grudzień 2023

Insurance business - who can run an insurance company?

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The insurance market is a huge business that has been split between a relatively small group of insurance companies - but this does not exclude the possibility of new insurance companies opening up.

Until recently, the business of insurance was mainly associated with health or life, car or property insurance. Meanwhile, more and more people are looking to insure their phone, bike or drone, but also, for example, to insure themselves against cyber risks.

Demand is therefore growing, so perhaps opening an insurance company is not a bad idea.

The opening of an insurance company in Poland requires the fulfilment of a number of requirements and consideration of such issues as the form of insurance business - possibilities include a joint stock company but also, for example, a mutual insurance company.

Each has its own unique features and requirements, which makes understanding which option best suits your plans and expectations crucial to the successful development of your venture. So if you've ever considered taking on this challenge, this post is for you!

Forms of insurance business

According to the Act on Insurance and Reinsurance Business, an insurance company may only conduct insurance business in Poland in the form of a joint stock company, a mutual insurance company or a branch of an insurance company from a country that is not a member of the European Union. These are also often referred to collectively as so-called insurance companies.

The first fundamental limitation is therefore the form of business. It is not possible to offer insurance while being a limited liability company, let alone running a sole proprietorship.

Offering insurance as a public limited company

When conducting insurance business in the former form - i.e. a joint stock company - it is important to note that such an undertaking may not carry out activities other than insurance or activities directly related to it.

It is therefore not possible to conduct both insurance and, for example, investment activities at the same time.

Moreover, a single undertaking can only sell either Division I or II insurance, which means that it cannot offer life insurance and other non-life insurance at the same time.

The form of joint stock company itself also entails certain requirements to be met. You can find out more about the public limited company in our post about the public limited company in a nutshell.

An insurance company carrying on business in the form of a joint stock company has the obligation and exclusive right to use phrases such as "insurance company", "insurance company", "insurance and reinsurance company" or "insurance and reinsurance company" in its business name. It is also permissible to use the abbreviations "TU", "ZU", "TUiR" or "ZUiR", respectively.

Mutual insurance company - who is this form for?

A special type of form of operating an insurance company is a mutual insurance company.

A group of people with a common interest in providing insurance cover for themselves at a reasonable price (premium) may be interested in starting a business in the form of a mutual insurance company.

An insurance company that insures its members on a mutual basis is a mutual insurance company.

Importantly, the mutual insurance company only insures its members. It is also possible to operate in the form of a small mutual insurance company - where certain conditions are met, such as a limited scope of business due to a small number of members or a small number/low sums insured. An insurance company operating in the form of a mutual insurance company has the obligation and exclusive right to use the term 'mutual insurance company' (abbreviated as 'TUW') in its business name.

Establishes insurance in the form of a branch

Operating an insurance company in the form of a branch will most often be possible for entrepreneurs who operate an insurance company abroad. Especially if it is an insurance company operating in another EU country, opening a branch in Poland and conducting insurance business is facilitated.

A branch is a separate and organisationally autonomous part of the business activity carried out by a trader outside the trader's head office or main place of business (main insurance company).

A branch has a certain degree of organisational autonomy, but does not carry out activities in its own name and on its own account. It develops its activities within the framework of the existing property and decision-making ties binding it to the main undertaking. It carries out its activities on the basis of Polish law and the articles of association of the main undertaking drawn up by the foreign insurance or reinsurance undertaking in the form of a notarial deed.

A foreign entrepreneur who has opened a branch in Poland is obliged, inter alia, to use the original name of the foreign entrepreneur to designate the branch together with the name of the legal form of the entrepreneur translated into Polish with an addition in the form of the phrase "branch in Poland".

What documents and procedures are necessary to open an insurance company?

The necessary documents and procedures for setting up and running an insurance business vary depending on the form chosen.

Independently, the founders of an insurance company must not have been convicted of an intentional crime by a final court judgment. In addition, they are required to document the possession of adequate financial resources equivalent to the planned organisational fund and the share issue values established in the business plan.

In addition, they are required to have approved basic own funds that will secure the minimum capital requirement, reaching at least the established floor of that minimum capital requirement.

With integrity and accountability in mind, it is worth emphasising that founders may not use, in the conduct of their insurance business, assets from illegal or undisclosed sources or handle funds that could be linked to the financing of terrorism. In this way, full compliance with legal and ethical standards is required, contributing to the sound and secure operation of the insurance company.

Scope of business of the insurance undertaking

The conduct of insurance business in the form of a joint stock company and a mutual insurance company is possible once the nature of the business has been precisely defined.

It is therefore worth indicating whether the business will be conducted as an insurance company specialising in life insurance (Division I) or in offering other personal and non-life insurance (Division II).

Moreover, an important aspect is the indication of specific insurance groups (in Division I - 5 groups, in Division II - 18 groups). A foreign insurance company setting up a branch in Poland may conduct business exclusively within the scope of the object of business of this company. On the other hand, the business object of a branch of a foreign insurance undertaking in Poland does not have to be as broad as that of the main undertaking. It may cover only selected fragments of the insurer's business conducted abroad, adapting to the specificity of the Polish market.

Necessary permits

In the case of a joint-stock company and a mutual insurance company, authorisation is required from the supervisory authority to carry out insurance activities.

Such supervisory authority in Poland is the Polish Financial Supervision Authority - KNF. In order to obtain such a permit, the necessary documents must be submitted to the supervisory authority, including, inter alia, the company's articles of association, business plan, certificate of no criminal record, balance sheet for solvency purposes or information on sources of capital, etc. A foreign insurance company from a member state of the European Union other than the Republic of Poland may conduct insurance activity in the territory of the Republic of Poland if it has previously obtained an appropriate authorisation to conduct this activity in the country in which it has its registered office.

As a general rule, individual amendments to the articles of association also require supervisory approval prior to registration (these include changes to the company's registered office and name, representation rules, management of assets and property, territorial and material scope, etc.).


Control of an insurance undertaking's business

Insurance companies are a certain type of financial institution that operate on a bank-like basis, which in turn requires them to maintain a high level of trust and reliability. They are therefore strictly regulated by the state, subject to certain requirements, both financial and organisational.

In Poland, their activities are regulated by the aforementioned Act of 11 September 2015 on insurance and reinsurance activities, and they are supervised by the Financial Supervision Commission (KNF), which acts to protect the interests of consumers and the stability of the financial market in the country.

The FSC plays a regulatory role by monitoring the activities of insurance companies, checking compliance with applicable laws, including the valuation of assets and liabilities, conducting financial audits and enforcing compliance with the Insurance and Reinsurance Business Act. The Commission also has the power to impose financial sanctions, such as fines or penalties, if insurance companies are found to be in breach of the law. In extreme situations, the FSC may even decide to revoke the licence to conduct insurance business.

Thanks to the supervision of the PFSA, customers of individual insurance companies can be sure that their interests are safe. The Commission's task is to ensure the stability of the financial market and, at the same time, protect the rights and safety of consumers, which contributes to a positive impact on the entire insurance sector in Poland.

Amount and coverage of share capital

The capital in a joint stock company should be at least the amount of the organisational fund and shares. The share capital of a domestic insurance company conducted in the form of a joint-stock company shall not be lower than the highest amount of the minimum guarantee capital required for the classes of insurance for which the domestic insurance company has been authorised to conduct insurance business in accordance with the provisions of the Act.

Exactly how much depends on the insurance groups, but if the insurance company operates in the form of a joint stock company then the minimum amount of guarantee capital for Division II is - depending on the insurance groups - the equivalent in PLN of EUR 2,000,000 or EUR 3,000,000.

The funds for paying up the capital must not come from credit, loans or be otherwise encumbered. It shall also be verified that the payment for the shares does not come from illegal or undisclosed sources. The share capital shall be covered by a cash contribution and shall be paid in full prior to the registration of the national insurance company in the National Court Register.

Share capital of a mutual insurance company

The share capital of a mutual insurance company, as in the case of a joint stock company, may not be lower than the non-exceedable lower threshold of the minimum capital requirement required for the classes of insurance indicated in the Annex to the Act for which the TUW is authorised to conduct insurance business. Interestingly, the minimum amount of guarantee capital for a TUW is - in principle - 75% of the amount applicable to undertakings operating in the form of a joint stock company.

The society's share capital is covered in full by a cash contribution within 30 days of the society's registration. It is important that those interested in the formation of the society bear the cost of the share capital, which can then only be repaid out of profits, in the course of the formation of the supplementary capital (part of the equity capital intended to cover losses).

There is the possibility of a zero minimum guarantee capital only for small TUWs that only insure their members, not exceeding an annual premium in the equivalent of €5 million, and do not carry third-party liability insurance, as well as loan repayment and insurance guarantee.

In the case of a branch of a foreign entrepreneur, it should have in the territory of the Republic of Poland permitted own funds in an amount not lower than the minimum solvency capital requirement. The admitted basic own funds of the main branch must therefore not be lower than 50% of the not-to-exceed lower threshold of the minimum capital requirement. The assets of the undertaking must not come from illegal/unknown sources or be linked to the financing of terrorism.

The lower limit of the minimum capital requirement is equal to the relevant base amounts, described in detail in the Act, the amount of which depends on the type of business.

Requirements for members of the various bodies

These requirements are precisely defined in the various provisions of the Insurance Business Act and vary depending on the form of insurance business.  As a general rule, however, members sitting on the management bodies of insurance companies should have full legal capacity and a university degree. None of these persons must have a criminal record and, in addition, proven knowledge of the Polish language and/or relevant professional experience or education, for example, is a frequent requirement.

How to set up an insurance company?

When planning to start an insurance business in Poland, you need to be prepared for a rather complicated adventure. It is a bit like a board game, where each form of business has its own rules and success depends on your moves. Remember that the choice of form depends on many factors, such as the scale of the planned business, the capital available for investment, the risks associated with the insurance industry and the entrepreneur's preferences.

There are also numerous hurdles ahead of you in the form of many procedures and requirements to meet, permits to obtain and attention - compliance!

So, as with any good game, be prepared for excitement, surprises and a bit of a challenge. If we could be of any help - write in!

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