Articles

Foreign insurance company branches in Romania – bridging the gap between theory and practice

23 November 2005 (Invest Romania)

Besides the general positive issues, involved by the harmonization of the national legislation with the community laws and regulations, the effective implementation of this process has generated a range of confusions and/or lack of certitude related to the practical application of certain provisions of the recently adopted normative acts.

Such an example is to be found in the insurance field and refers to the practical possibility of establishing and authorizing foreign insurance company branches in Romania. The entities with Romanian legal personality (i.e. joint stock companies and/or mutual funds, subsidiaries of certain insurance companies in other states), foreign insurers’ branches have been expressly regulated among the legal forms of carrying out insurance activities in Romania, through the initial version of Law no. 32/2000 on the insurance companies and insurance supervision.

The legal regime of the establishment of foreign insurance company branches was amended by the entering into force of Law no. 403/2004 that, maintained the requirement of prior authorization of the branches by the Insurance Supervisory Commission, but also clearly made a distinction between (i) branches of certain insurance companies in the member states of the European Union (ii) branches of the insurance companies in the third states. This distinction shall become significant as of the date of Romania’s accession to the European Union, when a different legal regime of establishment and authorization of the branches is to be applied.

By contrast with insurance company branches originating in third states – that will be subject to a complete authorization process by the Insurance Supervisory Commission, insurance company branches originating in member states of the European Union will be required in view of legally operating in Romania, only the verification of the specific authorization of the holding companies from the origin states, based on the free movement of services and right of establishment.

Nevertheless, until accession date, the natural question is raised whether establishment and operation of foreign insurance company branches in Romania is possible and under what conditions. As the distinction established by Law no. 403/2004 is not of immediate application, it can be inferred that until the referred date, the provisions of the un-amended Law no. 32/2000 shall be applied, provisions allowing the establishment of foreign insurance company branches.

At a thorough review, we notice that on the Romanian insurance market there are no foreign insurer branches, in the classical legal meaning of the term – business entities without legal personality who act exclusively in the name and on behalf of the holding company.

An explanation of such a phenomenon resides less in the lack of interest shown by the foreign insurers in such an operating form on the Romanian insurance market and more in the practice of the supervisory and control institutions, leading to the impossibility to implement the relevant legal provisions. Thus, the inexistence of certain secondary norms, meant to specify the conditions and the manner of authorization of foreign insurer branches by the Insurance Supervisory Commission, as well as the practice in this field generated abnormalities in the interpretation of the law and its application.

The supervision authority finally interpreted that the unique manner of enabling the presence of foreign investors on the Romanian insurance market is the establishment of entities with Romanian legal personality, authorized as per the legal provisions, the incorporation and operation of branches until accession date not being possible. Moreover, the practice confirms this interpretation, if we consider that all the insurance companies authorized to carry out insurance activities in Romania, as they are mentioned in the Insurers Register, are exclusively organized as joint stock companies.

The settlement of the issue of setting up foreign insurance companies’ branches in Romania is much more required as the option is more than appealing to the investors, considering the immediate financial effort involved by the market within a greenfield project.

Thus, as per the relevant laws in the field of trading companies, such a corporate entity does not require the existence of a share capital and less the observance of the minimum share capital requirements in the field of the insurances – according to the new regulations, the share capital of the Romanian insurance companies newly established raises to RON 8,000,000 (approximately Euro 2.2 mil.) for general insurance activities and RON 12,000,000 (approximately Euro 3.4 mil.) for life insurance.