign institutions; g) supervision of solvency of insurance and reinsurance companies.

Supervision activity is exercised through documentary control (off site) and documentary analysis and control in the place (on site), which can be partial or complete. In the framework of supervision, Authority requires from insurance companies any information and document related to their activity.

In case of failure to implement legal norms in the insurance field, Authority may take the following measures against an insurance company:

  1.  sanctions;
  2.  order to eliminate violations of the legal provisions and taking of corrective measures;
  3.  license withdrawal;
  4.  declaration of temporary management;
  5.  beginning of compulsory liquidation procedures;
  6. beginning of bankruptcy procedures against the insurance company.

Fine sanctions by FSA may be from 100,000 to 2,000,000 ALL against an insurance company when it exercises activities contrary to legal provisions provided for in article 165 of Law No. 9267, date 29.07.2004, “On insurance, reinsurance and insurance and brokerage activity in insurance and reinsurance”. Rules established by Financial Supervision Authority about reporting of insurance companies to the latter are provided for in Regulation No. 6, date 08.02.2007 “On rules, methods and conditions of reporting of insurance companies to Financial Supervision Authority”, approved by FSA Board.

GREEK LAW DIGEST REPUBLIC OF ALBANIA MINISTRY OF INTEGRATION Union of Chambers of Commerce and Industry of Albania
Nomiki Bibliothiki ALBANIA INVESTMENT DEVELOPMENT AGENCY Foreign Investors Association of Albania
     

 

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