Norm no. 25/2022 issued by the Financial Supervisory Authority on the authorization of insurance companies and the conduct of the insurance and reinsurance activity

The new Norm, entered into force on October 11, 2022, was issued in the application of Law no. 237/2015 on the authorization and supervision of the insurance and reinsurance activity, Law no. 71/2019 on mutual insurance companies, and Law no. 246/2015 on the recovery and resolution of insurers.

As a general note, the Norm no. 25/2022 (the ”Norm”) regulates several aspects regarding the authorization and functioning of the insurance and reinsurance companies (for example, the increase and decrease of the share capital, the extension of activity, the transfer of portfolio, the merger and spin off), but also specific aspects applicable to the mutual insurance companies incorporated according to Law no. 71/2019 and insurance companies under financial recovery procedure.

The Norm has repealed FSA Norm no. 20/2016 on the authorization and monitoring of insurance and reinsurance companies, taking over several aspects regulated in the former norm.

The new Norm also has repealed the provisions regarding the procedure for approving the transfer of portfolio, merger and spin-off from the FSA Norm no. 28/2015 on the functioning of insurers supervised under the national regime, also applicable to insurance companies subject to Solvency II regime, by taking over the regulation of such operations.

What are the key provisions of the new Norm?

Authorization process and conduct of business

All the documentation that will accompany the applications for the incorporation approval, respectively the functioning authorization, is now provided in annex no. 2 attached to the new Norm and provides some novelties regarding the form and content of the documents requested by FSA in this view.

One of the novelties expressly regulated by the new Norm is the possibility of the applicants to request a prior meeting to the FSA before submitting the application for the incorporation approval, when is deemed necessary to clarify certain aspects related to the approval process.

Also, the Norm provides for the possibility of submitting the necessary documentation to the FSA, electronically, only under qualified electronic signature, except for official documents, which will be transmitted only in original or certified copy.

Share capital increase and decrease

Both operations regarding the increase and decrease of the share capital remain subject to the approval of the FSA, and the documents to be submitted to the FSA are listed in annex no. 3 and 4 attached to the new Norm.

By way of exception, the decrease of the share capital in accordance with the provisions of Article 15324 of the Companies Law no. 31/1990 is subject only to the notification of the FSA (i.e., the net assets of the company, determined as the difference between the total assets and the total debts of the company, has decreased to less than half of the value of the subscribed share capital).

In case of a share capital increase other than by transfer operated through a credit institution or financial institution, the company shall submit a report of a financial auditor on such operation.

Extension of the insurance and reinsurance activity to other Member States

In case of activities performed in other Member States through branches, the insurance and reinsurance companies will assess the proxies appointed with this purpose and notified to the FSA, in accordance with the provisions of FSA Regulation no. 1/2019 on key functions.

Branches incorporated in other Member States may also use the LEI code of their parent companies unless the law of that Member State provides otherwise.

The FSA may prohibit insurance companies to carry out activities under the right of establishment or the freedom to provide services if it assesses, during the supervision process, that the legal provisions and the provisions on the protection of the general interest of the Member States in which they operate are no longer observed by that companies.

Portfolio transfer. Merger and Spin-Off

According to the Norm, the FSA approves the draft of the portfolio transfer if the assignee companies in Romania or in other Member States meet the following conditions:

• are authorized to practice the risks or classes of insurance corresponding to the contracts to be transferred;
• held own funds eligible for SCR (solvency requirements) coverage before and after taking over the portfolio;
• after taking over the portfolio, have assets covering the gross technical reserves;
• has paid the portfolio transfer fee provided by the FSA.

The assignor companies have the obligation to record separately the underwritings related to the portfolio to be transferred, made after the reference date mentioned in the draft agreement and until the date of signing the handing over protocol.

The portfolio transfer shall be deemed to have been completed on the date of signature by the assignee and assignor companies of the abovementioned protocol of the transferred portfolio.

The process of approval of the merger or spin-off of companies by the FSA, which involves the establishment of new companies, consists of the following two stages:

• approval of merger or spin-off draft terms based on the documentation related to the establishment of new companies;
• approval of the merger or spin-off based on the documentation from the Trade Register Office, on the basis of the documentation obtained by the newly established companies from the Trade Registry.

Separately, the process of approval of the merger of companies by the FSA, which does not involve the establishment of new companies, consists of the following two stages:

• approval of the merger draft terms;
• approval of the merger.

Where the merger or spin-off involves a transfer of portfolio, companies shall:

• ask for the FSA’s approval of the portfolio transfer, according to the applicable procedure in the Norm;
• after obtaining the FSA’s approval of the portfolio transfer, request for the FSA’s approval of the merger or spin-off in accordance with the applicable procedure in the Norm.

Other aspects regulated by the new Norm

The new Norm also includes specific provisions applicable to insurance companies under recovery procedure with respect to the recovery and short-term financing plan, the analysis of the plan, as well as the supervisory measures applied by the FSA.

In addition, the Norm also regulates specific aspects regarding the authorization process, the conduct of business, the transfer of portfolio, the merger and spin-off of insurance companies subject to the national supervisory regime and mutual insurance companies.

Sanctions and transitional provisions

Failure to comply with the provisions of the Norm may entail the application by the FSA of the sanctions provided for in Article 163 of Law no. 237/2015 or Article 29 of Law no. 71/2019, which can be of both pecuniary (fines starting with Lei 10,000) and non-pecuniary nature as temporary suspension of activity or withdrawal of the functioning authorization.

Outstanding applications submitted to the FSA before 11th October 2022, the date of entry into force of the Norm, shall be solved by the FSA according to the provisions in force on the date of their submission.