Bill allowing activities of foreign insurers’ branches in Russia (within the WTO) still under discussion

Russia
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In late 2018, as reported here, discussions began on a bill amending the Russian law “On Organisation of Insurance Business” (the “Bill”) under which foreign legal entities will be able to carry out insurance activities in Russia through branches and within the framework of the WTO. When Russia acceded to the Marrakesh Agreement Establishing the WTO in 2012, it had undertaken to allow branches of foreign legal entities from WTO member states to provide insurance services in Russia.

Market participants recently received an updated version of the Bill with changes, including amendments to issues that had been previously discussed, and we acquainted ourselves with this version. The most significant changes are described below, but note that the Bill may still be subject to further alterations before it is submitted to the Russian State Duma.

Accreditation instead of licensing

The new version of the Bill uses the same approach as the previous one: insurance activities carried out by a foreign company in Russia will not be subject to licensing, but its branch will have to be accredited in the country. As a result, the Bank of Russia will assess the possibility of a foreign company to provide insurance services within the accreditation procedure of the company’s branch. Currently, foreign insurers provide services in Russia through their subsidiaries that have obtained a Russian licence for insurance services.

Unlike the previous version, the new Bill provides for the mandatory membership of a foreign insurer (through its Russian branch) in a self-regulatory organisation established in accordance with Federal Law No. 223-FZ “On Self-regulatory Organisations in the Financial Market” dated 13 July 2015. Market participants had previously discussed the suitability of such a requirement.

Furthermore, under the new version of the Bill, the commercial presence of a foreign insurer in Russia is conditioned upon the existence of an information-exchange agreement between the Bank of Russia and the insurance regulator of the country of establishment of the foreign insurer. Should this requirement remain in the Bill, it may de facto limit the list of countries from which insurers will be able to operate directly in Russia.

Conditions of commercial presence of foreign insurers intending to open a Russian branch

The new version of the Bill clarifies the conditions for the commercial presence of foreign insurers in Russia:

  • A foreign insurer must have permission to carry out insurance activities in a WTO member state. In addition, it cannot be registered in an offshore zone.
  • In addition to experience in the country of establishment (at least eight years for life insurance services and at least five years for other types of insurance services), a foreign insurer is also required to have at least five years of experience in providing insurance services through branches in other countries for those insurance services it intends to provide in Russia.
  • A foreign insurer must have assets of at least USD 5 billion (as of the end of the reporting year preceding the filing of an application for accreditation).
  • The registered office of the foreign insurer and the address of its actual place of business must be in a single WTO member state.
  • A foreign insurer must have software and hardware systems in Russia that ensure the exchange and storage of information.
  • In its branch, a foreign insurer must organise an internal control and audit system in accordance with the requirements established by the Russian (and not foreign) insurance legislation.

Ensuring financial stability and solvency of foreign insurer’s branch

The Bill envisages the same methods for ensuring the financial stability of a foreign insurer’s branch as before, subject to the following adjustments:

  • Insurance reserves must be formed in accordance with the legislation of the insurer’s country of establishment (as prescribed earlier). However, funds from insurance reserves intended to fulfil obligations assumed in Russia through a branch must be invested in Russia (100% of the reserves for fulfilling obligations under mandatory civil liability insurance contracts for vehicle owners, at least 50% of the reserves for obligations under life insurance contracts and at least 25% of the reserves for obligations under other types of insurance or reinsurance).
  • The concept of a security deposit remains. Its size must correspond to the size of insurance reserves for the fulfilment of obligations assumed in Russia through the branch and cannot be less than the minimum charter capital set for Russian insurers. The security deposit must be transferred to a special account opened with the Deposit Insurance Agency before applying for the accreditation of the branch.
  • The Bill imposes on a foreign insurer’s branch an obligation of mandatory reinsurance of 10% of its reinsured obligations with the national reinsurance company (JSC RNPC). (The introduction of such an obligation had previously been discussed, but had not been reflected in the text of the Bill).

Conclusion

As we reported earlier, the issue of admission of foreign insurers into the Russian market must be resolved before 22 August 2021 in order for Russia to fulfil its WTO obligations. Discussions about the Bill continue. Its text is being revised, and its wording has not been finalised. This draft Bill is not yet ready to be submitted to the State Duma.

If you have any questions on this eAlert, do not hesitate to contact CMS Russia experts Leonid Zubarev, Darya Lukoyanova or your regular contact at CMS Russia.

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