In connection with the necessity of implementing the Solvency II Directive, work on the Insurance and Reinsurance Activity Act was in progress for all of 2015. The new system focuses on capital requirements and the risk borne by insurance undertakings and reinsurance undertakings.
The vast majority of the regulations in the Insurance and Reinsurance Activity Act has been in force since 1 January 2016.
2015 was another year to witness intense preparations for implementation of the requirements of Solvency II directive (Directive 2009/138/EC of the European Parliament and the Council dated 25 November 2009 on the taking-up and pursuit of the business of insurance and reinsurance), which bind insurance and reinsurance companies as of 1 January 2016. The new scheme concentrates on capital requirements and risk borne by insurance and reinsurance companies. In 2015, there were also ongoing preparations on the new Act on Insurance and Reinsurance Activity in connection with the implementation of Solvency II.
The Act on Insurance and Reinsurance dated 11 September 2015 – most of the provisions become effective as of 1 January 2016. A vacatio legis principle is applied to some provisions (e.g. provisions on contracts on third party’s account which come into force on 1 April 2016; until that day, provisions on insurance with insurance capital fund will also apply; a provision allowing insurers to acquire voluntary pension funds directly or via agents will come into effect on 1 August 2016.) The Act has following objectives:
- to introduce a new solvency scheme applicable to insurance and reinsurance companies, similar to the regulations on capital requirements for banks (adaptation of EU provisions of Solvency II). The system is founded on the three pillars: the first pillar specifies capital requirements – higher capital requirements will be applied that will reflect specific risk profile of a given insurance or reinsurance company; the second specifies quality requirements concerning management system and supervision process; the third concerns information obligations of insurance and reinsurance companies;
- to reinforce right of the insured in the contracts on third party’s account – especially in group insurance (e.g. an obligation to provide the insured with information on contractual terms and conditions, providing the insured and her/his heirs with information related to the claims handling process);
- to impose on insurance companies an obligation to analyze the needs, knowledge and experience level, as well as financial standing of the policyholder or the insured prior to concluding an investment policy. The clients are also entitled to withdraw from unit-linked insurance contracts for a longer period of time (besides the right to withdraw provided for in the Civil Code) and at a lower cost (60 days following receipt of the information provided for in the Act, while the maximum early termination fee may not exceed 4% of premiums paid);
- to change the manner of remunerating insurance agents and handling charges for unit-linked products and structured products. While setting the remuneration of the agent, an insurance company should follow the rule of even spreading in time of an insurance agent’s commission (in case of contracts concluded for more than 5 years, the commissions should be spread over a minimum period of 60 months);
- to grant new entitlements to the Polish Financial Supervision Authority (PFSA)(a supervisory body may e.g. prohibit or limit trading, distribution, or sale of selected investment policies).The PFSA may also issue recommendations within a scope necessary to implement guidelines and recommendations of European Insurance and Occupational Pensions Authority, as well as to prevent infringement of interests of the insured, policyholders, beneficiaries or entitled under insurance contracts;
- to maintain an obligatory participation of insurers in the Polish Chamber of Insurance (PIU);
- to introduce a number of regulations concerning strictly operations of insurance and reinsurance companies on the Polish insurance market.
In 2015, the PFSA released recommendations concerning the following areas: flood risk management in the insurance sector, insurance distribution, motor insurance claims handling, reinsurance inwards/retrocession, IT management and IT security. The recommendations fall under the „comply or explain” rule. Institutions under supervision may not follow the principles included in the recommendations; but if the company fails to implement any of the principles, either permanently or incidentally, it is obliged to inform the market of this fact and justify reasons for non-implementation of a given principle. At the same time, in accordance with its statutory entitlement, PFSA is working on further recommendations, e.g. concerning a product adequacy test and product management system.
The Act on Complaints Handling by Financial Market Entities and Financial Ombudsman dated 5 August 2015 of provisions that increase protection mainly of financial institution clients (banks, insurance companies, pension funds). The Act specifies terms and conditions for handling complaints filed by consumers. The Act appoints a Financial Ombudsman, a new function to replace the Insurance Ombudsman. The Financial Ombudsman represents interests of financial institution clients (e.g. she/he will hear clients’ complaints and applications, is entitled to impose fines of up to PLN 100 thousand on financial institutions which fail to observe deadlines for complaints handling, etc., may lead mediation proceedings, as well as initiate and organize education and information activities related to client rights protection). It needs to be added that it is mandatory for a financial market entity to participate in mediation proceedings.
Apart from the above-mentioned acts, PSFA requirements and works related to implementing the requirements of Solvency II Directive, other regulations were also implemented in 2015, which had or will have an impact on the operations of PZU Group. Some of them are listed below:
The Act on amending the Act on the Protection of Consumers and Competition and Code of Civil Procedures Act dated 10 June 2014, which became effective as of 18 January 2015. The Act introduced several changes to the Polish anti-trust law aimed to strengthen the domestic system for the protection of competition and consumers. The main objectives of the amendments are the following: to improve the detection of competition limitation, the effectiveness of the detection and accountability of entrepreneurs entering illegal agreements, and strengthen the positions of the weaker players on the market. Changes were introduced as to the obligation to notify about the intention of concentration in instances of acquiring control of an entrepreneur or purchasing the property of another entrepreneur.
Amendments to the Act on the protection of consumers and competition and several other acts dated 5 August 2015. The aim of the amendment is e.g. a more efficient combating unfair market practices in financial service sector, i.e. offering a client a product which does not suit his/her needs (so-called misspelling.) As per the Act, the President of the Office of Competition and Consumer Protection, through issuing an administrative decision, will settle on an inadmissible nature of a provision included in a template contract and forbid its further use. The proceedings in this respect are to be conducted by the President of the Office of Competition and Consumer Protection and such a procedure will replace supervision of provisions included in a template contract which had been conducted by the Court of Competition and Consumer Protection. The decision of the President of the Office of Competition and Consumer Protection will be published on the Office’s website, whereas the existing nature of a register of prohibited (abusive) clauses will be maintained for a period specified in the Act.
The Act amending the Corporate Income Act, Personal Income Tax Act, and several other acts dated 29 August 2014, which has been in force as of 1 January 2015, amended e.g. the regulations concerning thin capitalization and limited the exemption of revenues acquired from investment-oriented life insurance – structured products. Tax does not apply to revenue from endowment insurance for which a technical rate is applied to establish the technical provision. The Act simplified also the calculation of taxable revenue from premium investment as the difference between the benefit amount and the premium paid to the insurance company.
The Act amending the Act on Crop and Livestock Insurance dated 26 June 2015 provides fruit and vegetable producers with insurance with premiums subsidized from the state budget if insurance companies apply tariff rates higher than 6% of the sum of insured crop. The new provisions take into account amended rules for granting public aid specified in the EU guidelines on the state’s aid in agriculture and forestry sector and in rural regions in the years 2014–2020, which refer to the aid in financing insurance premiums. The newly introduced solution is meant to expand insurance protection of crop by a growing number of concluded insurance contracts.
The Act amending Act on Mandatory Insurance dated 22 May 2003, the Insurance Guarantee Fund and the Polish Motor Insurers’ Bureau dated 25 September 2015 introduces a provision stating that a claim for compensation resulting from TPL insurance of owners of motor vehicles may be filed exclusively with the court competent for place of residence or register office of the party injured in the event that caused the damage in question, or the court competent for the place where such an event occurred. The aim of the amendment is to limit concentration of court proceedings related with seeking compensation resulting from TPL insurance of owners of motor vehicles.
The Act dated 9 October 2015 on Executing the Agreement Between the Government of the United States of America and the Government of the Republic of Poland to Improve International Tax Compliance and to Implement FATCA has been binding as of 1 December 2015. FATCA is the American federal law which aims to oppose tax evasion by both natural and legal persons obliged to pay taxes in the United States. Both PZU Życie and PZU TFI implemented procedural and IT solutions that enable fulfillment of statutory obligations.
The Act amending Act on the Financial Market Supervision and several other acts dated 5 August 2015. The aim of the Act is to increase protection of consumers using financial services provided e.g. by consumer credit institutions which are not obliged to hold a PSFA permit for such operations.
The Act dated 9 October 2015 on amending the Corporate Income Tax Act, Personal Income Tax Act, and several other acts. The Act has been effective as of 1 January 2016 and implements the Polish legal system to the three directives of EU Council: 2014/48/EU dated 24 March 2014, 2014/86/EU dated 8 July 2014, and 205/121/EU dated 27 January 2015. The most important amendments include: with relation to income on sale of securities (tax obligation due to paid sale of securities arises upon making such a transaction), with relation to tax on dividends, a so-called „tax evasion clause” (taxpayer is not exempt from tax on dividend or revenues from share in profit of related entities if the transaction does not reflect economic reality and its objective or one of key objectives was tax evasion or avoidance), with relation to transfer pricing (some taxpayers who enter transactions with related entities will be obliged to prepare substantially extended documentation on transfer pricing), with relation to interest tax (changes in this respect aim to efficiently tax profit on savings in a form of interests paid across borders).
The Act amending Accounting Act and several other acts dated 23 July 2015. New regulations introduce to the Polish legal system Directive 2013/34/EC of the European Parliament and the Council dated 26 June 2013 on annual financial statements, consolidated financial statements and related reports of some entity types. The Act has been effective as of 23 September 2015, except for Article 1 point 1 and Article 5 which came into force on 1 January 2016.
The Act on Tax on Some Financial Institutions dated 15 January 2016. In accordance with the Act, as of February 2016 banks (domestic, branches of foreign banks, branches of credit institutions), insurance and reinsurance companies, cooperative saving and credit institutions, and lending companies are subject to so-called financial assets tax annually amounting to 0.44% of their assets’ value. For banks and cooperative saving and credit institutions, the value of tax-free assets is PLN 4 billion. For insurers this amount is PLN 2 billion, and PLN 200 million for lending companies. The limits of assets’ value beyond which insurance and reinsurance companies will be subject to tax are specified for entire capital group and not respective companies.
Judicial decisions and the Prohibited Clauses Register.
On 9 September 2015, the Supreme Court (File no. III SZP 2/15) issued a resolution where it stated that, when seeking from the insurer claims resulting from TPL insurance of owners of motor vehicles, the injured party who is a natural person that does not conduct business activity is not deemed a consumer within the meaning of Article 24 in conjunction with Art 4 point 12 of the Act on the Protection of Consumers and Competition dated 17 February 2007, in conjunction with Article 22(1) of the Civil Code. In its resolution III CZ 5/11, the Supreme Court pointed out that „a person injured by the insured (perpetrator) cannot be deemed a consumer as he/she does not conclude an agreement, and filing a claim against perpetrator and using the actio directa rule towards the insurer do not constitute a legal transaction within the meaning of Article 221 of the Civil Code”.
The projected legal regulations may have significant influence on insurance and reinsurance operations. Insurance Distribution Directive (IDD) of the European Parliament and the Council. On 24 November 2015, the European Parliament approved Insurance Distribution Directive (IDD). The directive should be soon officially adopted by the Council. Member states will then have 2 years to implement the directive’s provisions into their legal systems. During that time, implementing acts provided for in the Directive will be drafted. The new directive will substitute the previous Directive 2002/92/EC of the European Parliament and the Council dated 9 December 2002 on insurance mediation.