Practical Law Company.
MARKET TRENDS AND REGULATORY FRAMEWORK
1. Please give a brief overview of the insurance and reinsurance markets in your jurisdiction, identifying market trends.
Providers of insurance
An insurer is a legal entity that (Civil Code):
Insurance companies are generally organised as limited liability companies or joint stock companies. Providers of insurance services can be divided into the following categories:
They represent insurance companies' interests in relations with their customers and act on behalf of these companies.
They represent the interests of insurance companies or policyholders. An insurance broker acts as an intermediary between clients and insurance companies. Brokers provide services relating to the conclusion and execution of insurance contracts.
The Russian insurance market is one of the fastest growing markets in the world. Russia is the dominant insurance market among the Commonwealth of Independent States (CIS) member countries and accounts for over 85% of the total premiums written by all CIS members. The Russian insurance market is behind that of Central and Eastern Europe in relation to:
However, it has great potential for growth, particularly in the area of life insurance.
One of the trends in the Russian insurance market is business integration. The ten market leaders control over 50% of today's insurance business. Foreign investors are very interested in the Russian insurance market. For example:
2. What is the regulatory framework for insurance/reinsurance activities?
The regulatory framework is provided by:
The general provisions of statutes, regulations and other codes (such as the Code of Administrative Violations and the Anti-trust Code) also apply.
The Ministry of Finance is the insurance regulation authority. It:
The Federal Insurance Supervision Agency (FISA) is the supervisory authority, ensuring that insurers comply with the laws and regulations in the interests of policyholders. The FISA is responsible for granting licences. It closely monitors the financial status of insurers to ascertain their ability to honour their obligations. It can make recommenda¬tions and impose disciplinary sanctions (Article 30, Insurance Law).
REGULATION OF INSURANCE AND REINSURANCE CONTRACTS
3. What is a contract of insurance for the purposes of the law and regulation in your jurisdiction? How does it differ from a contract of reinsurance?
Property and personal insurance contracts
Insurance contracts are concluded by an individual or legal entity (the insured) with an insurance company (the insurer). The Civil Code contains definitions of the two types of insurance contract.
Property insurance contract (Article 929, Civil Code). For a fee (insurance premium) and on an insured event stipulated in the contract, the insurer undertakes to reimburse (that is, pay insurance compensation to) the insured (or another person in favour of whom the contract has been concluded) for losses:
The compensation is within an amount stipulated in the contract.
In particular, the following property interests can be insured under a property insurance contract:
Entrepreneurial risk can also be insured under a reinsurance contract, so a reinsurance contract refers to property insurance contracts (see also Article 967 of the Civil Code). No other risks can be reinsured under reinsurance contract.
Under the principal insurance contract, an insurer who concludes a reinsurance contract is the insured under the reinsurance contract. The insurer remains liable to the insured under the principal insurance contract for payment of insurance compensation or the insurance sum (Article 967, Civil Code).
Personal insurance contract (Article 934, Civil Code). For an insurance premium, the insurer undertakes to pay, in a lump sum or in instalments, the sum of money specified in the contract (insured amount):
The right to receive the insured amount belongs to the person in favour of whom the contract has been concluded.
Essential terms and conditions of the insurance contract
Property insurance contract. The insured and the insurer agree on the:
Personal insurance contract. The insured and the insurer agree on the:
4. Are all contracts of insurance/reinsurance regulated in your jurisdiction?
Generally, all insurance contracts are regulated, including contracts of reinsurance. The Civil Code regulates personal and property insurance contracts (see Question 3).
Article 32.9 of the Insurance Law contains a list of certain types of insurance contract, such as pension and life insurance contracts, that are also regulated.
REGULATION OF INSURERS AND REINSURERS
5. Are all insurers and reinsurers regulated in the same way in your jurisdiction?
In principle, insurers and reinsurers are regulated in the same way. Insurers and reinsurers established in Russia must obtain a licence from, and are supervised by, the FISA (see Question 2). Reinsurance is deemed to require less supervision since consumers are not involved. Generally, the rules covering entrepreneurial risk insurance contracts are also applicable to reinsurance contracts.
6. Can insurers or reinsurers carry on non-insurance business? Please summarise any restrictions on their business activities.
Under Russian legislation, legal entities established in Russia can have either:
Insurance and reinsurance organisations have restricted contractual capacity and can only carry on insurance business.
7. Are there any statutory limits or other restrictions on, or requirements relating to, the transfer of risk by insurance or reinsurance companies?
The Civil Code and other statutes do not contain any restrictions on the transfer of risk by insurance or reinsurance companies.
Authorisation or licensing
8. Does the entity or person have to be authorised or licensed in your jurisdiction? If so, please outline the key steps involved in this process and the requirements that must be satisfied.
Insurance and reinsurance companies must obtain a licence from the FISA before commencing business. The applicant must provide the following (paragraph 2, Article 32, Insurance Law):
In addition to these documents, a Russian company affiliated to foreign investors (or with foreign investment making up more than 49% of its authorised capital) must provide written authorisation from the investors' domestic insurance supervisory authority, for the investors' participation in the authorised capital of the Russian company (paragraph 7, Article 32, Insurance Law).
Insurance brokers must obtain a licence from the FISA before commencing business. The applicant must provide the following (paragraph 5, Article 32, Insurance Law):
Insurance agents do not need a licence.
Grant and withdrawal
The FISA must decide whether or not to grant a licence within 120 days of receipt of the requisite documents. The applicant can challenge a refusal before an arbitration court.
The FISA can withdraw a licence for (paragraph 2, Article 32.8, Insurance Law):
These rules apply to both insurance/reinsurance companies and insurance brokers.
9. Please summarise the main exemptions or exclusions from authorisation or licensing that are available in your jurisdiction, if any.
There are no exceptions to the rule that insurers and reinsurers [and insurance brokers?] established in Russia:
Restrictions on ownership or control
10. Are there any restrictions on the ownership or control of insurance-related entities in your jurisdiction (for example, age, nationality, qualification or other restrictions)?
The FISA reviews fitness to control insurance/reinsurance companies and companies of insurance brokers and insurance agents.
Directors, chief accountants, brokers, agents and actuaries of insurance/reinsurance companies must be resident in Russia (Article 8, 32.1, Insurance Law). In addition, they require certain qualifications for their role:
11. Do owners or controllers have to be pre-approved by or notified to the relevant authorities before taking, increasing or reducing their control or ownership of the entity?
Insurance legislation does not generally require insurance/reinsurance companies or companies of insurance brokers and agents to notify the supervisory authority of:
There are some exceptions to this rule:
The FISA cannot refuse to grant prior authorisation to a company on the basis that it (paragraph 3, Article 6, Insurance Law):
Merger and acquisition deals in any business area are regulated by provisions of Russian anti-trust legislation.
Ongoing requirements for the authorised or licensed entity
12. Please summarise the key ongoing requirements that the authorised or licensed entity must comply with.
All insurance services providers must (paragraph 5, Article 30, Insurance Law):
Insurance and reinsurance companies must submit accounting and statistical written reports to the FISA (paragraph 3, Article 28, Insurance Law).
In addition, after an audit, insurers must both (Article 29, Insurance Law):
Insurance companies must form insurance reserves so they can perform their obligations in the future (Article 26, Insurance Law).
Penalties for non-compliance with legal and regulatory requirements
13. Please outline the possible consequences of an entity failing to comply with applicable legal and regulatory requirements (including the disciplinary powers any relevant regulators have, as well possible customer remedies). What recourse do policyholders have if they have done business with a non-approved entity?
The FISA can impose a range of sanctions for failure to comply with legal and regulatory requirements, including:
Customers can bring an action before the court if the insurer/reinsurer, broker or agent breaches the contract or operates without a licence.
Restrictions on persons to whom services can be marketed or sold
14. Are there any restrictions on the persons to whom insurance/ reinsurance services and contracts can be marketed or sold?
A policyholder must be either a (Article 5, Insurance Law):
Persons under the age of 18 years are legally capable if the court does not recognise them as incapable. However, there are no restrictions on the conclusion of insurance contracts by guardians on behalf of incapable persons if the incapable person consents (Civil Code).
REINSURANCE MONITORING AND DISCLOSURE REQUIREMENTS
15. To what extent can/must a reinsurance company monitor the claims, settlements and underwriting of the cedant company?
There is no restriction on the reinsurer's right to monitor the claims, settlements and underwriting of the cedant company. The parties can specify how this right is to be exercised in the contractual framework (Civil Code). Reinsurance and retrocession contracts can provide for a:
16. What disclosure/notification obligations does the cedant company have to the reinsurance company?
The Civil Code and other statutes do not contain disclosure or notification obligations relating to reinsurance.
Following analogia juris (analogy of statute), the cedant must supply the reinsurer with all of the following:
In addition, disclosure and notification obligations can be established by the cedant and reinsurer in the contract.
POLICIES – CONTENT REQUIREMENTS AND IMPLIED TERMS
17. Please outline the main general form and content requirements for insurance policies in your jurisdiction, including a description of the most commonly found clauses.
The Civil Code outlines the essential terms and conditions of insurance policies, which differ slightly by type of insurance. However, all insurance policies must contain information identifying the:
Insurance policies that do not meet these requirements are void.
Insurance policies often contain provisions that restrict a company's liability where an event does not precisely satisfy all the characteristics of the insured event outlined in the policy.
18. Please identify any terms found in insurance policies in your jurisdiction that are implied by law or regulation (identifying the applicable laws or regulations and any mandatory provisions).
The Civil Code and statutes do not contain much regulation relating to insurance policies' implied terms. In the absence of specific mandatory rules and regulations, the general provisions relating to insurance contracts are applied:
In addition, the following customer protections are implied by the Civil Code and related statutes:
This provision is due to the presumption of unfamiliarity with insurance terms and conditions recognised under Russian civil doctrine.
Legislation generally grants the parties to an insurance contract considerable discretion in relation to how to regulate mutual rights and obligations. Apart from the requirements in Question 17, breach of other requirements and mandatory provisions does not lead to invalidity.
Article 10 of the Civil Code imposes the principle of good faith on the parties to a contract. The parties should exercise their rights with wisdom and honesty. In relation to insurance policies, the insured should not purposely bring about the insured event and the insurer should not try to avoid responsibility.
19. Please identify customer protections which are generally included in insurance policies to supplement relief available under general law.
The Civil Code provides a level of customer protection, as an in¬surance policy is void if its terms contradict the law. There are no specific customer protections included in insurance policies to supplement relief available under the general law. For relief under general law, see Question 18.
20. Please identify examples of standard policies or terms produced by trade associations or relevant authorities, if any, and explain how these can be obtained.
At the time an insurance contract is concluded, the insurer can apply either (Civil Code):
The All-Russian Insurance Association (ARIA) (see box, Main insurance/reinsurance trade organisations) usually prepares standard policies and terms. For example, entrepreneurial risk insurance policies may include a term relating to the concrete transaction (that is, the specific business transaction that the policy covers). More information can be found at www.ins-union.ru/eng.
21. Please identify common clauses in reinsurance policies, including follow the form and follow the fortune reinsurance, and standard provisions concerning choice of law, arbitration, and right to take part in the underlying adjustment. Is facultative or treaty reinsurance more common in your jurisdiction?
Reinsurance policies have the same requirements as insurance policies (see Questions 17 and 18). Both facultative and treaty reinsurance apply under Russian legislation.
INSURANCE AND REINSURANCE POLICY CLAIMS
22. What must be established to trigger a claim under an insurance policy?
An insured can claim under an insurance policy in the event of loss that is both:
An insured person that becomes aware of the onset of an insured event must notify the insurer or its representative without delay (or within the stipulated period and by the method indicated in the contract).
If the insured fails to do this, the insurer can refuse to pay insurance compensation (with certain exceptions) (Civil Code).
23. Please provide brief circumstances in which third parties can claim under an insurance policy.
Generally, third parties can claim under an insurance policy in cases of:
Otherwise, only the policyholder beneficiary can sue unless the third party beneficiary is expressly named. A property insurance contract in favour of a beneficiary can be concluded without nam¬ing the beneficiary (the insurance premium is at the expense of the person who pays (Civil Code)).
24. Is there a time limit outside of which the insured/reinsured is barred from making a claim?
The statute of limitations for claims related to property insurance (see Question 3), except property insurance on tort liability (see below), is two years (the usual term of limitation of actions on insurance policies).
The statute of limitations on an insured/reinsured making for claims related to property insurance on tort liability is three years.
25. Can the original policyholder or other third party enforce the reinsurance contract against a reinsurer?
The original policyholder or other third party cannot enforce the reinsurance contract against a reinsurer. This is because a reinsurance contract does not create a direct relationship between the reinsurer and the insured party. In the case of reinsurance, the reinsurer remains liable for payment of insurance compensation to the insurer under the principal insurance contract.
In the case of an insurer's insolvency, a policyholder's claim can be included in the list of creditors' claims.
26. What remedies are available for breach of an insurance policy?
Breach of an insurance policy is equal to a breach of contract and the standard remedies under law apply. Therefore, the defaulting party can be sued for breach of an insurance policy.
INSOLVENCY OF INSURANCE AND REINSURANCE PROVIDERS
27. Please outline the regulatory framework for dealing with distressed or insolvent insurance or reinsurance companies, or other persons or entities providing insurance or reinsurance related services.
The Civil Code regulates the most common provisions on insolvency. In addition, Chapter 9, §4 of the Law on Insolvency (Bankruptcy) and its general provisions provides for a special insolvency procedure for insurance companies (see below).
Right to file for bankruptcy. If the entity's financial difficulties jeopardise the insured's interests, the following have the right to file for bankruptcy:
Sale of an insurance portfolio. If an insurance portfolio is sold, only an insurance company can buy an insurance portfolio that includes:
Creditors' order of priority. The insolvency procedure for insur¬ance companies requires that creditors' claims be satisfied in the following order of priority:
TAXATION OF INSURANCE AND REINSURANCE PROVIDERS
28. Briefly describe the tax treatment for insurers, reinsurers, and other persons or entities providing insurance and reinsurance-related services in your jurisdiction.
Insurers, reinsurers and other persons or entities providing insurance and reinsurance-related services are usually subject to general taxation.
Corporate income tax
Profit is subject to corporate income tax at 20%. Article 293 of the Tax Code specifies how income is determined. In addition to income from sale and extra-sale income (common for all those subject to corporate income tax), income includes that derived from insurance activity. Therefore, the insurer income includes the following:
Value added tax (VAT)
The Tax Code exempts insurers and reinsurers from VAT on rendering of services:
This is because these services are recognised to be insurance and reinsurance as a result of which the insurance organisation receives:
INSURANCE AND REINSURANCE DISPUTE RESOLUTION
29. Are there special procedures or venues for dealing with insurance or reinsurance complaints or disputes in your jurisdiction?
There are two possible ways to resolve a dispute arising out of insurance activity:
If the parties fail to resolve their dispute out of court, the dispute is brought before national courts. Under law and practice, the claimant usually applies to the court of the respondent's domicile or the court defined in the arbitration clause in the contract. Depending on the parties, the nature of the dispute and the sum, the dispute can be decided by courts of law or courts of arbitration.
30. Please give a brief overview of the main dispute resolution methods used to settle reinsurance claims.
Arbitration is frequently used in reinsurance disputes between entities (for example, St Petersburg Health Insurance Arbitration).
Arbitration courts consist of three members (or any uneven numbers of members):
Industry practice and custom play an important role in insurance dispute resolution. The Russian Civil Code and other statutes play a major role as the sources of arbitration rules.
The arbitration courts' state procedure is the main dispute resolution method in Russia, because:
It is very important that disputes are decided on the basis of legal regulation rather than practice and industry custom.
31. Please summarise any proposals for reform of the law, regulation or rules in your jurisdiction relating to the provision of insurance or reinsurance services.
Several important proposals for legal reform are being discussed: