Insurance &
Reinsurance 2018

Since April 2014, insurance has been regulated by the Central Bank of Russia and the Ministry of Finance. The Central Bank of Russia, in its capacity of 'mega-regulator', undertakes regulation and control in all spheres of the financial market. It is the authority that issues and revokes insurance licences, checks compliance with insurance legislation, including requirements for capital and reserves, handles the registry of insurance professionals, and also issues legislative acts. The Ministry of Finance elaborates state policy and prepares draft bills in the sphere of insurance.

Insurance and reinsurance companies should be formed as commercial entities (limited liability companies or joint-stock companies). The law provides some specific requirements regarding the names of insurance and reinsurance companies, which should clearly specify the type of insurance business they carry out.
Insurers, reinsurers and brokers must have a licence (see question 3) issued by the Central Bank.
Insurers, reinsurers and brokers can make pooling arrangements and participate in unions and associations. Entities such as unions, associations and pools do not require separate licences.

A licence is required to conduct insurance and reinsurance. To qualify for a licence, insurers or reinsurers should provide the Central Bank with a set of documents that includes registration and corporate documents, relevant rules of insurance, calculation of tariffs, proof of their financial stability, and evidence of the qualifications of their general director and chief accountant.
Normally licences are issued for an undefined period. Where the Central Bank discovers that the insurer or reinsurer has infringed an insurance regulation, it will issue a decree ordering the offender to rectify the violation. If the decree is not complied with, the Central Bank is entitled to suspend the insurer's licence, in which case the insurer is prevented from entering any further insurance contracts.
In the event of serious or repeated violations of insurance regulations, licences may be withdrawn, which results in the termination of the insurance (reinsurance) business for the relevant insurer or reinsurer.

Qualification requirements for the officers of insurers or reinsurers form part of the licensing requirements. Chief executive officers of insurance and reinsurance companies should have a higher economic or financial education and have at least two years' professional experience in the management of a credit organization, of a non-credit financial organization (inter alia, insurance company), or of a business unit of a financial organization, or at least two years' professional experience in senior positions in governmental bodies of the Russian Federation and of subjects of the Russian Federation, in an insurance supervision body.
Chief accountants should comply with requirements provided to the Federal Law 'On accounting', and inter alia should have a higher education in economics or auditing and finance and must have professional experience in its specialisation with Russian insurance or reinsurance companies for at least two years in the five years immediately preceding their appointment.
General directors and chief accountants of Russian insurance and reinsurance companies, including subsidiaries of foreign insurers or reinsurers, should have a clean criminal record. Persons who were previously held liable for violations that resulted in withdrawal or suspension of a licence, or held liable under certain types of administrative charges, cannot qualify.

For insurance companies, the base capital is 120 million roubles. A capital of 240 million roubles is required to carry out life, medical, insurance, and the threshold for reinsurance companies is 480 million roubles.

In 2016 the Central Bank issued Rules on formation of insurance reserves on life insurance and Rules on formation of insurance reserves on insurance other than life. The Rules govern matters relating to reserves, such as the types of reserves that an insurance company must maintain; the method of calculation of reserves; types of and requirements for assets that can cover (secure) reserves; and the structure of such assets, etc.

An insurance company may either provide life insurance or non-life insurance. For each product, the insurer must elaborate and approve the rules of insurance. The rules of insurance must comply with the Civil Code of the Russian Federation and other acts relating to specific types of insurance. These rules are then filed with the Central Bank. The Central Bank is allowed to review the rules and point out any inconsistencies with the law it may find, ordering the insurer to amend the rules accordingly. Nevertheless, the Central Bank carries no such obligation. When entering into an insurance contract, parties may deviate from the approved rules by including relevant provisions to the contract or policy.
Rules of insurance must be placed on the website of the insurance company.
For some types of obligatory insurance, the authorities in the relevant field may participate in the elaboration of govern­ing legislation or check compliance with the obligatory insurance regulations. However, they do not interfere in the contractual relations between the insured and the insurer.

The Central Bank is the authority that effects control over the insur­ance and reinsurance companies. This includes analysis of reports that insurance and reinsurance companies file to the Central Bank. Reports are filed on a yearly basis and must contain information on major finan­cial parameters of (re)insurers' businesses. The Central Bank is also allowed to undertake inspections of insurers' activity.

From June 2018 the amended law shall provide obligation of insurers to invest insurance reserves funds on conditions of their diversification, liquidity, recoverability and return on capital. Loans using insurance reserves shall not be allowed (except for loans to individuals being assureds under life insurance contracts concluded for at least a five year period).
The Central Bank may issue acts on assets in which investments are allowed and on order of investments.

Under Russian law, 'change of control' of a legal entity shall be under­stood as a transfer of shares in the charter (share) capital to a third person. Rules of transfer of shares in the charter capital are subject to the corporate form of a legal entity and to its charter, but do not depend on the type of the legal entity's activity (insurance, reinsurance or other). Accordingly, the law does not provide specific requirements for the change of control of insurers and reinsurers; general rules of transfer of shares shall be applied.
There are no requirements in respect of officers and directors of the acquirer. Nevertheless, the law establishes requirements for the managers (including chief accountants) of the insurance (or reinsurance) company itself (see question 4); these are licensing conditions that concern the education and professional experience of managing staff. Thus, if a change of control of an insurer or reinsurer entails a change in its managers, new staff must meet licensing requirements.
Additional restrictions may apply if the acquirer is a foreign entity (see question 13).

There are no specific requirements regarding financing of the acquisition of insurance or reinsurance companies except for restrictions relating to the investments by foreign persons and entities (see question 13). In other aspects, general provisions of civil, banking and corporate law shall be applied.

No specific requirements in this regard are set out. The general provisions of corporate law are applied.

In order to conduct insurance business in Russia, the insurer needs a licence, which is issued to Russian legal entities only. Therefore, representative offices of foreign insurance companies cannot act as insurers in Russia, and separate legal entities need to be formed under Russian law.
Such entities, if the share of the foreign insurer is more than 49 per cent, are restricted from providing certain types of life insurance, and insurance of state-owned organisations. To form a subsidiary of a for­eign insurer to allocate or transfer shares in a Russian insurance com­pany to a foreign shareholder, a special permit from the Central Bank is required. This can be refused if the overall share of foreign investment on the Russian insurance market exceeds 50 per cent.
In order to establish a subsidiary insurance company in Russia, the foreign insurer must show that it has carried out insurance business in its main place of business for at least five years.
Some of the above restrictions do not apply to insurers that are more than 49 per cent owned by foreign shareholders if such insurers were established or reorganised by 22 August 2012 and were, by that date, entitled to carry out insurance business in Russia.

The Law does provide requirements for insurance group holding (head) company and participants with no specification of whether they relate to Russian entities only, or also to foreign ones. At the same time the meaning of the Law and of insurance regulation in general can lead to a conclusion that the requirements pertain to Russian companies. In particular, the insurers shall comply with financial requirements, with requirements related to order of formation of reserves, of order and conditions of investments, of regulatory ratio of the capital and liabilities, other requirements provided by the Law and regulatory acts of supervisory authorities. Each member of the insurance group shall submit reporting forms to the supervisory authorities in the order pro­vided by the Law and regulatory acts of supervisory authorities.
The head company of the insurance group shall also comply with the above requirements on a consolidated basis, including reporting to the supervisory authorities on a consolidated basis in the established order.

Reinsurance agreements are considered as bilateral (or multilateral) transactions, that is, actions directed at the establishment, change or termination of civil laws and duties. Accordingly, the general provisions on obligations and on contracts shall apply. Important amendments to the Law on the Organisation of Insurance Business in the Russian Federation with regard to reinsurance were adopted in July 2013 and became effective as from January 2014. Until then, participants in the reinsurance business applied customs commonly used in foreign markets to the limited Russian regulation. The amended Law provides the possibility for reinsurers to issue not only reinsurance contracts, but also other documents used in accordance with the customs of the reinsurance business. The definitions of different types of reinsurance are also provided by the amended Law.
In other respects, the Law did not change the general approach to reinsurance. Unless otherwise provided by the reinsurance agreement (or a document issued pursuant to reinsurance business customs), rules regulating insurance of business risks are applied to the reinsurance agreement. Only risks of the reinsured itself may be reinsured, and only for its benefit. The reinsurance agreement shall be void with regard to a person who is not the reinsured, and shall be considered concluded for the benefit of the insured.
Reinsurers are not liable under insurance contracts.
Some of the restrictions applicable in insurance (eg, regarding the obligation to indicate the insured amount in the insurance contract, the activities of non-Russian insurers) do not apply in reinsurance.

Russian law does not provide specific amounts. In the light of the amended article 13(1) of the Law on the Organisation of Insurance Business in the Russian Federation, the size of retention shall be established by the accounting policy of the reinsured (ie, of an underly­ing insurer). Risks exceeding the retention shall be reinsured.

Collateral requirements concern business solvency of reinsurers: they must have economically justified tariffs, sufficient reserves and capital adequacy.

No specific requirements are set out.

There are two main statutes that govern these issues: the Law on the Organisation of Insurance Business in the Russian Federation and the Law on Insolvency (Bankruptcy).
The Law on the Organisation of Insurance Business in the Russian Federation provides both financial requirements and the consequences of insolvency of an insurer or reinsurer. The Law on Insolvency (Bankruptcy) provides the grounds for matters such as insolvency, steps required to prevent a bankruptcy and applicable procedures.

Generally, creditors' claims fall under three groups of priority. In cases of insolvency proceedings in relation to an insurer, the claims of the insureds may fall into the first or the third group of priority. Thus, the first group will include claims for personal injury and moral damages, and assureds' claims arising out of endowment policies. The second priority group includes employees' claims for earned wages and similar claims. All other creditors fall into the third group of priority. While, generally, all creditors of the third group are in equal position, where the debtor is an insurance company the situation is different, and the creditors are divided into five subgroups. The first subgroup includes claims arising out of obligatory insurance contracts. The second subgroup is allocated to claims under life insurance contracts. Claims arising out of insurance contracts whereby liability for personal injury is insured form the third subgroup. The fourth subgroup comprises claims under civil liability insurance (except liability for personal injury) and property insurance contracts. All other creditors are part of the fifth subgroup.

In Russian insurance practice, there are intermediaries of two types: insurance agents and brokers. Activity of insurance agents is not a licensed one. Activity of insurance brokers shall be licensed, and the Law provides a number or requirements to insurance brokers which, inter alia, relate to qualification of the manager and chief account­ant. There are also certain requirements related to activity, where non-compliance could negatively influence the license. Regulation of activity of insurance agents is less restrictive. Both agents and brokers who carry out their activity in Russia should be permanently established or permanently reside in Russia.
Foreign brokers are not allowed to act in Russia, with the exemption of reinsurance and other cases set out by the law.

Third parties may have a direct claim against insurers of liability for causing harm where the insurance is obligatory or where such possibility is expressly provided by law or insurance contract. For other cases of liability insurance, the wording of the relevant rules is some­what ambiguous, and different approaches are taken in court practice and legal science on this matter.

Insurers sometimes try to refuse payment, arguing late notice. Court practice, however, stands on the principle that the insurer must show that late notice resulted in prejudice for the insurer. There are a number of court and arbitration cases where the insurer's argument on late notice was not accepted as prejudice was not shown.

Where the insurer commits a serious violation of the insurance contract (including a wrongful denial of a claim), the insured, as well as any other interested party, may file a complaint to the Central Bank. In the past such complaints did not have any serious effect. However, recent practice has shown a number of cases where insurers were forced by the insurance authority to pay insurance compensation to avoid the suspension of their licence.
The insured may also be entitled to statutory interest if the insurer delays the insurance payment, unless a different interest rate is provided in the insurance contract. Where consumer protection law is applied to the insurance contract, the court may apply a higher interest rate, a fine for wrongful denial of claim as well as compensation for moral damages.

Only a relevant provision of the insurance contract triggers a liability insurer's duty. Under general rules of the Civil Code, the liability insurer has no obligation to defend the claim. There is a general concept that the insured should act in such a manner as if the insurance contract did not exist (including, inter alia, mitigating damages and defending the claim).

Generally, an insurer's payment obligation becomes due when the insured event occurs and the assured or beneficiary submits evidence of losses (the amount to be paid or compensated).

Disclosure rules for life insurance are the same as for other types of insurance. They do not provide for an incontestability period.

Russian law does not prohibit punitive damages. Therefore, although there is a general prohibition for insurance of illegal interests, this would not include insurance of punitive damages. The problem lies elsewhere: as punitive damages may be recovered under a contract, they would be insurable under the contract liability policy. Insurance of the insured's contractual liability is allowed only for cases expressly provided in the legislation. For example, it is possible to insure contractual liability arising out of construction contract, but this is not possible for a contract of forwarding.

Such type of obligation is not specifically provided for the law. However, the parties may agree its terms at their discretion, and the duties of the excess insurer would be governed by the respective insurance contract.

Under Russian law, there is no difference between a deductible and a self-insured retention. In fact, a deductible is defined as a 'part of the risk retained by the insured'. The insured's inability to pay the deductible does not create any additional obligation on the insurer. Some types of obligatory insurance, however, do not allow a deductible in the insurance policy.

This depends on why there are multiple claims under the same policy. If there were several insured events, then each event would be investigated separately, and the insurer would make a decision to pay or to refuse payment on the basis of such particular investigations. The priority would then depend on the speed of such investigations or, if the insurer refused payment, on the dates when the insureds would obtain court judgments to recover the insurance monies.
If, however, multiple claims arise from the same incident but are due to several co-insureds according to their respective interests, then, provided that there are no grounds for refusal of any of their claims (including possible individual grounds relating to only one or several co-insureds), the priority of their claims would be equal.

Most likely, liability triggered by the same insured event would be covered by one policy that is valid for the time period when the event occurred, even though the exact scope of liability may be established subsequently. If the claims are different in nature (eg, property and liability insurance), they will be treated separately. In the case of double insurance, insurers will be liable pro rata to their respective insured limits, as compared with the amount of their loss.

The law only prohibits insurance of illegal interests, and there are no signs that disgorgement or restitution may be found as such by the courts. In practice, however, cover for disgorgement should be specifically sought and negotiated. Restitution cover is offered on a larger scale, for example, as a part of a mortgagor's insurance package.

This largely depends on the wording of the insurance contract. In the absence of relative wording, the court would analyse aspects such as whether the claims are filed by one or different claimants, whether those claims have a similar or different legal nature, and what is the proximate cause of each claim.

Under the Civil Code, the insured must disclose all material information about the risk. Information is considered material if it is included into the insurer's questionnaire or similar document. The test for disclosure is subjective, that is only such information should be dis­closed that was known to the insured. If the disclosure obligation is not met with and provided that respective misstatements can be deemed as substantive breach, the insurer shall be entitled to claim the rescission of the insurance contract through court (or arbitration) proceedings.

In Russia, parties to a reinsurance agreement generally tend to come to a compromise. However, if disputes cannot be solved by means of negotiation, they are, as a rule, considered by the courts.

One controversial issue relates to payments after expiry of the reinsurance agreement but under claims that occurred within its validity. This issue is connected with the interpretation of an insured accident under reinsurance agreements. In several cases, the commercial courts interpreted an insured accident under reinsurance agreements as pay­ment of insurance compensation to original assureds and, based on that, refused claims of re-assureds (insurers in underlying contracts), arguing that compensation on underlying insurance was made when the reinsurance agreements had terminated. This approach of the court infringes the interests of both the primary assureds and the insurers. In fact, under Russian law, reinsurance is qualified as the insurance of the risk of an obligation to pay insurance compensation.
Other important issues in reinsurance disputes are discrepancies between insurance and reinsurance cover (gap in cover), that is, cases when reinsurance agreements are not made in accordance with the underlying contracts (regarding validity of compensation under underlying contracts, etc). Difficulties can also arise in connection with a 'follow the leader' clause (if any in the reinsurance contract), and this is caused by lack of regulation of this concept in the law and insufficient contractual definition.
Several years ago there was a dispute where a court – upon application of the reinsurer – determined that a contract of reinsurance was unconcluded. The judgment was argued by reference to a reinsurance slip that was issued and signed by the reinsurance broker, but that was not signed or stamped by the reinsurer. The higher courts upheld this judgment. Although this case has not become a common issue of disputes yet, it exposes a risk to the general practice of con­cluding reinsurance contracts, and we remind parties to reinsurance contracts of the specificities of Russian regulation in this area.

As a rule, reinsurance disputes are referred to state commercial courts rather than to arbitrations. Both court judgments and arbitral awards must include the motivation for the decision.

Arbitrators of reinsurance disputes have general powers of arbitrators provided by the Law on Arbitration in the Russian Federation and the Law on International Commercial Arbitration. Claims brought by or against non-parties to the arbitration agreement shall be terminated on grounds of lack of competence unless the claimant and the defendant agree the competence of the respective arbitration.

Arbitration awards can be contested or enforced through competent courts of the state judicial system. The law provides the scope of powers of courts while considering such cases. Generally they are limited to formal (procedural) evaluation of an award; accordingly, courts shall not reconsider a dispute on its merits. Courts may enforce arbitration awards or refuse enforcement in the few cases expressly provided by the law, but they cannot amend arbitration awards.

The obligations of a reinsurer to 'follow the fortunes' of an original insurer and the scope of the original insurance are contractual conditions and therefore shall be regulated as the parties agree. Despite this, reinsurers are entitled to raise objections to decisions of cedents irrespective of whether the obligation to follow is expressly provided in the reinsurance agree­ment. Reinsurers' objections may vary, depending on reinsurance agreements and specific cases (eg, late notice, incomplete file, wrong­ful compensation of underlying claim).

The implementation of a good faith principle in Russian insurance and reinsurance law is specific and differs from the concept of good faith in certain other jurisdictions. General rules are provided by the Civil Code of the Russian Federation: the civil relationships participants shall act in good faith; good faith of the civil relationships participants is presumed; abuse of rights is not allowed. There is no act that would expressly and specifically declare the principle of good faith in insurance and reinsurance. However, the law sets out an obligation on parties to dis­play good faith at all stages of an insurance or reinsurance contracts. The obligation to comply with the good faith principle is mutual; the insured or reinsured and the insurer or reinsurer should satisfy certain requirements.
In particular, the following rules may be considered as the principle of good faith in reinsurance: the duty of disclosure, and obligations to notify changes affecting the risk, to pay premium, to procure confidentiality of information and to pay compensation.

No. Both types are regulated by the Law on the Organisation of Insurance Business in the Russian Federation.

No. This is provided by article 967(3) of the Civil Code: 'In case of reinsurance, the person liable to the insured for payment of insurance compensation or the insured sum under the basic contract of insurance remains the insurer under this contract.'

There is no such obligation.

The types of information to be provided to a reinsurer and the rights of a reinsurer in the event of failure to disclose such information shall be defined in the reinsurance agreement. Generally, this shall include giving notice to the reinsurer on the occurrence of an incident having features of an insured event, and informing of developments relating to the incident or the claim handling. Where the insurer fails to pro­vide such notice in a timely or sufficient manner, the reinsurer may be entitled to raise objections to the decisions of the cedent or exercise other remedies as provided by the reinsurance contract .

Reinsurance agreements must provide (inter alia) a clear specification of the reinsured risk and the share of the reinsurer in the respective risk. Otherwise, the reinsurance contract may be considered as not-concluded.
Payments or settlements of a claim made by the reinsured shall be allocated depending on the share of every reinsurer in the insured risk according to reinsurance contracts. The underlying insurance policy or policies should not necessarily provide a specification of reinsurance allocations, as insurance and reinsurance are considered separate contracts and, as a rule, reinsurance does not affect the under­lying insurance contract.

The law provides no specific types of review; because all the mentioned issues are contractual, they are considered depending on the terms of agreements and particular circumstances.

Commutation payments are not common in Russian practice. The law does not oblige reinsurers to reimburse claims that are not yet due under the reinsurance agreement. Nevertheless, reinsureds do not create risk by agreeing a final settlement with reinsurers before closing claim files under underlying contracts. This is connected not only with commercial, but also with taxation, issues. All the same, it appears in practice that reinsureds obtain advance payments of unconditional expenses and the right to claim other sums when they become due. Compensation for late reported claims (see question 23) is agreed by the parties on a case-by-case basis.

The law does not oblige reinsurers to pay under claims resulted from occurrences outside the terms and conditions of the contract. Reimbursement for extracontractual losses may be agreed by the parties on a case-by-case basis.

The establishment of the Russian National Reinsurance Company has been very important for the Russian insurance and reinsurance market in the sanctions regime. The National Reinsurance Company has summarized results of its first (2017) business year, and found them satisfactory.
New amendments to the Law On the Organization of Insurance Business in the Russian Federation (such as those related to require­ments to the management of insurance companies, to transactions with shares of insurance companies, etc.) have been enacted.
Serious changes appear in the obligatory motor liability insurance.
Russian government continues to discuss introducing.