Article published in Insurance & Reinsurance 2016 issued by Law Business Research Ltd.
Anna Arkhipova and Elena Popova
Insurance &
Reinsurance 2016
Regulation
1. Regulatory agencies.
Identify the regulatory agencies responsible for regulating insurance and reinsurance companies.
Since April 2014, insurance is regulated by the Central Bank of Russia and the Ministry of Finance. The Central Bank of Russia, in its capacity as '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, and handles the registry of insurance professionals. The Ministry of Finance elaborates state policy and prepares draft bills in the sphere of insurance.
2. Formation and licensing.
What are the requirements for formation and licensing of new insurance and reinsurance companies?
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 nsurance 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.
3. Other licences, authorisations and qualifications
What licences, authorisations or qualifications are required for insurance and reinsurance companies to conduct business?
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 nsurance business for the relevant insurer or reinsurer.
4. Officers and directors
What are the minimum qualification requirements for officers and directors of insurance and reinsurance companies?
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 insurance business or other financial business.
Chief accountants should also have higher education in economics or finance and must have worked as accountants with Russian insurance or reinsurance companies for at least two years in the five years 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.
5. Capital and surplus requirements
What are the capital and surplus requirements for insurance and reinsurance companies?
Insurance companies dealing with medical insurance only have to show a minimum capital of 60 million roubles. For other insurance ompanies, the base capital is 120 million roubles. A capital of 240 million roubles is required to carry out certain types of life insurance, property and financial risk insurance, and the threshold for reinsurance companies is 480 million roubles.
6. Reserves
What are the requirements with respect to reserves maintained by insurance and reinsurance companies?
There are a number of decrees issued by the Ministry of Finance and the Central Bank that 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. The requirements for reserves vary depending on the type of insurance (life or non-life, obligatory drivers' liability insurance, etc).
7. Product regulation
What are the regulatory requirements with respect to insurance products offered for sale? Are some products regulated by multiple agencies?
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.
8. Regulatory examinations
What are the frequency, types and scope of financial, market conduct or other periodic examinations of insurance and reinsurance companies?
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 the major financial parameters of the insurer or reinsurer's businesses. The Central Bank is also allowed to undertake inspections of insurers' activities. There is currently no legal provision regarding the frequency of such inspections, and they are carried out at the discretion of the Central Bank.
9. Investments
What are the rules on the kinds and amounts of investments that insurance and reinsurance companies may make?
There is a specific regulation issued by the Central Bank on this issue. The Regulation provides, inter alia, a list of assets in which the insurers and reinsurers are entitled to invest. The list includes securities issued or warranted by the Russian Federation, mortgage securities, shares of private companies, loans to assureds under life insurance contracts, money deposits, real estate, and gold and other precious metals. Shares and securities must be either issued on the Russian market or subject to a number of requirements, including stock exchange listings and appropriate ratings. Insurers and reinsurers may not invest into assets under pledge or mortgage.
10. Change of control
What are the regulatory requirements on a change of control of insurance and reinsurance companies? Are officers, directors and controlling persons of the acquirer subject to background investigations?
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).
11. Financing of an acquisition
What are the requirements and restrictions regarding financing of the acquisition of an insurance or reinsurance company?
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.
12. Minority interest
What are the regulatory requirements and restrictions on investors acquiring a minority interest in an insurance or reinsurance company?
No specific requirements in this regard are set out. The general provisions of corporate law are applied.
13. Foreign ownership
What are the regulatory requirements and restrictions concerning the investment in an insurance or reinsurance company by foreign citizens, companies or governments?
In order to conduct insurance business in Russia, the insurer needs a licence, which is issued to Russian legal entities only. Therefore, presentative 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. If such share is more than 51 per cent, the insurer is not authorised to offer obligatory motor insurance. 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.
14. Group supervision and capital requirements
What is the supervisory framework for groups of companies containing an insurer or reinsurer in a holding company system? What are the enterprise risk assessment and reporting requirements for an insurer or reinsurer and its holding company? What holding company or group capital requirements exist in addition to individual legal entity capital requirements for insurers and reinsurers?
The Law on the Organisation of Insurance Business in the Russian Federation (Law) does provide requirements for an insurance group holding (head) company and participants, but with no specification of whether these relate to Russian entities only, or also to foreign ones. At the same time, the meaning the Law and of insurance regulation in general can lead to the conclusion that the requirements pertain to Russian companies. In particular, insurers shall comply with:
• financial requirements;
• requirements related to the order of the formation of reserves;
• requirements related to the order and conditions of investments;
• requirements related to the regulatory ratio of the capital and liabilities; and
• other requirements provided by the Law and regulatory acts of the 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 the 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 provided by the Law.
15. Reinsurance agreements
What are the regulatory requirements with respect to reinsurance agreements between insurance and reinsurance companies domiciled in your jurisdiction?
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.
16. Ceded reinsurance and retention of risk
What requirements and restrictions govern the amount of ceded reinsurance and retention of risk by insurers?
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.
17. Collateral
What are the collateral requirements for reinsurers in a reinsurance transaction?
Collateral requirements concern business solvency of reinsurers: they must have economically justified tariffs, sufficient reserves and capital adequacy.
18. Credit for reinsurance
What are the regulatory requirements for cedents to obtain credit for reinsurance on their financial statements?
No specific requirements are set out.
19. Insolvent and financially troubled companies
What laws govern insolvent or financially troubled insurance and reinsurance companies?
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.
20. Claim priority in insolvency
What is the priority of claims (insurance and otherwise) against an insurance or reinsurance company in an insolvency proceeding?
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 contract. 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.
21. Intermediaries
What are the licensing requirements for intermediaries representing insurance and reinsurance companies?
In Russian insurance practice, there are intermediaries of two types: insurance agents and brokers. The activity of insurance agents is not licensed. The activity of insurance brokers shall be licensed, and the Law provides a number of requirements to insurance brokers that relate, inter alia, to the qualifications of the manager and chief accountant. There are also certain requirements related to activity, non-compliance with which could negatively influence the licence. 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 exception of reinsurance and other cases set out by the law.
Insurance claims and coverage
22. Third-party actions
Can a third party bring a direct action against an insurer for coverage?
Third parties may have a direct claim against insurers where the insurance is obligatory or where such possibility is expressly provided by law. 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. The governing approach, however, is that direct action is not allowed.
23. Late notice of claim
Can an insurer deny coverage based on late notice of claim without demonstrating prejudice?
Insurers sometimes try to refuse payment, citing 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.
24. Wrongful denial of claim
Is an insurer subject to extracontractual exposure for wrongful denial of a claim?
Where the insurer commits a grave 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.
25. Defence of claim
What triggers a liability insurer's duty to defend a claim?
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).
26. Indemnity policies
For indemnity policies, what triggers the insurer's payment obligations?
This is a difficult question under Russian law. Generally, an insurer's payment obligation becomes due when the insured event occurs. In the case of liability insurance, the insurer's payment obligation is triggered where the insured's liability to the injured party is established in a manner prescribed by law or the insurance contract. Unless otherwise provided by the insurance contract, this would happen when the insured's liability is confirmed by a judgment or award of a competent court or arbitration or by an amicable settlement agreement, provided it was entered into with the insurer's consent.
27. Incontestability period
Is there an incontestability period beyond which a life insurer cannot contest coverage based on misrepresentation in the application?
Disclosure rules for life insurance are the same as for other types of insurance. They do not provide for an incontestability period.
28. Punitive damages
Are punitive damages insurable?
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.
29. Excess insurer obligations
What is the obligation of an excess insurer to 'drop down and defend', and pay a claim, if the primary insurer is insolvent or its coverage is otherwise unavailable without full exhaustion of primary limits?
Such type of obligation is not specifically provided by 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.
30. Self-insurance default
What is an insurer's obligation if the policy provides that the insured has a self-insured retention or deductible and is insolvent and unable to pay it?
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.
31. Claim priority
What is the order of priority for payment when there are multiple claims under the same 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 to any of their claims (including possible individual grounds relating to only one or several co-insureds), the priority of their claims would be equal.
32. Allocation of payment
How are payments allocated among multiple policies triggered by the same claim?
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.
33. Disgorgement or restitution
Are disgorgement or restitution claims insurable losses?
The law prohibits only 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.
34. Definition of occurrence
How do courts determine whether a single event resulting in multiple injuries or claims constitutes more than one occurrence under an insurance policy?
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.
35. Rescission based on misstatements
Under what circumstances can misstatements in the application be the basis for rescission?
Under the Civil Code, the insured must disclose all material information about the risk. Information is considered material if it is included in the insurer's questionnaire or similar document. Therefore (apart from for non-marine insurance – see below), the duty of the insured is not to make misrepresentations or omissions when answering the insurers' questions. The test for disclosure is subjective (ie, only such information should be disclosed that was known to the insured). If the disclosure obligation is not met, the insurer is entitled to file a claim for the rescission of the insurance contract in court.
The situation is different for marine insurance, where it is the duty of the insurer to define what information is material, and where the test is objective (information must be disclosed if it is known or ought to be known by the insured). While in non-marine insurance the insurer, in cases of misstatement, must file a separate court claim to invalidate the insurance contract, in marine insurance the insurer may, in cases where the disclosure obligations were breached, unilaterally refuse payment.
Reinsurance disputes and arbitration
36. Reinsurance disputes
Are formal reinsurance disputes common, or do insurers and reinsurers tend to prefer business solutions for their disputes without formal 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.
37. Common dispute issues
What are the most common issues that arise in reinsurance disputes?
One controversial issue relates to payments after expiration 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.
Recently 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.
38. Arbitration awards
Do reinsurance arbitration awards typically include the reasoning for the decision?
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.
39. Power of arbitrators
What powers do reinsurance arbitrators have over non-parties to the arbitration agreement?
Arbitrators of reinsurance disputes have general powers of arbitrators provided by the Law on Arbitration Courts 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.
40. Appeal of arbitration awards
Can parties to reinsurance arbitrations seek to vacate, modify or confirm arbitration awards through the judicial system? What level of deference does the judiciary give to arbitral awards?
Arbitration awards can be contested or enforced through competent commercial courts as part of the state judicial system. The law provides the scope of powers of commercial 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.
Reinsurance principles and practices
41. Obligation to follow cedent
Does a reinsurer have an obligation to follow its cedent's underwriting fortunes and claims payments or settlements in the absence of an express contractual provision? Where such an obligation exists, what is the scope of the obligation, and what defences are available to a reinsurer?
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).
42. Good faith
Is a duty of utmost good faith implied in reinsurance agreements? If so, please describe that duty in comparison to the duty of good faith applicable to other commercial agreements.
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. There is no act that would expressly declare the principle of good faith both 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 contract. 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.
43. Facultative reinsurance and treaty reinsurance
Is there a different set of laws for facultative reinsurance and treaty reinsurance?
No. Both types are regulated by the Law on the Organisation of Insurance Business in the Russian Federation.
44. Third-party action
Can a policyholder or non-signatory to a reinsurance agreement bring a direct action against a reinsurer for coverage?
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.'
45. Insolvent insurer
What is the obligation of a reinsurer to pay a policyholder's claim where the insurer is insolvent and cannot pay?
There is no such obligation.
46. Notice and information
What type of notice and information must a cedent typically provide its reinsurer with respect to an underlying claim? If the cedent fails to provide timely or sufficient notice, what remedies are available to a reinsurer and how does the language of a reinsurance contract affect the availability of such remedies?
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.
47. Allocation of underlying claim payments or settlements
Where an underlying loss or claim provides for payment under multiple underlying reinsured policies, how does the reinsured allocate its claims or settlement payments among those policies? Do the reinsured's allocations to the underlying policies have to be mirrored in its allocations to the applicable reinsurance agreements?
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 shall not be considered 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.
48. Review
What type of review does the governing law afford reinsurers with respect to a cedent's claims handling, and settlement and allocation decisions?
The law provides no specific types of review; since all the mentioned issues are contractual, they are considered depending on the terms of agreements and particular circumstances.
References to a claims control clause or a simultaneous payment clause frequently appear in reinsurance contracts. These clauses, on full control over claims handling or the payment of a claim by the reinsurer at the sametime as a claim is paid on the original insurance, are not directly regulated by Russian law. However, the fact that they are widely used in reinsurance practice makes these clauses 'a custom of reinsurance business' in the sense of the Civil Code and so the source of Russian reinsurance law. The scope of review shall be the same as in original law and practice.
49. Reimbursement of commutation payments
What type of obligation does a reinsurer have to reimburse a cedent for commutation payments made to the cedent's policyholders? Must a reinsurer indemnify its cedent for 'incurred but not reported' claims?
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.
Update and trends
The review in 2014 of the leading legislation in the insurance field, the Law on the Organisation of Insurance Business, introduced some new rules, such as electronic policies and the launch of a unified motor insurance database. 2014 also saw a major reform of the obligatory motor insurance law, with a serious increase in the level of insurers' liability.
The government continues to discuss suggestions to introduce a number of new types of obligatory insurance. For some of the existing types of obligatory insurance, new laws or bills increase the minimum insured amount and introduce other additional regulations.
50. Extracontractual obligations (ECOs)
What is the obligation of a reinsurer to reimburse a cedent for ECOs?
Russian law does not oblige reinsurers to pay claims resulting from occurrences outside the terms and conditions of the contract. Reimbursement for extracontractual losses can be agreed by the parties on a case-bycase basis.