Law no. 246/2015 was published in the Official Gazette on 2 November 2015 and regulates the available instruments for recovery of insurers, Romanian legal persons and resolution of their financial situation.
Law no. 246/2015 on the recovery and resolution of insurers was published in the Official Gazette of Romania no. 813 issued on 2 November 2015.
The law is only applicable for insurers that are Romanian legal entities and describes the measures that can be imposed by the Financial Supervision Authority (“FSA”) in relation to their recovery and resolution of their financial situation.
According to the law, each insurer has to develop and regularly update a recovery plan, which is subject to FSA evaluation.
In addition, the FSA establishes a resolution plan for Romanian insurers, as well as an individual plan for those insurers which hold a significant position in the national insurance system.
The law establishes a series of early intervention measures that can be taken by the FSA if an insurer violates or might violate in the near future the requirements for maintaining the insurance licence, as a result of the rapid deterioration of the financial situation which includes a deterioration of the solvency capital and of the own funds that cover solvency capital requirements. These measures include the appointment of a temporary director for a maximum of one year, to replace or cooperate with the insurer’s existing management. The legal deeds of the temporary director are subject to the FSA’s prior approval.
Resolution can be imposed by the FSA if an insurer enters or is likely to enter into a state of major difficulties and the measure is necessary from a public interest perspective.
The FSA appoints a resolution director, who carries out all of the responsibilities of the insurer’s shareholders and management.
The resolution measures may include share capital increases, shareholding changes or takeover of the control of the insurer by other insurers with adequate financial soundness.
Before ordering a resolution measure, the FSA will require a financial auditor to perform a valuation of the assets, liabilities and equity of the insurer in question.
The resolution instruments that can be applied by the FSA are:
- Sale of activity and of portfolio
In this case, the FSA can transfer an insurer’s shares to a buyer, as well as any category of insurer assets, rights or obligations.
The bridge-institution is an entity controlled by the FSA, to which the FSA can transfer the shares, assets, rights and obligations of the insurer, with the consent of the latter’s shareholders not being mandatory in this case. The assets, rights and obligations can subsequently be transferred either to third parties or back to the insurer, as per FSA decision.
- Separation of assets
In the case of separation of assets, the FSA has the authority to transfer the assets, rights and obligations of an insurer or of a bridge-institution to an asset management vehicle, without having to obtain the approval of the insurer’s shareholders.
Such asset management vehicles are controlled by the FSA and manage the assets so transferred, for the purpose of their sale or proper liquidation.
The FSA needs to ensure that, in the event of a resolution, the shareholders and creditors whose receivables have not been transferred receive an amount at least equal to the amount they would have received in the event of an insolvency procedure. If the received amount is less, they are entitled to be paid the difference from the resolution financing mechanisms.
Resolution financing mechanisms consist of the Insurers Resolution Fund set-up and managed by the Insured Guarantee Fund. Such fund is established with the insurers’ contributions, up to a maximum of 1% of the gross premiums collected. The specific percentage is to be approved by FSA regulations.
The law entered into force as of 5 November 2015.
Resolution will be financed by an Insurers Resolution Fund, with contributions from insurers, up to a maximum of 1% of gross premiums collected.
For a deeper discussion of how this issue might affect your business, please contact:
Sorin David, Romania Legal Leader,
Tel: +40 21 225 3770
Anda Rojanschi, Partner,
Tel: +40 21 225 3586
Dan Dascalu, Partner,
Tel: +40 21 225 3683
Manuela Guia, Partner,
Tel: +40 21 225 3586