Study on the Current Situation and Prospects of Mutuals in Europe

Ref. Ares(2015)2103418 - 20/05/2015

Study on the current situation and prospects of mutuals in Europe

Final report

Country studies

This study has been financed by the European Commission, DG ENTR

Simon Broek Bert-Jan Buiskool Alexandra Vennekens Rob van der Horst

Projectnumber: BA03954

Zoetermeer, November 12, 2012

Panteia – EIM P.O. Box 7001, 2701 AA Zoetermeer, The Netherlands Phone: + 31 79 322 2000 Fax: + 31 79 322 2101 Internet: www.panteia.nl Email: [email protected]

The responsibility for the contents of this report lies with Panteia. Quoting of numbers and/or text as an explanation or support in papers, essays and books is permitted only when the source is clearly mentioned. No part of this publication may be copied and/or published in any form or by any means, or stored in a retrieval system, without the prior written permission of Panteia. Panteia does not accept responsibility for printing errors and/or other imperfections.

2 Contents

1 Austria 5 2 Belgium 21 3 Bulgaria 45 4 Cyprus 51 5 Czech Republic 55 6 Germany 59 7 Denmark 75 8 Estonia 85 9 Greece 89 10 Spain 99 11 Finland 107 12 France 121 13 Hungary 143 14 Iceland 157 15 Ireland 161 16 Italy 169 17 Liechtenstein 185 18 Lithuania 191 19 Latvia 195 20 Luxembourg 201 21 Malta 211 22 Norway 217 23 Netherlands 225 24 Poland 247 25 Portugal 271 26 Romania 283 27 Slovenia 293 28 Slovakia 311 29 Sweden 315 30 United Kingdom 325

4 1 Austria

Country study on the current situation and prospects of mutuals

Austria

For non-life, life and re-insurance the Solvency II Directive applies to the following company forms: ‘Aktiengesellschaft’ (corporation), ‘Versicherungsverein auf Gegenseitigkeit’ (insurance mutual).

A) Definitions of mutuals

There is no general definition of a mutual,

There are only insurance mutuals in Austria.

According to Art 3 of the Versicherungsaufsichtsgesetz/ Insurance Supervision Act1, domestic insurance undertakings shall only be operated in the legal forms of a joint-stock company (Aktien-gesellschaft), a European Company (SE) or a mutual insurance association (Versicherungsverein auf Gegenseitigkeit). The Solvency II Directive applies to these forms for non-life and life insurance and reinsurance undertakings.

 An insurance mutual (“Versicherungsverein auf Gegenseitigkeit”) is defined as an association that provides insurance to its members under the principle of reciprocity2. Mutual insurance associations are allowed to be active in all insurance classes, both life and non- life and reinsurance (hereafter called ‘ordinary mutual insurance association’ for purposes of this study)  Small mutual insurance associations: according to Art. 62, a small mutual association is a mutual association which is limited in its operation with regard to territory, type of business and group of persons, specified in positions 8 and 9 of Annex A of the Versicherung- saufsichtgesetz/Insurance Supervision Act except nuclear risks. The operation of a death benefits fund in connection with employment contracts or the professional activity of the members as well as an association which is exclusively engaged in the reinsurance of small mutual associations shall also be deemed a small mutual association..3 For further business restrictions for small mutual associations (which are exempted from some legal provisions) see below. The FMA (Financial Market Authority)4 shall decide whether a mutual association shall be considered a small mutual association.

1 Versicherungsaufsichtsgesetz 1978, Federal Law Gazette 569/1978, as amended. The last amendment was made by the law FLG 54/2012 (status of information: 11 July 2012). The law can be found in an updated German original version through a link on http://www.fma.gv.at/de/rechtliche- grundlagen/gesetzliche-grundlagen/aufsichtsgesetze.html ; A not completely up-to-date (informal) translation into English (on 11 July 2012, the latest amendment included was FLG 58/2010) can be found on http://www.fma.gv.at/en/legal-framework/legal-foundation/supervisory-laws.html In this chapter, allreferences to Articles relate to the articles of this act, unless specified otherwise.

2 FMA (Financial Market Authority) glossary at http://www.fma.gv.at/en/footer/glossary.html. See also Art. 26 which talks (in its inofficial translation) about “the principle of mutuality”.

3 Essentially, they may insure against fire, explosion, storm, other natural forces (notably illness and death of animals), landslide, hail, frost and theft; all these, however, only for property other than vehicles, aircraft, vessels and goods in transit. De facto these small mutual associations are mainly active in cattle insurance and fire insurance.

4 Finanzmarkaufsicht: thttp://www.fma.gv.at/en/legal-framework/legal-foundation/supervisory-laws.html

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B) Legal types (if more types exist)

Insurance mutuals, like all insurance undertakings, fall under the Versicherungsaufsichtsge- setz/Insurance Supervision Act, the Versicherungsvertragsgesetz/Insurance Contract Act and other insurance acts.5

Sections 26 to 73 of the Versicherungsaufsichtsgesetz/Insurance Supervision Act contain special rules for mutual insurance associations, regarding their establishment, organisation, finances, winding up, mergers, demutualization. There are also special provisions for branches of foreign mutual insurers and small mutual insurance associations.

A distinction is made between (ordinary) insurance mutuals and small mutual insurance associations.

Small mutual associations: In a small mutual association, a maximum amount for risks accepted (and retained) must be determined, either in the articles of association or through a decision by the competent body as determined in the articles.  According to Art. 62, a small mutual association is a mutual association which is limited in its operation with regard to territory, type of business and group of persons.  The operation shall be deemed limited with regard to territory if – in accordance with the articles of association – it principally extends to the federal province in which the association has its head office as well as to certain immediately neighbouring regions.  The operation shall be deemed limited with regard to type of business if only the risks stipulated under nos. 8 and 9 of Annex A to the present federal act are covered, with the exception of damage caused by nuclear energy.6  The operation shall be deemed limited with regard to group of persons if the association does not comprise more than 20,000 members.  The operation of a death benefits fund in connection with employment contracts or the professional activity of the members as well as an association which is exclusively engaged in the reinsurance of small mutual associations shall also be deemed a small mutual association. (Art 62(2)). The Financial Market Authority (FMA) decides whether a mutual insurance association shall be considered a small mutual insurance association. (Art 62(3))

C) Methods of creation (required capital or assets)

Mutual associations shall be entered in the company register (article 27).

The articles of association shall be authenticated by a notary public and the articles of association of any mutual insurance association shall stipulate: (Art 29(2)

1. the name and the head office of the association; 2. the object of the undertaking; 3. the form of the association’s publications; 4. the beginning of the membership; 5. the initial (foundation) fund; 6. the raising of funds by the members; 7. the contingency reserve (Sicherheitsrücklage); 8. the appropriation of the surplus;

5 See the special section on small mutual insurers of the website of the Austrian Insurance association

6 Essentially, they may insure against fire, explosion, storm, other natural forces (notably illness and death of animals), landslide, hail, frost and theft; all these, however, only for property other than vehicles, aircraft, vessels and goods in transit. De facto these small mutuals are mainly active in farm animal or cattle insurance and fire insurance.

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9. the kind of composition of the management board (number of management board members); 10. the number of members of the supreme body required for exercising minority rights (not applicable for small mutuals).

A (ordinary) mutual insurance association comes into existence (“shall be deemed established”) upon the issuance of the licence according to Art.4 (Art 31). According to article 4. (1), the operation of the contractual insurance business requires, unless expressly stated otherwise, a licence granted by the FMA. The licence of a domestic insurance undertaking shall be valid in the entire territory of all signatory countries, the licence of a foreign insurance undertaking in the federal territory of Austria. The licence for the operation of the insurance classes of life assurance and the licence for the operation of other insurance classes with the exception of accident insurance, health insurance and reinsurance are mutually exclusive. The conditions to obtain a license are the same for mutual insurers versus other insurers. There is no mentioning that the initial fund is 25% lower for mutuals.

A small mutual insurance association shall come into existence upon its establishment (Art. 62(4)).

(Ordinary) insurance mutuals have to be registered in the company register (Art 36(1). All the members of the management board and the supervisory board shall apply for the entry of the association in the company register at court. The registration may only be effected after the foundation fund has been paid in. The declaration confirming that this condition is fulfilled shall be part of the registration. To this end, it has to be proven that the management board is not limited in its disposal of the amount paid in, particularly not by counter- claims. Small mutual insurance associations may apply for voluntary registration (Art. 63(1a)).

Initial (foundation) fund (Gründungsfonds) (applicable to all insurance mutuals, ordinary and small):

Art 34 (1): Upon the establishment of a mutual association, a foundation fund shall be created, which is earmarked for the defrayal of the cost of the establishment and the initial set-up of the association, the organisation cost as well as the other expenses incurred by commencing the business activities. Unless the articles of association determine otherwise, the fund may also be used to cover operating losses. (2) The articles of association shall contain provisions concerning the repayment of the foundation fund and, if it is not repaid, provisions concerning its use. (3) The FMA may relieve a mutual association of creating a foundation fund if the defrayal of the cost of the establishment and the initial set-up of the association, the organisation cost as well as the other expenses incurred by taking up the business activities are secured in another way.7

Article 35. (1) The business activities may only be commenced after the foundation fund has been fully paid in cash. (2) The FMA shall make the issue of the licence for further insurance classes conditional on an appropriate increase in the foundation fund if it has not been repaid and the defrayal of the cost incurred by commencing the operation of these insurance classes cannot be deemed secured in another way. (3) The foundation fund may only be repaid out of the annual surplus. The repayment made in one year must not be in excess of the amount which is allocated to the contingency reserve (Article 41) in the same year. (4) Those persons who have made the foundation fund available must not be granted a right to premature repayment. The articles of association may stipulate that and to what extent these persons shall be entitled to participate in the management of the association, or that they are entitled to an interest payment from the annual income as well as a share in the surplus resulting from the financial statements.

7 There is no minimum amount set in the legislation.

9 Austria

D) Management and corporate governance

The Versicherungsaufsichtsgesetz/Insurance Supervision Act contains the legislation and regulations for mutual insurance associations. The Act specifically refers to small insurance associations8.

 Ordinary mutual insurance associations: The association must have a management board, a supervisory board and a general meeting of members or a council of members’ representatives as supreme body (Art 43).

 Small mutual associations must have a management board and a general meeting of members or a council of members’ representatives as supreme body (Article 66). For them, having a supervisory board is facultative (Art 70(1)).

The management board shall manage the association on its own responsibility in the way the interest of the association requires, taking into consideration the interest of the members and employees as well as the public interest (Article 44).

The supervisory board members shall be elected by the supreme body (Art. 47(1) and 70(2)). The supervisory board shall supervise the management. It shall call convene the supreme body when the interest of the association requires it (Art 47).

In Art 50(1) and (2), the convening, participation, attendance list, minutes, and information rights with regard to the meetings of the supreme body are regulated with broad references to the respective provisions of the Companies Act. For small mutual insurance associations, the parallel provisions are in Art. 69 with slightly different references to the Companies Act.

Rights of members The membership of an insurance mutual is dependent on the existence of an insurance contract.  However, mutual insurance associations may also conclude insurance contracts without establishing membership, provided that is is specifically permitted in the articles of association (Art 32).  Small mutual insurance associations may not conclude insurance contracts with non- members The members shall exercise their rights in matters of the association in the supreme body unless the law stipulates otherwise (art 49,1)

Voting and representation of members (Article 49). Art 49 (2) The supreme body shall either be the meeting of all members (general meeting of members) or the meeting of representatives of the members, who must be members of the association themselves (council of members). If a council of members is provided for, the articles of association shall regulate its composition as well as the appointment of its representatives. Art 49 (3) The supreme body shall decide in cases expressly stipulated by law or the articles of association. The supreme body may only decide on management issues if the management board or, in the case of a business transaction requiring its consent pursuant to Art. 95(5) AktG9, the supervisory board demands so.

Voting (applicable to all insurance mutuals, ordinary and small):

8 The Versicherungsaufsichtsgesetz/Insurance Supervision Act, §62 – 73

9 Aktiengesetz 1965 – Companies Act 1965, as amended.

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Article 50 (3). The decisions of the supreme body require a majority of the votes cast (simple majority of votes) unless the law or the articles of association stipulate a larger majority. For elections, the articles of association may stipulate otherwise. (4) If the supreme body is a general meeting of members, the voting right may be exercised by a proxy. The power of attorney must be in writing; the power of attorney shall remain in the association’s custody. (5) A member of the supreme body who is to be discharged or released from an obligation by resolution can exercise the voting right neither for himself nor for another member. The same shall apply when a resolution is passed on whether the association shall assert a claim on the member. Otherwise, the conditions and the form of exercising the voting right shall depend on the articles of association.

Types of shares if any Insurance mutuals cannot issue shares. (Ordinary) mutual insurance associations may however – with the supreme body’s consent – raise participation capital and supplementary capital10 and issue securities on it in accordance with Art 73c(7). Participation capital (Par- tizipationskapital) (Art 73c(1)) has equity features11 while supplementary capital (Er- gänzungskapital) (Art 73c(2)) is a form of subordinated loan/bond.

Reserves and surplus distribution (Art 42) Any annual surplus shall be distributed to the members unless  it is allocated to the contingency reserve or other reserves stipulated in the articles of association or  it is used for the repayment of the foundation fund (initial fund)or  it is used for the payment of remunerations according to the articles of association or  it is carried forward to the next financial year. The articles of association shall determine the principles of distribution of the annual surplus and stipulate in particular whether the annual surplus is also to be distributed to members who withdrew during the financial year. A participation in the surplus of a financial year must not be denied for the sole reason that membership was discontinued after the end of the financial year.

According to Art. 35(4), the articles of association may provide that the providers of a initial (foundation) fund may be entitled to an interest payment out of annual income or to a share in the annual surplus.

Possibility for non members investors See reference above to external financing through participation capital and supplementary capital. They can have investments similar to subordinated loans.

Mutual associations (except small ones) may however – with the supreme body’s consent – raise participation capital and supplementary capital12 and issue securities on it in accordance with Art 73c(7). Participation capital (Partizipationskapital) (Art 73c(1)) has equity

10 Article 73c paras. 1 and 2 11 Participation capital is paid-up capital: 1. which is made available during the existence of an undertaking waiving the right of ordinary and extraordinary call-in; 2. which can be repaid by the insurance undertaking only by applying the relevant provisions for capital reduction of the stock corporation law; 3. the income from which is profit-linked, with the profit being the accounting income after having taken into account the net change in disclosed reserves; 4. which – like the share capital – participates in the loss up to the full extent, and 5. which is connected to the right to participation in the liquidation proceeds and may only be repaid after all other creditors’ claims have been satisfied or secured.

12 Article 73c paras. 1 and 2

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features13 while supplementary capital (Ergänzungskapital) (Art 73c(2)) is a form of subordinated loan/bond.

Transparency and publicity requirements / Related auditing issues Accounting, auditing and reporting rules for (ordinary) insurance mutuals follow in general the rules for all insurance undertakings. For small mutual insurance associations (unless their premiums have been above EUR 5 million for three years), Art 86 provides for considerably lower accounting and reporting requirements.14

The insurance company must report to the FMA any change of the members of the executive board and the supervisory board of a domestic joint-stock company or mutual insurance association.15

Protection of assets According to Article 57, in the case of dissolution, the initial (foundation) needs to be repaid first, when all other claims have been resolved. The remaining assests will, when the Stat- utes do not state otherwise, be transferred to the persons which were at the time of dissolution, member.

E) Insurance market structure

At the end of 2011, 105 domestic insurance undertakings were operative in Austria. Of these, 46 were joint-stock companies, 6 were (large) insurance mutuals and 53 were small mutual insurance associations. In addition, there were 6 (non-operative) mutual holding /foundations (see below). Of the small mutual insurance associations, 34 were essentially fire insurers, 18 were animal insurers and one was a reinsurance mutual.16

Over the past ten years, the number of licensed insurance undertakings has been slightly declining. In 2002, there were a total of 116 licensed domestic insurers, thereof 48 joint- stock companies, 5 (large) insurance mutuals and 62 small mutual insurance associations. Of the small mutual insurance associations, 40 were essentially fire insurers, 20 were animal insurers; there was one funeral insurer and one reinsurance mutual.17

Ebner and Ubl observed in 200918 , that “of particular relevance from an economic perspective and as regards financial stability analysis are insurance companies that trade as joint stock corporations.”

According to the Austrian Insurance Association (Verband der Versicherungsunternehmen Österreichs – VVO)19,, small mutual insurance associations have existed for over 200 years and are the oldest insurance form in Austria. Some advantages of small mutual insurance associations are:

13 Participation capital is paid-up capital: 1. which is made available during the existence of an undertaking waiving the right of ordinary and extraordinary call-in; 2. which can be repaid by the insurance undertaking only by applying the relevant provisions for capital reduction of the stock corporation law; 3. the income from which is profit-linked, with the profit being the accounting income after having taken into account the net change in disclosed reserves; 4. which – like the share capital – participates in the loss up to the full extent, and 5. which is connected to the right to participation in the liquidation proceeds and may only be repaid after all other creditors’ claims have been satisfied or secured.

14 More detailed regulations are specified in a Regulation by the Ministry of Finance (RLVkV, FLG 749/1990, as amended)

15 http://crossborder.practicallaw.com/7-501-3169?q=*&qp=&qo=&qe=#a949726

16 Financial Market Authority, Annual Report 2011

17 Financial Market Authority, Annual Report 2002

18 Ebner, Gernot, Ubl, Eva (2009), The Austrian Insurance Industry from a Financial Stability Perspecti- ve: an Analysis of the Period from 2002 to 2008.

19 http://www.vvo-kleineversicherungsvereine.at/wir-ueber-uns

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- Risk protection within a defined group with a similar risk profile against reasonable cost. Responsibility towards members as shareholders in the mutual. - Members are not just clients but also have voting rights in the mutual association - Organisation according to neighbourhood principles provides that employees and clients know the regional risks. This enables benefitting from customised offers, while the neighbourhood principle ensures fast and non-bureaucratic assistance in case of damage.

1 Legislation impacting the functioning of mutuals:

1 Is there legislation on taxation issues (preferential treatment)?

There are no special rules for mutual insurance associations.20

2 Is there legislation concerning employee involvement systems?

Concerning legislation on employee involvement systems, there is nothing specifically for insurance mutuals. When insurance mutuals have a supervisory board, the rules for joint-stock companies with regard to employees’ representation apply.

3 What are the possibilities and regulations in a situation of demutualization (e.g. transforming a mutual to a traditional capital company) protection of assets in case of demutualization?

The Versicherungsaufsichtsgesetz/Insurance Supervision Act regulates the following types of change of legal form and/or close-down:

 Dissolution and liquidation (Art 56 and 57)  Transfer of portfolio (Art 58)  Merger (among mutual associations) (Art 59 with special provisions for small mutuals in Art 72)  Transfer of assets to a joint-stock company (Art 60)  Transformation into a joint-stock company (Art 61)  Transfer of (all) insurance activities into (subsidiary) joint-stock company/-ies (Art 61a-61c, 61e)  Further transformation into a private foundation (Art 61f)

In this section, only those passages from the law are quoted that relate to the protection of assets and/or members. The Versicherungsaufsichtsgesetz/Insurance Supervision Act contains extensive references to the relevant provisions of the Companies Act, notably in the areas of procedure and creditor protection.

Dissolution The mutual insurance association may be dissolved, among others, upon decision (with 75% of votes cast) by the supreme body. This decision requires the consent of the supervisory authority which shall be refused if the members’ rights are not sufficiently respected.

The dissolution is followed by the liquidation. The foundation fund may only be repaid after satisfying all other claims, including those of members (arising from their insurance contracts). No supplementary calls may be made for the repayment of the foundation fund.

Any liquidation surplus shall be distributed to the persons who were members at the moment of the dissolution, unless the articles of association stipulate other-

20 PWC (2009), Austria, International Comparison of Insurance Taxation.

13 Austria

wise. The distribution shall follow the established principles for the distribution of annual surpluses.

Transfer of portfolio Like any other insurance undertaking, a mutual insurance association may transfer all or parts of its portfolio to another undertaking. Such a transfer requires a decision (with 75% of votes cast) of the supreme body. The transfer requires the consent of the supervisory authority which shall be refused if the members’ rights are not sufficiently respected.

Merger Insurance mutuals may merge among themselves. Members of the merging associations become automatically members of the new merged association. The supreme bodies af all merging associations must approve with 75% of votes cast. Small mutual association may only merge among themselves or may be merged into a (ordinary) association.

Transfer of assets to a joint stock company A mutual insurance association may, without winding up, transfer all of its assets into a joint-stock company and vice versa.21 This requires a decision of the supreme boody with 75% of votes cast. Members are entitled to a compensation for the loss of their membership rights.22 This compensation may for example consist of shares of the new entity or of an amount of money.

Transformation into a joint stock company A mutual insurance association may be transformed into a joint stock company by resolution of the supreme body with a majority of at least three quarters of the votes cast. The transformation requires the consent of the supervisory authority which shall be refused if the members’ rights are not sufficiently respected.

In contrast to the procedure for a transfer of assets, every single member may object to the transformation by registered letter.

The transformation decision requires the consent of the supervisory authority which shall be refused if the members’ rights are not sufficiently respected.

The transformation decision includes the modalities of the change from being a member to being a shareholder. Unless otherwise stipulated, members of the mutual insurance association shall become shareholders of the company. If this is not foreseen, members have to be compensated otherwise for the loss of their membership rights.

Unless otherwise stipulated, all members shall receive the same amount of shares. A distinction may only be made according to one (or more) of five criteria: amount insured, amount of premiums, amount of technical reserves in life insurance, duration of membership, deviating provisions for the distribution of the annual surplus.

21 A joint-stock insurer may, in parallel, also transfer all of its assets into a mutual insurance association (Art 236 Companies Act).

22 This seems to be the prevailing legal opinion. See Braumüller, Versicherungsaufsichtsrecht, Vienna & New York, 1999, 185.

23 This is different from the situation in Germany. In Austria, the mutual holding must not any more engage in insurance business; in Germany, the “empty” mutual holding is not allowed and the holding must retain some insurance activities.

24 These indirect participation rights are maintained even if the operative subsidiary then restructures and transfers part or all of its operations to yet another undertaking (controlled in the same group).

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Transfer of (all) insurance activities into (subsidiary) joint-stock company/-ies One or more mutual insurance association(s) may transfer its/their entire insurance activities by means of a universal succession to one or several joint stock companies. The transferring mutual (insurance) association continues to exist, but its activity is restricted to the management of its assets: the participation(s) in the operative joint stock company/-ies and any other asset.23 As a mutual holding they are not allowed to engage in insurance business. The decision requires a majority of 75% of votes cast in the supreme body and also requires the consent of the supervisory authority which shall be refused if the members’ rights are not sufficiently respected.

The members of the association at the moment of the transfer remain members as long as they have an insurance contract with the operative subsidiary. In principle, concluding an insurance contract with the operative subsidiary establishes membership in the (parent) mutual insurance association; however, the articles (of the operative joint stock company) may foresee insurance contracts without automatic membership in the association.

The supreme body of the (parent) association retains certain information and decision rights with regard to the management of the operative subsidiary company.24

Outside shareholders may acquire (either via the public markets or otherwise) shares in the operative subsidiary. The (parent) association(s) must retain at least 26% of the share capital of the operative subsidiaries (in order to maintain controlling minority rights); otherwise they shall be closed down and liquidated. Its/Their members have to be compensated and/or participate in the liquidation surplus.

Further transformation into a private foundation A mutual insurance association that has already transferred all its insurance activities into an operative subsidiary joint stock company may then choose to transform itself into a private foundation. The members of the association become the beneficiaries of the foundation. Their status and rights continue to resemble that of members of the association. The transformation requires a majority of 75% of votes cast in the supreme body of the association and requires the consent of the supervisory authority which shall be refused if the rights of the members of the association are jeopardized by the transformation and/or by their new position as beneficiaries of the foundation according to the statutes of the foundation.

2 Concerning internal barriers (barriers mutuals face within their own country):

4 Issues concerning the legal entity:

 The obstacles operators may have when they want to create a mutual in a country;

Creating a non-insurance mutual is not possible.

There are a number of rules to which an insurance mutual must adhere when being established. These concern:  The registration of the association in the commercial register  The setting up of articles (for the obligatory contents, see above)  The creation of a foundation fund (Art 34)

15 Austria

The initial (foundation) fund is earmarked for the defrayal of the cost of the establishment and the initial set-up of the association, the organisation cost as well as the other expenses incurred by commencing the business activities. Unless the articles of association determine otherwise, the fund may also be used to cover operating losses. The fund must be fully paid in cash.

However, the supervisory authority may relieve a mutual insurance association from this obligation if the financing of the initial stages of business is secured in another way.

There are no specific legal form related obstacles.

 The obstacles operators may have when they want to proceed to a merger of mutuals/division/acquisition of a mutual;

See above for the required majorities (commonly 75% of votes cast) in the supreme body of the mutual insurance association for various types of corporate restructurings. See also above for some restrictions on mergers when small mutual associations are involved.

 The obstacles operators may have when they want to convert to another type of legal entity

See above (and in more detail in the quoted articles of the Verischerungsauf- sichtsgesetz/Insurance Supervision Act) for the regulations on procedures, restrictions and member protection in the case of an asset transfer (Art 60), a transformation into a joint stock company (Art 61), a transfer of all activities into a subsidiary joint stock company (Art 61a-61c), and the further transformation of such a subsidiary joint stock company into a private foundation (Art 61f). All these corporate restructuring options are available both for ordinary and for small mutual insurance associations (according to article 63)

Due to the small size of small mutual insurance associations, their transformation into a joint stock company seems impossible.

In 1991, Bundesgesetz n° 411/1991 was developed with the aim to facilitate conversion of insurance mutuals into stock insurance companies, without having to first liquidate. The rationale behind this was that the (mutual) insurers could merge for market concentration and solvency purposes. The proposal must be accepted by means of voting, by a 75% majority of the votes in the General assembly. Existing and new policyholders will still have membership rights in this new company. However, if the mutual association’s share in the joint stock company falls below 26% of the voting shares, the mutual association must be dissolved25. A vast 95 percent majority of the previously mutual insurance societies have nowadays transformed into joint stock companies26 and can no longer be classified as insurance mutuals.

According to article 60, there is the possibility to transfer assets to a joint stock company (An association may transfer its entire assets without winding-up to a joint stock company (Aktiengesellschaft) which carries on the contractual insurance business). This decision has to be taken by the su-

25 VVO, Versicherungsverband Österreich (Austrian Insurance Association).

26 For example: Uniqa and Wiener Städtische

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preme body requires a majority of at least three quarters of the votes cast.

Also, according to article 61, an association may be transformed into a joint stock company by resolution of the supreme body. This resolution requires a majority of at least three quarters of the votes cast.

Here below Article 61 is (partly) presented: Article 61(5) The resolution authorising the transformation shall determine the share capital, in the case of par value shares the par value, and in the case of no par value shares the number of shares. The par value of the share capital must not exceed the association’s assets which remain after deduction of the debts. The par value of the shares issued on the occasion of the transformation or the amount of the share capital attributable to the individual no par value share must not exceed EUR 100. (6) Unless the resolution authorising the transformation states otherwise, the association’s members shall receive a participation in the share capital. The participation may, unless all members hold an equal share in the share capital, only be determined in accordance with one or more of the following criteria: 1. the amount of the sum insured; 2. the amount of the contributions; 3. the amount of the life/health insurance provision; 4. the principles of distribution of the annual surplus; 5. the duration of the membership. (11) From the entry of the transformation, the association exists as a joint stock company. From this time onwards the members of the association shall be deemed shareholders in accordance with the resolution authorising the transformation.

Other groupings of insurance mutuals except the mergers and transformations as described above are not allowed.

5 Issues concerning the activity:

 Specific rules/obligation related to the nature of the business in which mutuals operate (e.g. insurance activities, providence services, management of hospitals, creation of subsidiaries etc.)

Insurance mutuals as defined and regulated in the Versicherungsaufsichtsge- setz/Insurance Supervision Act are (together with the few association-type savings banks) the only legal form of for-profit associations (commercial associations) under Austrian law. (Other) for-profit associations, like those regulated under an old law of 1852, were discontinued in 1999. Insurance mutuals are free to set up subsidiaries.

Non-for-profit associations may, however, as (more or less) “ancillary” activities, carry out commercial activities of very many sorts. These may include social services.

As outlined above, the activities of small mutual insurance associations are restricted to certain lines of business.

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6 Issues concerning the neglect of mutuals in policy making:

 National rules which by not taking into account the mutual specificities hinder the mutuals’ development (e.g. public procurement, specific tax rules, etc.).

There is no indication for this.

3 Concerning cross border barriers (barriers mutuals face when operating across barriers):

7 Issues concerning expanding across the frontiers in order to offer cross-border mutual services or to establish as mutual in a country other than the one of the registered office of the main mutual.

Through the provision of cross-border services in the context of the Internal Mar- ket, ordinary insurance mutuals may offer their services abroad, regardless of whether mutuals are permitted to do insurance business in the country where the services are being provided (small mutual insurance associations may not as they do not have a single license).

Ordinary insurance mutuals are free to set up subsidiaries which may either be located abroad, may set up branches in other countries or may provide cross-border services.

The provisions about transferring all insurance activities to a subsidiary joint stock company (Art 61a-61c) provide the opportunity to take in external capital for the subsidiary without necessarily losing control of the activities of the subsidiary. This concept was developed in Austria with the express purpose of strengthening the sector and overcoming financing (and hence growth) challenges for insurance mutuals. If the operative subsidiary company obtains clients abroad (through the provision of services or through branches), these clients become members of the mutual (parent) association, until arranged otherwise in the articles of the operative company.

For foreign insurance undertakings in the legal form of a mutual (or in a similar form) establishing a branch in Austria, Art 61d contains certain provisions about registration in the Austrian company register. Art 61d(7) provides that the liquidation of the Austrian branch of a foreign mutual must follow host state principles, i.e. the principles for the liquidation of a domestic mutual insurance association (in essence Art 57).

8 Issues concerning cross-border cooperation with other European partners for the creation of groups of mutuals, or to create a local subsidiary.

nothing foreseen in Austrian law to create (national or) European groups of mutuals

9 Examples of existing cross-border co-operations and their legal form

18 Austria

10 Examples of autonomous expansion across the frontiers of mutuals.

Die Österreichische Hagelversicherung operates across borders in Slovakia, Czech Republic and Hungary.27 In general, Österreichische Hagel sells its products through host country domestic insurers (regionally, nationally or internationally active), most of which are joint stock companies.28

Vorarlberger Landesversicherung (VLV) offers some life insurance products in South Western Germany through a cooperation with a local broker.29

Tiroler Versicherung30 operates a branch in Bolzano, Italy, and offers its products in northern Italy. Italian members are represented in the supreme body (council of members’ representatives).

4 Concerning national measures, for promoting mutuals and measures aiming at access to finance for mutuals:

11 Measures allowing mutuals to achieve internal financing (e.g. investment titles, non- members clients, increase of members’ contributions etc) or to obtain external financing (banking loans, issuing of bonds or of specific investment funds etc.).

- The possibility to transfer insurance activities to an operative joint stock company while retaining the mutual (insurance) association: by means of such a transfer, insurance mutuals may search for outside investors in their operative subsidiaries, as long as they maintain 26% of the voting rights. - See also the possibility of participating and supplementary capital - See also the existence of a small mutual insurance association regime allowing for local solutions with a lighter supervisory requirement.

12 State support measures such as authorised subsidies, special tax incentives or fiscal exemptions etc. addressing mutual needs and justified by mutuals’ specificities, as well as case law (national or European) in the area of competition.

No special rules for mutual insurance associations.31 However, hail (and frost) insurance receives subsidies from the public hand (shared between the Republic and the provinces).32 This is one of the main reasons why hail insurance has been established in the form of a mutual association in Austria.

27 http://www.hagel.at/site/index.cfm?objectid=568506EC-0C90-6C3E-C4FF31D821B0CA60

28 http://www.hagel.at/site/index.cfm?objectid=B1407DF2-F0B2-193D-C1D57CC06F01F738

29 http://www.vlv.at/front_content.php?idcat=64&idart=143

30 http://www.tiroler-versicherung.at/

31 PWC (2009), Austria, International Comparison of Insurance Taxation.

32 Federal Act on a subsidy by the Republic for the promotion of hail insurance, FLG 64/1955 as amended http://www.ris.bka.gv.at/GeltendeFassung.wxe?Abfrage=Bundesnormen&Gesetzesnummer=10006223

19 Austria

13 The existence, if any, of national, regional or local policies aiming at the promotion of mutuals, such as tailored business support services, specialised agencies, creation of federations etc.

While the activities of the insurance section of the Austrian Federal Chamber of Commerce had already been transferred in 1946 to the (private-law) Austrian In- surance Assocoation (VVO)33, the Chamber section for small mutual insurance as- socaitions lived on until 2010. In 2010, VVO also took over the management of the small mutuals’ insurance association.34

The Association of Regional Insurers comprises six regional insurers of which three are in the legal form of a mutual insurance association, two in the form of an operative subsidiary of a parent mutual and one in the form of a joint stock company owned by a province. They emphasise their client proximity and their 100% domestic ownership. They cooperate, inter alia, through the exchange of information, joint activities for the promotion of safety and risk awareness, and joint training programmes for their staff. 35

- no evidence found

33 www.vvo.at, see http://www.vvo.at/index.php?option=com_content&task=view&id=198&Itemid=145&lang=en

34 http://www.vvo-kleineversicherungsvereine.at/

35 http://www.laenderversicherer.at/

20 2 Belgium

Country study on the current situation and prospects of mutuals

Belgium

Solvency II (Annex III) prescribes several possible legal forms for non-life insurance undertakings in Belgium:  Joint stock company ("société anonyme / naamloze vennootschap")  Company limited by shares ("société en commandite par actions / commanditaire vennootschap op aandelen")  Mutual insurance society ("association d'assurance mutuelle/onderlinge verzekeringsvereniging"),  Cooperative company ("société coopérative/cooperatieve vennootschap")  Mutual benefit company ("société mutualiste/maatschappij van onderlinge bijstand").

The above legal forms are also applicable to life insurance undertakings, except for the mutual benefit company. The same is true with regard to reinsurance business.

A) Definitions of mutuals

In general, there is not one specific legal definition of a mutual in Belgian law. There is also no generic institutional law regarding the organisation form of a mutual society (applying to all forms as hereunder described). Projects to change this have existed, but were never completed.

There is also not a specific definition of a mutual (insurance) society in Belgium. Yet, there are various doctrinal definitions. For example: “The mutual insurance society is a group of persons who agree to share a risk to which they are personally exposed, in order to divide the costs of claims between them”1. Another doctrinal definition of a mutual insurance society is: “A society founded by a group of people exposed to similar risks, to indemnify each other for damages they may incur due to the realisation of these risks”2. However, the existence of the mutual insurance society as such, is explicitly recognised in different laws: - In section 2 of the Act of June 11, 1874, containing Title X (Les assurances en général) of the Code de Commerce; - By section 9 of the Act of July 9, 1975 on the control of insurance companies; and - By Article 2 § 2 of the Act of June 25, 1992 on terrestrial insurance contracts. For example, the 1992 Act on terrestrial insurance contracts states that the Act applies to: 1) Mutual insurance societies; as well as to 2) Mutual benefit companies as defined in the articles 43bis and 70 of the Law on mutual health societies of 6 August 1990. (see hereunder)

In the area of (compulsory) health insurance and related services, there is a specific definition: In the Wet betreffende de ziekenfondsen en de landsbonden van ziekenfondsen” / Loi relative aux mutualités et aux unions nationales de mutualités of 6 August 1990 ( The law of 1990 on mutual health societies, hereafter called the 1990 Law on mutual health societies), article 2 specifically defines the mutual health society as : “Societies of natural persons, which have the objective to encourage the physical, psychological and social wellbeing, by means of prevention, mutual assistance and solidarity. They conduct their activities without a profit objective”. They are obliged to provide the compulsory health insurance services and must be associated with a national union of mutual health societies (Landsbond van

1 Marcel Fontaine, in L’assurance mutuelle en Belgique, 1999, p. 28, translation in English by Panteia.

2 Jean-Luc Fagnart, in Traité practique de droit commercial, Tome 3, 1998, p. 50, translation in English by Panteia.

23 Belgium

Ziekenfondsen). Associations and companies which do not fall under the jurisdiction of the Law of 1990 on mutual health societies, may not use terms in their name such as “ziekenfonds/mutuelle, ziekenkas/caisse de maladie, mutualiteit/mutualité, mutualistisch/mutualiste” or related terms which could lead to confusion with the mutual health societies specified in this law3. These mutual health societies may only provide insurance services related to compulsory health insurance and disability cover, and are excluded from offering any other types of insurance cover.

Art 43bis of the 1990 Law on mutual health societies which requires the setting up of a separate company called mutual benefit company ("société mutualiste/maatschappij van onderlinge bijstand") does not define this company, but only its name and its activity (see further). According to this article, mutual health societies belonging to the same national union of mutual health societies can provide complementary health insurance through a newly established legal entity, namely a mutual benefit company ("société mutualiste/ maatschappij van onderlinge bijstand").

By the amendment of the 1990 Law in 2010, the mutual benefit companies, which existed already to provide complementary services for members of the mutual health societies associated in the national union, where provided with the right to operate complementary insurance. Therefore, there are two types of mutual benefit companies:  ordinary mutual benefit companies (maatschappij van onderlinge bijstand (MOB)/ société mutualiste (SM)); and  insurance mutual benefit companies (Verzekeringsmaatschappij van Onderlinge Bijstand (VMOB) / société mutualiste d'assurances (SMA))

B) Legal types (if more types exist)

There are three legal types of mutuals:  1) Mutual health society (ziekenfondsen of mutualiteiten/mutualités)  2) Mutual benefit companies (maatschappijen van onderlinge bijstand/société mutuelle)  3) Mutual insurance societies ("association d'assurance mutuelle or AAM/onderlinge verzekeringsvereniging or OVV")

1) Mutual health society (ziekenfondsen of mutualiteiten/mutualités) The legal type of mutual health society in Belgium is a legal form sui generis, defined in the 1990 Law on mutual health societies ) mentioned under point 1. To operate as a mutual health society in Belgium, the society has to be member of a national union of “mutualities” (Landsbond). A national union has to have at least 3 mutual health society as members (art. 3). Every mutual health society has several local offices or contact persons, but these do not have legal personality.

The mutual health societies operate within the legal frame of the 1990 Law on mutual health society. The compulsory contributions for compulsory health insurance are paid by employers and employees. The federal Institute for Health and Disability Insurance (RIZIV/INAMI) receives its financial share of social security contributions from the RSZ (which collects and divides Social Security contributions). RIZIV/INAMI then divides these over the national unions. RIZIV is also responsible for supervision and control over these entities. Entry into this compulsory health insurance market is not free to any entity, but is directly regulated by law. Only the existing national unions (Landsbonden, by Royal Decree of 22 September 1955 of the health and disability insurance) are entitled to act as insurance institutions as determined in art. 3 of the 1994 Law on health and social security insurance. The entitlement may be withdrawn by royal decree, on the advice of RIZIV. The

3 Wet betreffende de ziekenfondsen en de landsbonden van ziekenfondsen” of 6 August 1990 (Law on mutual health societies and national unions of mutual health societies) Art. 9. (own translation of the terms: ziekenfonds ", " ziekenkas ", " mutualiteit ", " mutualistisch/ " mutuelle ", " caisse de maladie ", " mutualité ", " mutualiste " ou autres qui pourraient prêter à confusion avec les mutualités visées par la loi.

24 Belgium

national unions are responsible for the implementation of all their obligations under the 1994 law. They are allowed to admit the associated mutual health societies – under specified conditions - to execute certain tasks resulting from the implementation of the said law4. In theory, it is possible to start up a new health mutual society. In practice, however, it will be difficult to attain the required membership threshold of 15.000 members. The most recently established mutual health society was established in 1928.

Free competition in terms of “free entry” is therefore not applicable to the compulsory health insurance market. The Belgian mutual health societies, however, contend that as private institutions serving a general interest, they are responsible for the management of the compulsory health insurance for their members.

In addition, the mutual health societies offer services and products in the area of complementary health insurance5. Persons in Belgium are free to choose between about 60 different mutual health societies in Belgium. Therefore, the mutual health societies try to attract new members by offering interesting services en products in the area of complementary health insurance. Hence, a form of competition between the Belgian mutual health societies does exist, focused on the quality of compulsory services and on the range and price-quality of complementary services. It is possible to change between mutual health societies on 4 specific moments during the year. However, compulsory health insurance is the core business of Belgian mutual health societies. Complementary health services business of the mutual health societies comprises less than 3% compared with the compulsory insurance business. Complementary services may include (non- medical) hospitalisation coverage or reimbursements, non-cure and longer term care services such as homecare services, information and advice and socio-educational services (prevention).

Since January 2012, members of all health insurance societies are obliged to pay for the complementary health services offered by their society. The complementary health services and fees may differ per society, but must be the same for all members. The only society that does not offer complementary health services, is the Relief Fund for Health and Disabil- ity insurance (Hulpkas voor Ziekte- en Invaliditeitsverzekering - HZIV). People who do not wish complementary health services or whose employers already take care of complementary health services, may opt to join this Relief Fund for only the compulsory cover (change is possible every quarter, with a month’s notice).

2) Mutual benefit companies (maatschappijen van onderlinge bijstand/société mutuelle) Since 1 January 2012, a new law (Wet van 26 april 2010 houdende diverse bepalingen inzake de organisatie van de aanvullende ziekteverzekering) (hereafter called 2010 Law on complementary health insurance) applies to the organisation of the optional (voluntary) health insurance of the mutual health societies. This is related to a decision on 20 Septem- ber 2009, by the European Commission to refer Belgium to the European Court of Justice over its national rules on optional health insurance provided by mutual health societies. In the Commission's view, the Belgian legislation applicable to mutual health societies (the 1990 Law) has not correctly and completely implemented the provisions of the First and Third Non-Life Insurance Directives, as far as the mutual health societies’ optional health insurance activities are concerned.6 This finally resulted in restrictions for mutual health societies to provide optional health insurance alongside the compulsory health insurance. The 2010 Law on complementary health insurance legally enshrines this, through provisions relating to the organisation of optional health insurance, which will now fall under the scope of the Terrestrial Insurance Act of 1992 as well as the 1975 Act on Supervision of Insurance companies. The 2010 Law obliges the mutual health societies to create a separate legal structure – maatschappij van onderlinge bijstand or MOB/ "société mutualiste or SM, translated as mutual benefit company for optional health insurance products, which are submit-

4 1990 Law on mutual health societies and national unions. Art. 7.

5 Used to be called “Aanvullende basisverzekering”, now its denomination is “aanvullende diensten, services not offered by the compulsory health insurance” (no reference to insurance anymore).

6 Corens, Dirk, Health Systems in Transition, Belgium Health system review, Vol. 9 No. 2 (2007).

25 Belgium

ted to the same rules as the private insurers. These mutual benefit companies are societies of people who have agreed to mutually insure themselves and share the burden of damages suffered. To this end, they create a fund that is accumulated by their contributions. Every- one is both insurer and insured; there is no share capital and no shareholders7. These mutual benefit companies were established in order to cover the optional health insurance services, which the mutual health societies are no longer allowed to provide without subsidia- rising this business8. These mutual benefit companies are more similar to ordinary insurance companies. However, there are a few significant differences. For example, mutual benefit societies fall under the supervision and control of the Mutual health societies Supervision Authority (Controledienst van de Ziekenfondsen) and not of the BNB and the Financial Ser- vices and Markets Authority. A mutual benefit society associated with a mutual health society may only direct its services toward members of the mutual health society and not to the market in general. They may only offer services through their own network of mutual health societies. They may only offer health insurance and assistance insurance if complementary to the offered health insurance (classes 2 and 18, see article 44bis). When these mutual benefit companies operate in the complementary insurance market, they are often called insurance mutual benefit companies, whereas those that only provide complementary services are called ordinary mutual benefit societies.

Optional health insurance services may include for example an hospitalisation insurance for a private room and additional cover for services that are not fully covered under compulsory insurance. Optional health insurance services may also be offered by any other private insurer (other than mutual benefit companies). Private insurers can be selective with regard to whom they provide cover to, whilst health funds may only provide cover for their members. It is expected that the market for optional health insurance may increase in the future. The mutual health societies are therefore keen on the development of a statute for a European Mutual Society, to protect the social character of mutual health society (prevention, no selection, etc.).

According to the yearly report of the Mutual health societies Supervision Authority (Con- troledienst van de Ziekenfondsen) in 2010 the picture looked as follows.9

3) Mutual insurance societies ("association d'assurance mutuelle or AAM/onderlinge verzekeringsvereniging or OVV") The Law of July 9, 1975 on the control of insurance companies (9 juli 1975 Wet betreffende de controle der verzekeringsondernemingen / 9 juillet 1975 Loi relative au contrôle des entreprises d'assurances) does not contain a definition of mutual insurance societies. How- ever, it does include their rules for establishment. Depending on their articles of association, they can be of the fixed premium or of the variable premium type. In addition to these

7 Bijzondere commissie belast met het onderzoek naar de financiële en bankcrisis: Rapport préliminaire du collège d’experts)

8 Ziekenfondsbijdrage is nu verplicht. Article in Plus Magazine. Author: Baekelandt, L. Published on 19- 01-2012

9 See jaarverslag controledienst: http://www.ocm-cdz.be/downl/publi/jv2010.pdf, p 7

26 Belgium

‘regular’ mutual insurance companies, there are Municipality funds (Gemeenschappelijke Kassen/ Caisses Communes), which are mutual insurers specific for worker’s compensation cover (arbeidsongevallen/accident de travail) and pension insurance but they are considered to be mutual insurance companies for prudential supervisory purposes.

Other relevant laws for the insurance sector in general are:  Law of 1995, relating to intermediation on insurance and reinsurance and to insurance products distribution (27 maart 1995 Wet betreffende de verzekerings- en herverzeker- ingsbemiddeling en de distributie van verzekeringen/ 27 mars 1995 Loi relative à l'inter- médiation en assurances et en réassurances et à la distribution d'assurances;  Law of 2002, relating to state supervision on financial sector and services (co-operation agreement OCM/CBFA) (2 augustus 2002 - Wet betreffende het toezicht op de financiële sector en de financiële diensten / 2 août 2002. - Loi relative à la surveillance du secteur financier et aux services financiers. This last Law has recently in 2012 been amended to introduce a new supervisory model (twin peaks model).10

De minimis regime for OVV/AAM The law regarding the supervision of insurance undertakings does not apply to mutual (or cooperative) insurers that limit their activity to one municipality or a group of adjacent municipalities.

De minimis for MOB/SM Also, by law the MOB/SM can be exempted from some of the regulations of the Law of July 9, 1975 on the control of insurance companies (see Art 30, 1°, last paragraph).

C) Methods of creation (required capital or assets)11

1) Mutual health societies These mutuals are covered by the1990 Law on mutual health societies. This law contains rules regarding the statutes, the organisation, and the services that mutual health societies must provide, financing (including government contributions), mergers, winding up and supervision of the mutual health societies.

Art 3 of the 1990 Law stipulates the conditions that have to be respected for the creation of a mutual health society. The mutual health society has to:  Participate in the compulsory health insurance after receiving the authorisation by its national union;  Intervene financially, regarding the costs of prevention and treatment of sickness and disability and provide income security in case of disability;  Provide information and assistance to promote the wellbeing of its members;  Offer complementary services, next to the services offered in the compulsory health insurance;  Start with at least 15.000 members, as determined by the King.

The Articles of every mutual health society and national union must provide (Law on mutual health society and national unions of health insurance society, art. 9, par 1): 1. Name and legal address, which must be located in Belgium 2. Objectives

10 i.e.: In short: 1) the prudential supervision of most financial institutions will be in the hands of the National Bank of Belgium (the “NBB”) with, however, certain types of financial institutions with a lower risk profile still subject to prudential supervision by the Financial Services and Markets Authority (the “FSMA”, which is the new name of the CBFA); and 2) the supervision of the financial markets and of the so-called “conduct of business” (COB) rules will be concentrated in the hands of the FSMA: see: Etienne Dessy, Els Janssens (2011), Twin Peaks. More than a new supervision model.

11 On creating new mutuals see: Lowet, Lieve (2012), Advies voor de oprichters van een nieuwe onderlinge, in: De Verzekeringswereld, September 2012.

27 Belgium

3. The national union to which the mutual health society is associated 4. The services provided and conditions (in accordance with legal prerequisites) 5. Conditions to be fulfilled by members and representatives to be entitled to vote 6. The conditions of admission, dismissal and exclusion 7. The amount of premium to be paid by members 8. Procedures related to voting 9. Compensations or fees paid to directors

According to article 2, Mutual health societies are associations (verenigingen /associations) of natural persons. They have a civil law nature. The law does not mention whether the mutual health societies should be established by notarial act. The Statutes however, will have to be submitted to the van de Ziekenfondsen (Mutual Health Society Supervisor).

2) Mutual benefit company One or more mutual health societies belonging to the same national union can create a separate structure (maatschappijen van onderlinge bijstand (MOB)/société mutuelle (SM))) to offer facultative health insurance products. These products can only be offered to the persons who are member for the compulsory insurance payor services of the mutual health societies offering these products. For the creation of MOB/SM: see law of 26/04/2010.

Mutual benefit companies must provide the following in their statutes: 1. Name and address where registered 2. Objectives 3. All associated mutual health societies and the national union to which they belong 4. Ways of determining and collecting premiums 5. Duration of the insurance policy 6. Ways in which a member may terminate the contract 7. Conditions and procedures to be fulfilled by members and representatives to be entitled to vote 8. Procedures of selection of members of the general meeting and their board of directors 9. Procedures of selection of members of the general meeting and their board of directors 10. The organisation of the mutual benefit company, the powers of the directors and their term of office 11. Compensations or fees paid to directors 12. Ways in which accounts are drawn up and approved 13. Procedure in case of amendment of the Articles of Association, and liquidation of the mutual benefit company-

The mutual benefit companies, just like the mutual insurance associations, have a civil law nature. The statute will be enacted by notorial deed.

The mutual health societies and mutual benefit companies are supervised by:  The federal Institute for Health and Disability Insurance (RIZIV/INAMI): controls the le- gality of payments, quality of service and are medical advisors.  The Controledienst van de Ziekenfondsen (Mutual health society Supervisor)

3) Mutual insurance societies Individuals or entities, exposed to a similar insurance risk, may freely decide to mutually insure themselves against this risk within an organisation which they have founded. This is not subject to any formality and they may write the articles freely. There is not a minimum number of members (natural or legal persons) needed for establishing a mutual insurance society. The articles must include the following:  the name and registered office of the society;  the purpose for which the society is established;  the conditions and procedure of admission, resignation and exclusion of members;  the extent of the personal commitments entered into by the members regarding the formation and conservation of an initial fund (in French: un fond social) and the entries of Article 15bis, § 1, 1 °, a) and b) – i.e. how much is the initial fund;

28 Belgium

 the organization and administration of the society, the method of appointment, powers and term of office of the persons entrusted with the management;  the mode of assessment and collection of contributions or premiums, as well as any supplements to the settlement of claims;  the manner in which the accounts are drawn up and approved;  the procedure in the event of changes in the statutes or liquidation of the association, without prejudice to the provisions of this Act.

After establishing the mutual insurance society, it will have to apply for an insurance license. If they apply for approval by the supervisory authorities, they must comply with the “Law regarding the supervision of insurance undertakings” of 9 July, 1975 (Wet betreffende de controle der verzekeringsondernemingen, hereafter called the Controlewet). This law prescribes that the statutes must contain a number of mandatory provisions and must be published officially (gazetted). There is also a minimum capital requirement called “the minimum guarantee fund”, which depends on the type of insurance envisaged. The law contains special provisions for mutual insurance societies regarding their establishment, finances, demutualization and mergers. According to this law, mutual insurance societies have the same obligations as joint-stock insurers. The application should include amongst others the Articles and proof that the company has a minimum guarantee fund of 2.5 million Euro, for an insurer active in branches such as sickness and accident, fire, legal assistance, travel or other assistance and various pecuniary losses. For civil liability and life insurance the minimum guarantee fund is 3.7 million Euros. If it is a mutual insurance society, with variable contributions, this amount is reduced by 25%, i.e. 1,875,000 Euros and 2,775,000 Euros.

The supervising authorities for insurance companies and societies are:  Financial (prudential) supervisor: National Bank of Belgium (BNB)  Financial Services and Markets Authority (Financiële Markten en Diensten Authoriteit, FSMA)

Private insurers (including the mutual insurance societies) who offer optional health cover (i.e. voluntary health insurance) fall under the control of the BNB/FSMA.

D) Management and corporate governance

In general, the bodies of the mutual society are 1) the general meeting, 2) the board of directors (raad van bestuur/conseil d’administration) and 3) Managing director. (Belgium has a monistic system, the managing director is appointed by the Board of Directors or the Gen- eral meeting).

1) Mutual health societies

Rights of members A mutual health society may not refuse membership, if the person applying commits himself to the statutes of the mutual health society and if the refusal appears to be an individual exception. Members can participate in the governance by presenting themselves when the official bodies are elected.

Voting and representation of members in general meetings Members are entitled to attend general meetings and vote, according to the principle: “one member, one vote” For mutual health societies, the general meeting is composed of representatives which have been elected by the members for a period of 6 years. The King determines the minimum and maximum number of members of the general meeting of a mutual health society, the conditions for candidates and the way in which the representing members must be elected12.

12 Wet betreffende de ziekenfondsen en de landsbonden van ziekenfondsen” of 6 August 1990 (Law on mutual health societies and national unions of mutual health societies) Art. 14

29 Belgium

Members who are elected into the official bodies, represent the other members and participate in the voting of the official bodies of the mutuality.

A decision by the general meeting of a mutual health society will be valid if at least 50 percent of the members has been present or represented and simple majority of the votes, unless the statutes provide otherwise13.

The statutes of a mutual health society may only be changed after resolution by the general meeting. In order for a resolution to alter the statutes to be valid, at least 50 percent of the members must be represented at the meeting and the decision must be supported by at least a two-third majority of the votes. In case the 50 percent attendance quorum has not been reached, a second meeting may validly decide about the same agenda, regardless of the number of members present or represented14. The statutes may impose stricter conditions for special meetings, for example concerning liquidation.

A general meeting of a mutual health society may be called for by the directors, and must be called for in any cases as determined by the law (art. 15), and when at least a fifth of the members requests a meeting15. The general meeting meets at least once a year, regarding the annual accounts, financial results and the budget.

Type of shares if any? No shares are possible.

Reserves Concerning compulsory health insurance (social security): Since 1995, the mutual health societies have the obligation to keep reserves (law of 1994 on the obligatory health insurance, art. 199 (Wet betreffende de verplichte verzekering voor geneeskundige verzorging en uitkeringen gecoördineerd op 14 juli 1994/ Loi relative à l'assurance obligatoire soins de santé et indemnités coordonnée le 14 juillet 1994). The mutual health societies receive budgets from the federal Institute for Health and Disability Insurance (RIZIV/INAMI) in accordance to the number and nature of their members. These budgets are used to reimburse the clients, to pay the hospitals and doctors and pharmacists. With regard to compulsory health insurance, mutual health societies are supposed to hold as little cash as possible.

Concerning mandatory complementary schemes: for this scheme, based on solidarity, the mutual health societies have to foresee reserves. These are not of the same size as the one that classic insurance products have to respect.

Concerning optional schemes, these products follow the European Solvency rules since recently. (see mutual benefit companies hereunder)

Possibility for non members investors For mutual health societies, non-members investors is not a possibility. Mutual health societies as well as may also not provide services to non-members.

Transparency and publicity requirements/ related auditing issue The list of managers of the mutual health societies as well as their statutes must be send to the Supervisor (Controledienst voor Ziekenfondsen). Mutual health funds must include information about the remuneration of the managers of the fund in their statutes. Any

13 Wet betreffende de ziekenfondsen en de landsbonden van ziekenfondsen” of 6 August 1990 (Law on mutual health societies and national unions of mutual health societies) Art. 18

14 “Wet betreffende de ziekenfondsen en de landsbonden van ziekenfondsen” of 6 August 1990 (Law on mutual mutual health societies and national unions of mutual mutual health societies) Art. 10

15 “Wet betreffende de ziekenfondsen en de landsbonden van ziekenfondsen” of 6 August 1990 (Law on mutual health -funds and national unions of mutual health- funds) Art. 16

30 Belgium

changes to the statutes of a mutual health society must also be ratified by the Supervisor16. The statutes and any amendments must be published in the annexes of the Belgian Official Gazette.

The mutual health societies have to deliver their financial and other data to the federal In- stitute for Health and Disability Insurance (RIZIV/INAMI) for the compulsory health insurance part, and to the Supervisor for the complementary insurance part. The mutual health societies are submitted to a yearly and independent financial control (audit), as foreseen by art. 32 of the 1990 Law.

Every year, each mutual health society publishes an annual report concerning their activities in compulsory and complementary insurance.

Regarding the compulsory health insurance, the mutual health societies receive the contributions via RIZIV and have no individual possibilities to negotiate directly about member contributions and prices to be paid for cure and care services. These negotiations are arranged at central level (RIZIV). Hence, they have very limited financial control instruments combined with limited financial accountability. The mutual health societies are partially financially accountable for their health care expenditure via a new payment system based on expenses and on the risk profile of their members. This measure aims to contain costs by giving incentives to the mutual health societies to limit unnecessary health care consump- tion by their members, by controlling invoices. Nevertheless this is only a small proportion (around 7.5%).

Regarding administration costs, the mutual health societies receive a yearly budget to execute the administration of the compulsory health insurance. If this budget is not sufficient, they themselves have to look for additional means, for example through additional contributions for complementary services. Furthermore, 10% of this yearly budget depends on a yearly evaluation of the way in which the mutual health society respects the official procedures and collaborates with the authority (RIZIV/INAMI). There are 10 domains for which a specific list of criteria is developed. This evaluation system will be reformed in a near future.

Every National Union has to create a system of internal control and internal audit, not only to control the National Union, but the affiliated mutual health societies as well (art. 31 of the law of 1990).

After closure of the book year, every mutual health society must draw up the annual account and annual report conform the specifications by the Controlling Office and send these to the Controling Office within the term specified by the Controling Office. The Controling Office may furthermore request administrative data and statistical documents to be fur- nished17.

Protection of assets For Mutual health societies the 1990 law, article 48, 2 mentions that priority should be given to provide benefits for members.

2) Mutual benefit company

Rights of members Only persons members of one of the associated mutual health societies can become member of the mutual benefit company. The members do not have a direct right of electing repre-

16 Wet betreffende de ziekenfondsen en de landsbonden van ziekenfondsen” of 6 August 1990 (Law on mutual health societies and national unions of mutual health - funds) Art. 11

17 Wet betreffende de ziekenfondsen en de landsbonden van ziekenfondsen” of 6 August 1990 (Law on mutual health societies and national unions of mutual health societies) Art. 30

31 Belgium sentatives. This will be done by the representatives of the general meeting of the associated mutual health societies.

Voting and representation of members in general meetings For the mutual benefit companies, representatives are elected by the general meetings of the associated mutual health societies for a period of 6 years. This (the representation) is in accordance with the number of members associated with the mutual health societies.

Type of shares if any? No shares are possible.

Reserves Mutual benefit companies are subject to general insurance legislation (“Law regarding the supervision of insurance undertakings”), hence the same rules apply as to mutual insurance societies.

Possibility for non members investors Non-members investors is not a possibility. Mutual benefit companies may also not provide services to non-members. This is different for private health insurers who may provide (optional) health insurance to any person.

Transparency and publicity requirements/ related auditing issue see above for mutual health societies

Protection of assets Concerning the mutual benefit companies, being active in insurance the same rules apply as for other insurance undertakings. It is up to the general meeting to decide what will happen in case of liquidation. There is no procedural protection in the case of insolvency and the law of 31 January 2009 on Business Continuity (Wet betreffende de continuïteit van de ondernemingen van 31 januari 2009/ Loi relative à la continuité des entreprises 31 Janvier 2009) applies to all authorized insurers, the insurance creditors have broad privileges regarding the assets.

3) Mutual insurance societies

Rights of members The Law is unclear on the issue whether mutual insurance societies can sell insurance policies to non-members. Also, it is unclear whether the Law allows non-member investors. Members generally have the right to participate in the management of their society, for example with a representation or presence in the management bodies.

They also have the right to share the excess receipts in case of liquidation. Or, in case of any losses, the obligation to take part in the loss. Generally, policyholders have special rights, as stipulated in the articles of association of mutual insurance societies. The possibility to organise a supplementary call (variable premiums) should be explicitly mentioned in the insurance contract.

Voting and representation of members in general meetings Members are entitled to attend general meetings and vote, according to the principle: “one member, one vote”). For some mutual insurance societies however, the number of votes that a member may cast may depend on the amount that the member has contributed if provided for in the statutes.

However, the general meeting may not be composed of delegates and must always be directly attended by the members. Member-policyholders may add items to the agenda of a

32 Belgium

general meeting. For mutual insurance societies in general, there are no rules setting a quorum either for the Ordinary General Meeting or the Extraordinary General Meeting18.

Type of shares if any? Issuing of shares is possible, but has not been regulated. One Belgian mutual insurance society uses subordinated debts (parts de cautionnement) which are a kind of long term external loans. In addition, it is left to the statutes of the individual mutual insurance societies to either allow shares or not. The Law is not explicit about the use of external investors/sponsors for obtaining the initial capital.

Reserves Generally, reserves are set freely by mutual insurance societies, but should be in compliance with the articles of association. As far as recognised societies are concerned, the reserves must comply with the provisions in the Controlewet or Law regarding the supervision of insurance undertakings. This involves the formation and maintenance of a solvency margin - which must be free of all commitments - and the formation and maintenance of a technical reserve representative of the insurance commitments at any time. Free reserves are used as equity.

Possibility for non members investors Generally, investment by non-members is possible, but not regulated. See above under issuance of shares.

Transparency and publicity requirements/ related auditing issue For mutual insurance societies in general, the requirements regarding transparency and publicity are the same as for joint stock companies. Authorized mutual insurance societies are required to disclose their statutes, the composition of their bodies, their annual accounts, etc. This is not different from any other kind of insurance company (see article 10 of the Control Law, which refers to the general company law).

Mutual insurance societies fall under the Act on the Supervision of Insurers, which includes both general regulations that apply to all insurers and specific regulations for mutual insurers societies. There is, however no difference with other kinds of insurance companies regarding accounting requirements.

Protection of assets There is no procedural protection in the case of insolvency: The law of 31 January 2009 on Business Continuity (Wet betreffende de continuïteit van de ondernemingen van 31 januari 2009/ Loi relative à la continuité des entreprises 31 Janvier 2009) applies to all authorized insurers, the insurance creditors have broad privileges regarding the assets.

In case of a voluntary liquidation where the balance is positive, the (General Meeting of the) society may – after settlement of liabilities – freely decide on the use of the liquidation proceeds unless the statutes have different provisions.

De minimis regime: The law of 31 January 2009 on Business Continuity (Wet betreffende de continuïteit van de ondernemingen van 31 januari 2009/ Loi relative à la continuité des entreprises 31 Janvier 2009) does not apply to (insurance) societies who practice territorial mutual insurance.

18 AISAM (2006). Governance of Mutual Insurance Companies: the current state of legislation. Report by the Governance & Company Law Taskforce, led by Jeanne-Marie CAMBOLY, of the European Legislation Working Group, chaired by Edoardo GREPPI. Edited by Lieve Lowet. Liege, october 2006.

33 Belgium

E) Additional information

Non-health insurance companies in Belgium are predominantly (95%) established as a joint stock company19. The three largest companies (AG, AXA en KBC) together have more than half of the total market. These are joint stock companies.

Belgium: Important role of mutual health societies in compulsory health insur- ance20 The focus in the section below is on the role of mutual health societies in relation to healthcare insurance.

Historical background The way the healthcare system in Belgium is organised, has its roots in history, dating back to the 19th century. In this age, workers organised themselves in small-scale mutuals to protect their members against the risk of disease, unemployment and the disability to work. These mutual benefit societies were given their own legal form “mutual health societies” (ziekenfondsen) in 1851 and more legislation was passed in 1894. Since 1912, the government is obliged to provide financial assistance to mutual health societies with a disability fund.

At the beginning of the 20th century the small mutual health societies were grouped into national unions or unions, all based on ideological, political preferences:  the National Federation of Christian Mutualities (1906);  the National Federation of Neutral Mutualities (1908);  the National Federation of Socialist Mutualities (1913);  the National Federation of Liberal Mutualities (1914); and  the National Federation of the Independant Mutualities (1928).

In addition to these five national unions of mutual health societies, there were two funds, one (neutral) federal fund for sickness and disability insurance and another for railway personnel.

Unlike in many other European countries, no major reforms took place after WWII. The influence of the mutual health societies (Mutualiteiten / ziekenfonds / Mutualité)21, with their roots in ideological and political ground, remained large through the entire 20th century. In 1963, the establishment of a consultation council (de Hoge Gezondheidsraad) between the mutual health societies and the health care providers was legally enshrined. In 1990 the 1894 law was revised. This revised Law on mutual health societies and national unions of mutual health societies22 contains new rules regarding the establishment, organisation, and services mutual health societies must provide, as well as the finances (including government contributions), mergers23, winding up and supervision of the mutual health societies. When the Mutual Health Funds Act of 1990 comes into effect, the mutuality or mutual health

19 Keulers, H. and S. Lodewijckx, Lydian. Insurance and Reinsurance: Belgium. http://crossborder.practicallaw.com/7-501-1981?source=relatedcontent

20 This section is taken from: Research voor Beleid (2011). The role of mutual societies in the 21st century. Study commissioned by the European Parliament.

22 Loi du 6 Aout 1990 relative aux mutualites et aux unions nationales de mutualites / Wet van 6 augustus 1990 betreffende de ziekenfondsen en de landsbonden van ziekenfondsen.

23 The health insurance mutuals that fall under the same national union can opt for merging. In addition, also national unions can merge. In order to merge, the mutuals or national unions need to have approval from their members and from the general meeting of the national union. While merging, the governmental organisations of the societies will be jointly organised, the statutes need to be amended. Also the mutual benefit companies can merge if their mother mutual health mutual funds are part of the same national union. See: Loi du 6 Aout 1990 relative aux mutualites et aux unions nationales de mutualites / Wet van 6 augustus 1990 betreffende de ziekenfondsen en de landsbonden van ziekenfondsen.

34 Belgium

society is considered as a legal form sui generis, distinct from a foundation, society, association or a company.

Compulsory health insurance The mutual health societies are the sole providers of compulsory health insurance and hence play a decisive role in the social protection system in Belgium. All individuals must join or register with one of the mutual health societies providing compulsory health insurance. The choice for one of the mutual health societies is free, except for the railway workers who are automatically covered by the insurance fund of the Belgian railway company24. Almost 99 per cent of the population is covered by the compulsory health insurance.25 The coverage by the compulsory health insurance is wide and includes more than 8,000 types of services. The mutual health societies negotiate with the healthcare providers – within the INAMI/RIZIV organs - on a yearly or biennial basis the fees for each of the listed services. They also carry out controls to ensure that the law is properly applied (regarding provision of health services).

Mutual health societies are in charge of implementing health insurance provisions. Compul- sory health insurance is regulated by law and various royal decrees, and mutual health societies have no decision-making power in this area. On 31st December 2009 the sector com- prised in total 54 mutual health societies with more than 15,000 members and 3 societies with less than 15,000 members.

Mutual health societies also provide complementary services. Each National union and each fund may differ in terms of the complementary services, but all members of the fund are obliged to pay for the services and have equal access to these services.

Complementary health insurance Traditionally, Belgian mutual health societies offered voluntary (optional) insurance, as well as compulsory insurance. As stated above, the European Commission recently requested changes so that all providers of optional insurance fall under the same regime (both mutual benefit societies and other insurers).26 The mutual health societies needed to create another legal entity for accessing the voluntary health insurance market, namely: mutual benefit companies (maatschappijen van onderlinge bijstand/sociétés mutualistes), which are mutual insurance societies.27 A -mutual benefit company may only offer insurance to members of the mutual health societies that have joined the associated mutual health society – individuals cannot directly become members of the mutual benefit company.

Mutual health societies are active in the complementary health insurance market through their mutual benefit companies.28 In 2009 there were 25 mutual benefit companies selling private health insurance.29 Seventeen mutual benefit companies are related to the mutual health societies and there are 8 independent companies.30 These mutual benefit companies can only offer individual voluntary health insurance. Group health insurance can only be of-

24 de Kas der Geneeskundige Verzorging van de Nationale Maatschappij der Belgische Spoorwegen

25 Gerkens S, Merkur S. Belgium: Health system review. Health Systems in Transition, 2010, 12(5):1– 266.

26 See: IP/09/1756, Internal Market: Commission refers Belgium to Court of Justice over law on supplementary health insurance provided by private sickness funds, 20 November 2009.

27 De Wet van 26 april 2010 houdende diverse bepalingen inzake de organisatie van de aanvullende ziekteverzekering (I) / Loi du 26 Avril 2010 portant des dispositions diverses en matière de l’organisation de l’assurance maladie complémentaire (I).

28 AIM, Healthcare protection today: Structures and trends in 13 countries, 2008

29 Controledienst voor de ziekenfondsen en de landsbonden van ziekenfondsen/ Office de contrôle des mutualités et des unions nationales de mutualités: http://www.ocm-cdz.be/hoofdframe-n.htm.

30 Controledienst voor de ziekenfondsen en de landsbonden van ziekenfondsen/ Office de contrôle des mutualités et des unions nationales de mutualités: http://www.ocm-cdz.be/hoofdframe-n.htm.

35 Belgium

fered through the traditional insurers. In 2007, population coverage of private, optional health insurance, including group health insurance was 77.4 per cent.31

Thoughts on the future based on the current situation The Belgian 2010 reform created a more level playing field within the optional/complementary health insurance market, although the mutual health societies do not have the same access to the market as the private insurers. Both the mutual health societies as well as other private insurers (including other mutual insurers) are allowed to provide complementary health insurance services. With the growing proportion of out-of-pocket payments by individuals, the complementary health insurance market for covering co- payments is likely to increase in the future. It is assumed that this will consequently lead to increased competition and a further separation of the health mutual funds providing compulsory and other mutuals providing complementary health insurance.

1 Legislation impacting the functioning of mutuals:

In general, insurance contracts in Belgium are regulated by the Act of June 25, 1992 on terrestrial insurance contracts. A number of Royal Decrees further regulate specific types of insurance contract, such as fire insurance, motor vehicle insurance or family liability coverage. Reinsurance contracts and some specific insurance contracts (for example, transport insurance) fall under the 11 June 1874 Insurance Act (Insurance Contract Act 1874). Insur- ance companies are regulated by the Act on insurance undertakings 9 July 1975 (Insurance Supervision Act 1975) and by the Royal Decree on the general regulation of insurance companies 22 February 199132, all subsequently changed33.

1 Is there legislation on taxation issues (preferential treatment)? 1) Mutual health societies With respect to health insurance, the compulsory schemes and mandatory complementary schemes – provided only by the mutual health societies - are exempted from VAT.

2) Mutual benefit companies The optional schemes provided by the mutual benefit companies and private companies or other societies, are subject to the same VAT and taxations as all commercial insurers.

3) Mutual insurance societies They are civil law entities and in principle, as mutual insurance societies are considered as non-profit making companies, they only subject to tax on income. Under certain circumstances, mutual insurance societies may therefore be able to avoid corporate income tax over their profits. Generally, withholding taxes are usually their final tax charge34.

In addition, a bill has been adopted which exempts those health insurances which provide a high level of protection, from the annual tax on insurance operations. The preliminary design has been adapted on advice by the Council of State. The proposal by the Minister of Finance sees to the exemption for insurance contracts that provide better protection to insured persons suffering a chronic disease35. This implies that no risks should be excluded in order to be eligible for the tax exemption. This regulation is applicable to all relevant health insurers, and hence not explicitly applicable to mutual insurance societies.

31 OECD Health at a Glance, 2009. 32 Insurance and Reinsurance: Belgium. http://crossborder.practicallaw.com/7-501- 1981?source=relatedcontent 33 See: http://www.nbb.be/pub/cp/domains/vo/wg/vo_wg.htm?l=nl

34 Source: PWC International Comparison of Insurance Taxation in Insurance and Reinsurance: Belgium. http://crossborder.practicallaw.com/7-501-1981?source=relatedcontent.

35 Persbericht van de ministerraad van 12 februari 2010. Aanvullende ziekteverzekering. Presscenter.org

36 Belgium

2 Is there legislation concerning employee involvement systems?

There is no specific legislation on social rights, Belgian social law is applicable. There is no difference with other kinds of (insurance) companies with regard to employee involvement. This applies to both mutual insurance societies as well as mutual health societies and mutual benefit companies.

3 What are the possibilities and regulations in a situation of demutualization (e.g. transforming a mutual to a traditional capital company) protection of assets in case of demutualization? 1) Mutual health societies Legally, mutual health societies can only wind-up after a resolution in this regard has been taken by the general meeting, which has been held specifically for this purpose36. A requirement for a valid decision by the general meeting regarding any change in its statutes is that at least 50 percent of the members are present and a two-third majority votes in support of the decision. Mutuals may prescribe more stringent conditions in their statutes. Some mutuals require, for example, that at least two-thirds of the members are present, and three quarters vote in fa- vour37.

In practice, demutualisation of mutual health societies has never happened. Since a couple of years, there is a tendency of concentration of mutual health societies. However, all those entities maintain their statute of mutual health society.

2) Mutual benefit companies In the event of liquidation of dissolution, according to article 70 of the 1990 Law on mutual health societies, all assets and obligations are transferred to the national union of mutual health societies associated with the mutual benefit company.

3) Mutual insurance societies In general, the Law regarding the supervision of insurance undertakings allows and regulates the demutualisation process. The General Meeting of an authorised mutual insurance society may decide on the terms of attendance and the required majority, and on the transformation (without liquidation) of the society into a commercial enterprise. In case of the latter, there can be no distribution of assets; this is explicitly prohibited by law.

2 Concerning internal barriers (barriers mutuals face within their own country):

4 Issues concerning the legal entity:

 The obstacles operators may have when they want to create a mutual in a country; 1) Mutual health societies With respect to mutual health societies, an operator can create a new mutual health society if the conditions of the law regarding the mutual health societies and national unions of 1990 (Chapters I, II and III) are respected. One

36 Wet betreffende de ziekenfondsen en de landsbonden van ziekenfondsen” of 6 August 1990 (Law on mutual health societies and national unions of mautual health societies), Art. 45

37 See for example Statuten Ethias gemeenrecht. Ethias verzekering. And Statuten Securex Leven (2011). Statuts Cordonnes 09/06/2011 VIE FR NL, art. 38

37 Belgium

important obstacle is that you need at least 15,000 persons to establish a mutual health society.

2) Mutual benefit companies The mutual benefit company can only be established by the mutual insurance societies within the same national union.

3) Mutual insurance societies In general, the creation of a mutual insurance society does not encounter more legal obstacles than starting a business in the commercial form. The most significant problem is not so much a legal problem; the problem is that the regulator (the BNB) is not so familiar with mutual insurance societies and does not know them well.

 The obstacles operators may have when they want to proceed to a merger of mutuals/division/acquisition of a mutual;

1) Mutual health societies Mergers of mutual health societies are restricted in the sense that they may only merge with a health fund that is associated with the same national un- ion38. Mergers are subject to a two-third majority support voting in a general meeting, which must be especially called for (art. 10, 11). A merger between a mutual society and a private operator on the other hand, is legally not possible (article 44).

2) Mutual benefit companies The Law does not mention the possibility to merge or to regroup with mutual insurance societies.

3) Mutual insurance societies In general, there are not more legal obstacles for mutual insurance societies than for commercial companies in the case of a merger or acquisition. Merg- ing of mutual insurance societies is de facto a take-over (article 78).

Forming groupings of mutual insurance societies is not possible.

 The obstacles operators may have when they want to convert to another type of legal entity 1) Mutual health societies Regarding mutual health societies, they cannot convert.

Mutual health societies and national unions can be dissolved by a decision of the General Assembly, which must be specifically convened for that purpose. The general meeting deciding to dissolve the fund or national union, also decides on the allocation of any remaining assets, in according with its statutory objectives39. The latter implies that, although they are considered private entities, a substantial proportion of the funds will flow back to the state to be redistributed to the mutual health societies who take up the members.

2) Mutual benefit companies Mutual benefit companies: they can not convert to a mutual insurance company

38 Wet betreffende de ziekenfondsen en de landsbonden van ziekenfondsen” of 6 August 1990 (Law on mutual health societies and national unions of mutual health societies).

39 Wet betreffende de ziekenfondsen en de landsbonden van ziekenfondsen” of 6 August 1990 (Law on mutual health societies and national unions of mutual health societies)., Art. 45 and 46

38 Belgium

3) Mutual insurance societies In general, there are not more legal obstacles for mutual insurance societies than for joint-stock companies in the case of a transformation.

5 Issues concerning the activity:

 Specific rules/obligation related to the nature of the business in which mutuals operate (e.g. insurance activities, providence services, management of hospitals, creation of subsidiaries etc.) 1) Mutual health societies In Belgium, mutual health societies are active in 3 fields: in both compulsory (directly) and voluntary or optional (indirectly) health insurance and extended healthcare services. Only due to recent reforms, they had to separate the compulsory and voluntary fields of health insurance activity into different legal entities, where the mutual benefit companies provide the voluntary health insurance. Most mutual health societies also have extended activities into healthcare delivery (revalidation homes, nursing homes, health care institutions, pharmacies, etc.) in competition with other health care providers. The financing of these activities is included in the supplementary contributions. This is legally permitted.

2) Mutual benefit companies The two types of mutual benefit companies are separated due to the activity they are involved in: the insurance mutual benefit companies are active only in the voluntary health insurance, the non-insurance mutual benefit companies are excluded from insurance.

3) Mutual insurance societies Generally, Belgian mutual and other insurance companies cannot have corporate purposes other than40: - Insurance operations. - Capitalisation operations. - Pension funds management. Authorised (mutual and commercial) insurance societies must thus limit their activities to the business of insurance and directly related (investment) activities. Like commercial enterprises, mutual insurance societies may practice all types of insurance services (optional health, property, damage, etc.). They may also create and hold any subsidiaries helping them to achieve their purpose.

GK/CC: limited to worker’s compensation insurance (accidents at work) or pensions – see above sub point.

6 Issues concerning the neglect of mutuals in policy making:

 National rules which by not taking into account the mutual specificities hinder the mutuals’ development (e.g. public procurement, specific tax rules, etc.).

1) Mutual health societies There are no issues concerning neglect in national policy making.

2) Mutual benefit companies There are no issues concerning neglect in national policy making.

40 Insurance and Reinsurance: Belgium. http://crossborder.practicallaw.com/7-501- 1981?source=relatedcontent

39 Belgium

3) Mutual insurance societies The specificities of the mutual insurance society are not always taken into account. Hence, the solvency rules, requirements for the payment of supplementary contributions, terms of governance and the definition of an independent director, are not appropriate and do not sufficiently take into account the specific characteristics and problems of mutual insurance societies.

A major difficulty for mutual insurance societies is related to Solvency II, in particular the qualitative pillar which calls for a professional organisation. This may on the one hand cause small mutual insurance societies to disappear because not having a professional organisation is not any more sustainable. On the other hand, the surviving mutual insurance societies may become too large to maintain their democratic governance principles and hence will no longer really act mutual.

For smaller (mutual) insurance societies, the concept of proportionality is introduced in the Solvency II framework. The aim is to decrease the workload for smaller insurers to comply to Solvency II and not to overburden small insurers. However, proportionality in the Solvency II directive refers to the “nature, scale and complexity of risks”. Proportionality may therefore not be related to size, since also small insurers work with complex risks.

3 Concerning cross border barriers (barriers mutuals face when operating across barriers):

1) Mutual health societies Nowadays, Belgian mutual health societies cannot offer insurance products or services in other countries. In addition, a Belgian mutual health society cannot establish as a mutual health society in another country.

Belgian mutual health societies therefore argue that a European Statute for Mutual Societies could enable cross-border cooperation between existing mutual societies, without the need to use holding companies with joint stock company structures or EEIGs (European Economic Interest Groupings). The latter auxiliary constructions do not take into account the mutual sector's wish to work together whilst conserv- ing the aspects which make the real difference with other kinds of company structure. Cross-border cooperation could take the form of alliances between mutual societies which already operate in different Member States, or the creation of mutual societies which have a European dimension and field of operations.

2) Mutual benefit companies As mutual benefit companies can only have as members the members of the associated mutual health societies, they cannot offer their services in other (European) countries.

3) Mutual insurance societies Mutual insurance societies do not face any more obstacles than a commercial enterprise. However, the establishment of a mutual insurance society in another Member State may be hindered by the absence of legislation in relation to mutual insurance societies in that state. In addition, cross-border merger or regrouping while maintaining the mutual format is not possible across the EU

40 Belgium

8 Issues concerning cross-border cooperation with other European partners for the creation of groups of mutuals, or to create a local subsidiary.

1) Mutual health societies For mutual health societies, cross-border cooperation is not possible, as art 43 of the law of 1990 forbids this kind of collaboration. The Belgian law does not foresee the possibility to cooperate with operators in other member-states.

2) Mutual benefit companies None

3) Mutual insurance societies The absence of a legal instrument to form a mutual group at European level, forms the greatest current barrier for collaboration between (potential) European mutual insurance partners. Compared with the joint stock insurance companies, the mutual insurance societies do not possess similar legal instruments to work across borders within Europe.

The Belgian mutual branche organisation VVOV (Verbond van Verenigingen van Onderlinge Verzekeraars) is therefore in favour of and supports a statute for the European Mutual Society which would enable such collaboration. In this sense, one could think of organising the French instrument “SGAM” at European level. This would provide two or more mutuals that wish to collaborate across the border with an instrument which is compatible with their legal form as a mutual society and would allow them to form a mutual group at European level without giving up their mutual nature.

9 Examples of existing cross-border co-operations and their legal form

1) Mutual health societies In the field of health insurance, an interesting example of cross-border cooperation is the MGEN & Solidaris alliance. MGEN is a large French health mutual insurer which collaborates with Belgian mutual health mutual Solidaris, the Walloon socialist mutual health society. MGEN and Solidaris joined their forces in a genuinely innovative partnership built on :  Mutual exchanges of knowledge and know how on their core business,  The strengthening of their expertise on health system and their evolution,  An association in the development of joint tenders,  The development of a common advocacy policy toward the European institutions

Another example of cross-border expansion of (non-insurance) activities by a Bel- gian mutual health fund, are the activities by Mutual Help Association ‘Flandria’ in Poland. The initiative was created in 199541. The main objectives of “SWP Flan- dria” are: increasing the availability to good quality medical equipment, good quality medical services, professional volunteers’ help to the children, sick people, elderly and disabled (for example through pharmacies and stores)42.

- See case study on the use of the SCE -

Belgian health insurance funds have received requests to help to start up mutuals in other Member States (for example from Romania). Due to a lack of a legal statute for mutual societies on European level, it is not possible to develop this into a concrete cross-border collaboration.

41 Ilona Gosk. Social economy as a tool of inclusive growth – Polish experience. Presentation for the Standing Conference of the Social Economy (SKES). http://www.mrr.gov.pl/konferencje/esfconference/EFSk2/Documents/Presentations_Panel5.pdf

42 Flandria website: http://www.flandria.pl/en/swp/

41 Belgium

In the border region “Euregio Maas-Rijn” (EMR) there are various experiments to break open legal specifications which prevent people from receiving health services across the border. The aim of transnational partnerships is to solve problems of patients in border areas, for example related to differences in legislation, by addressing waiting lists, frontier workers, product development, new services across borders. Cross-border co-operation is hampered by the existence of 3 different national and regional legal systems, 3 languages, 4 different cultures, great asymme- try in inhabitants and competences and increasing living mobility cross- border and great frontier workers tradition. One of the aims is therefore to reconcile legislative contexts and establish contractual agreements. The Interreg-program has amongst others stimulated cross-border collaboration between care providers: hospitals, mutual health societies and patients. The fields of activity include: a permanent forum, patient rights, communication and expertise, medicines and urgent medical aid across borders, regional prevention, collaboration between hospitals. Results of the Interreg collaboration in EMR are: free movement of patients, CareID Interna- tional, contracting hospitals, collaboration between hospitals Aachen, Maastricht, Liege, cross-border urgent care collaboration, analysis and solution of bottle necks in the cure circle, specific high care units in cross border collaboration: Tumor- biobank, MRSA (bacteria) policy, etc.

The main obstacle for the mutual health societies to operate across borders, is the legal restriction to operate across borders. Although it is possible for mutual health societies to develop products with cross-border partners, they may only provide services or benefits to their members. It is not possible for a person who does not reside in Belgium to be a member of a Belgian mutual health society, unless the person falls under Belgium law, for example because he works in Belgium. This points to the question whether in drawing up a statute for a European mutual society, a difference must be made with regard to the type of activity, for example: health insurance, pensions, social security, and other non-life and life insurance.

Another issue are the differences in legislation between EU-Member States, both in the field of health insurance (definitions, conditions, packages and options, lack of joint membership) and in the field of life and non-life insurance (the national regulations derived from Solvency II).

2) Mutual benefit companies None

3) Mutual insurance societies Mostly, cross-border co-operation by mutual insurance societies occurs through the creation of common joint-stock subsidiaries (NV/SA).

10 Examples of autonomous expansion across the frontiers of mutuals.

1) Mutual health societies see sub point above

2) Mutual benefit companies see sub point above

3) Mutual insurance societies Cross-border expansion mainly occurs through the development of activities under the freedom to provide services (Libre Prestations de Service – LPS). This implies that insurance undertakings sell their products across the border within the EU/EEA either through establishing a branch, or without having a branch in the host country. For example, a Belgian insurer may sell insurance products in the Netherlands through the internet, without having a branch office in the Netherlands. GK/CC: worker’s comp mutuals : see art 207 SII

42 Belgium

4 Concerning national measures, for promoting mutuals and measures aiming at access to finance for mutuals:

1) Mutual health societies With regard to financing of mutual health societies, no specific measures have been decided. This is related to the fact that the mutual health societies receive the necessary budgets from the State to execute their legal obligations in the compulsory health insurance.

2) Mutual benefit companies The financing of mutual benefit companies remains a bit unclear. Thyeyr receive the contributions from the members, but are closely related to the mutual health societies and national unions as well and hence, there can be financial ties between the organisations.

3) Mutual insurance societies In general, any type of financing is possible, but not really promoted. For one Bel- gian mutual insurance society it has proven to be quite impossible to achieve sufficient financing since 2008.

1) Mutual health societies As explained under 11 above, the mutual health societies receive the necessary budgets from the State to execute their legal obligations in the compulsory health insurance.

2) Mutual benefit companies None

3) Mutual insurance societies In general, no measures are known in support of mutual insurance societies.

No specific measures have been devised, neither for mutual insurance societies in general, nor for mutual health societies.

There is also hardly any relationship between mutual health societies and mutual insurance societies. In Belgium these seem to operate in completely different worlds.

The creation of mutual benefit companies which can only distribute to their members is according to some a missed opportunity to bridge the 2 worlds.43

43 http://www.mloz.be/nl/art/gemiste-kansen-tussen-verzekeraars-en-ziekenfondsen

43 Belgium

14 Other issues concerning visibility and increase of awareness of the mutual sector, such as counselling, or information related to advantages and disadvantages of the mutual form of business, when compared to the other legal forms of companies offering insurance or social services. The study should, for example, make reference to curricula of business studies, courses at secondary and university levels, etc. 1) Mutual health societies/2) Mutual benefit companies With respect to mutual health societies, there is a legal obligation for every national to join a mutual health society in Belgium. On the other hand, there is a free choice of which mutual health society one joins. This explains the lack of national measures for promoting mutuals. The mutual health societies themselves also compete (rather than promoting the sector), in an effort to attract new members.

The National Intermutualistic College is a consultative committee of all the Belgian mutual health societies and unions - (unions of the Christian, socialist, neutral, independent and liberal mutual health societyies, as well as the Relief Fund (Hulp- kas) for Sickness and Disability insurance and the Railway mutual health society. It represents the interests of the national mutual health societies

Mutual health societyies in Belgium claim that there is a need for companies like mutual societies that have social responsibility deeply rooted in their organisation with a view to maintaining sustainable, affordable systems for insurance cover and social protection. As mutuals are in close contact with their members, they play an important role in challenges such as chronic diseases and the ageing society. In the future, this role will become even more important.

3) Mutual insurance societies For mutual insurance societies in general, there are no initiatives to increase visibility and awareness of the mutual insurance sector, apart from the efforts of the Alliance of Mutual Insurance Societies: UAAM/VVOV (Verbond van de Verenigingen van Onderlinge Verzekering).

44 3 Bulgaria

Country study on the current situation and prospects of mutuals

Bulgaria

Insurers must take the form of a public liability company (акционерно дружество) or a mutual insurance cooperative (взаимозастрахователна кооперация).1 The existence of mutual insurance cooperatives is regulated in the insurance code.2 Mutual insurance cooperatives may only provide life insurance, including pension insurance.3 Non life insurance and reinsurance can only be provided by joint stock companies in Bulgaria.

Health insurance (voluntary supplementary health insurance) shall be implemented by joint- stock companies, registered under the Commerce Act and licensed under the terms and according to the procedure established by this Act (European Commission asked in Feb 2012 that the insurance directives become applicable to these voluntary health insurance undertakings).4

A) Definitions of mutuals

There is no general definition of a mutual in Bulgaria.

In the insurance sector, mutuals are defined as “mutual insurance cooperatives” (Взаимозастрахователна кооперация). There is no further definition in the insurance legislation.

A mutual insurance co-operative society is a co-operative society that has been granted a licence to perform insurance activities, according to the Bulgarian Insurance Code (КОДЕКС за застраховането) in art 17 (2). “The mutual insurance co-operative society shall be incorporated, shall perform its activities, shall be transformed and dissolved under the procedure established by the Cooperatives Act (CA) insofar as the present Code does not envisage otherwise.”5

Membership with a mutual insurance co-operative society shall arise or be terminated simultaneously with the conclusion or termination of the insurance contract in compliance with the general terms.6 Upon the mutual insurance co-operative society’s termination, the participating, contributions, the additional contributions and the special-purpose installments shall be subject to repayment only after all other liabilities have been redeemed.

The legal entity of mutual insurance cooperatives is a cooperative. There are no particular characteristics of the mutual insurance cooperatives identified in the insurance legislation, which refers to the law on cooperatives7.

Strictly speaking, mutual insurance companies are not allowed on the Bulgarian market.

1 http://www.bcci.bg/infobus/year1998/infobus1.htm#it7

2 Insurance Code, see: http://www.nbbaz.bg/Libraries/Norms-En/INSURANCE_CODE.sflb

3 Insurance Code, see: http://www.nbbaz.bg/Libraries/Norms-En/INSURANCE_CODE.sflb

4 See: Law for the Health Insurance (last amended 6 April 2004) [Bulgaria], 22 June 1998, available at: http://www.unhcr.org/refworld/docid/3de656104.html [accessed 6 August 2012]

5 Cooperative Act: http://www.microfinancegateway.org/gm/document- 1.9.25199/24817_file_law_Bulgaria_02.pdf

6 Insurance Code, see: http://www.nbbaz.bg/Libraries/Norms-En/INSURANCE_CODE.sflb

7 Cooperative Act: http://www.microfinancegateway.org/gm/document- 1.9.25199/24817_file_law_Bulgaria_02.pdf

47 Bulgaria

B) Legal types (if more types exist)

Mutual insurance cooperatives are covered by the Insurance Code. Section II of this code contains special provisions for this type of insurer, regarding establishment, organisation and financing. Moreover, this law limits the activities of mutual insurance cooperatives to life assurance with or without accident insurance. Where the Insurance Code does not specify otherwise, the provisions of the Cooperatives Act apply to mutual insurance cooperatives as well.

C) Methods of creation (required capital or assets)

According to the Insurance Code, article 19 (1), the mutual insurance cooperative is incorporated by not less than 500 capable natural persons. The founders are obliged to be insured in the cooperative, as well as to make the first-year payment for the insurance chosen by them8.

According to article 20, each member-cooperator shall make an initial and participating contribution, the amount of which shall be defined under the Articles of Association, and shall conclude an insurance contract of Life Insurance under Section I of Annex No. 1 with the mutual insurance co-operative society having a term of validity no shorter than three years. The participating contributions serve to replenish the minimum guarantee capital. According to article 21, besides the data envisaged by the Cooperative Act, the Articles of Association of a mutual insurance co-operative society shall also contain the following information: 1. The types of insurances; 2. The funds of the mutual insurance co-operative society, the type, method of payment and amount of the instalments, the members’ scope of responsibility and the mutual insurance co-operative society’s liabilities.

According to Annex No. 2 to Art. 82, Para 4 of the Insurance Code, the Minimum amount of guarantee capital of a mutual insurance cooperative society under Art. 80, Para 3, depends on the level of achieved annual premium income (in thousand BGN).  For a premium income up to 500,000 BGN, an amount is needed of 100,000 BGN.  For a premium income between 500,000 BGN and 1,000,000 BGN, an amount is needed of 200,000 BGN.  For a premium income between 1,000,000 BGN and 1,500,000 BGN, an amount is needed of 300,000 BGN.  For a premium income over 1,500,000 BGN, an amount is needed of 400,000 BGN.

D) Management and corporate governance

According to article 20 of the Insurance Code, the General Meeting may resolve by a simple majority of all member-co-operators to collect additional contributions and special-purpose instalments from its member-co-operators in order to reach the minimum guarantee capital and the solvency margin. All instalments in the cooperative society’s capital shall be made in cash. The additional contributions and the special purpose instalments may be repaid to the member-co-operators only where by so doing the mutual insurance co-operative society’s own funds will not diminish below the solvency margin amount or the minimum guarantee capital. Any repayment of additional contributions and special-purpose instalments shall occur with a one-month written notification addressed to the Deputy Chairperson. Within the time limit set under the notification, the Deputy Chairperson shall ban the repayment in the case where, as a result of it, the mutual insurance co-operative society’s own funds will diminish below the solvency margin amount or the minimum guarantee capi-

8 http://www.bcci.bg/infobus/year1998/infobus1.htm#it7

48 Bulgaria tal. Upon the mutual insurance co-operative society’s termination, the participating contributions, the additional contributions and the special-purpose instalments shall be subject to repayment only after all other liabilities have been redeemed.

Mutual insurance cooperatives have a managing board, a supervisory board, but the sur- prise authority is the General meeting.

49 Bulgaria

50 4 Cyprus

Country study on the current situation and prospects of mutuals

Cyprus

According to the Solvency II Directive the following company forms are allowed to provide non-life insurance: εταιρεία περιορισμένης ευθύνης με μετοχές’ (company limited by shares), ‘εταιρεία περιορισμένης ευθύνης χωρίς μετοχικό κεφάλαιο’ (limited liability company without share capital). Within life insurance and reinsurance the following company forms are allowed: ‘εταιρεία περιορισμένης ευθύνης με μετοχές’ (company limited by shares), ‘εταιρεία περιορισμένης ευθύνης με εγγύηση (company limited by guarantee).

A) Definitions of mutuals

There is a definition of an insurance mutual: According to Article 15 of the Law on Insurance Services and Other Related Issues 2002-2009, a mutual organisation (αλληλοασφαλιστικός οργανισμός οργανισμός) is a company limited by guarantee (εταιρεία περιορισμένης ευθύνης με εγγύηση), without a share capital, which is established by virtue of the provisions of this Law and of the Companies Law, has as exclusive purpose the mutual insurance of its members, and holds a licence to carry on this business granted in accordance with the provisions provided in the Law.1

B) Legal types (if more types exist)

The Insurance Services and Other Related Issues Law (Insurance Law) applies to all insurance organisations, including intermediary organisations, which conduct either: […] Insurance business within Cyprus, whether located within Cyprus or not, including mutual insurance organisations and reinsurance companies. […] The Insurance Law does not apply to: […]  Mutual insurance organisations whose (section 22(2), Insurance Law):  articles of association contain provisions for calling up additional contributions or reducing their benefits;  annual non-life contributions do not exceed EUR 5 million;  life contributions do not exceed EUR 5 million for three consecutive years. However, the Insurance Law does apply where contributions do exceed EUR 5 million for three consecutive years or where half the annual non-life contributions are derived from its own members.2

There is only one mutual insurance organisation in Cyprus which falls under article 22 of the Cyprus Insurance Law and hence for this company the Insurance Law is not applicable3.

1 See: ΟΙ ΠΕΡΙ ΤΗΣ ΑΣΚΗΣΕΩΣ ΑΣΦΑΛΙΣΤΙΚΩΝ ΕΡΓΑΣΙΩΝ ΚΑΙ ΑΛΛΩΝ ΣΥΝΑΦΩΝ ΘΕΜΑΤΩΝ ΝΟΜΟΙ ΤΟΥ 2002 ΕΩΣ 2009: http://www.mof.gov.cy/mof/mof.nsf/All/A5112DA93FC81BA4C225799C0039A12B/$file/N%2035%28I% 29%202002- N%20105%28I%292009%20%28%CE%95%CE%BD%CE%BF%CF%80%CE%BF%CE%AF%CE%B7%CF %83%CE%B7%20%CF%83%CF%84%CE%B7%CE%BD%20%CE%95%CE%BB%CE%BB%CE%B7%CE% BD%CE%B9%CE%BA%CE%AE%29.pdf.

2 See: http://crossborder.practicallaw.com/3-501-3468?q=*&qp=&qo=&qe=

3 This is in line with article 3,6 of the EU Life directive (Directive 2002/83/EC of the European Parlia- ment and of the Council of 5 November 2002 concerning life assurance) and art 3,1 of the first non-life directive (First Council Directive 73/239/EEC of 24 July 1973 on the coordination of laws, regulations and administrative provisions relating to the taking-up and pursuit of the business of direct insurance other than life assurance) which exempt from the single license regime very small variable premium local mutual insurers; for these insurers, each member states decides on its own regime.

53 Cyprus

C) Methods of creation (required capital or assets)

Within the Cyprus insurance legislation there is no specific legal framework concerning the methods of creation of mutual insurance organisations, apart from the legal form described in article 15. Where in the Law, the term Cyprus insurance company is mentioned, unless from the text it is differently inferred, this term will also include the mutual organisation.

D) Management and corporate governance

With respect to the management and corporate governance of mutual insurance organisations, there are no specific references in Cyprus legislation for this type of insurers. The statutes of insurance companies, as a general rule, are not made publicly available by the Insurance Companies Control Service.

The management and corporate governance of the mutual insurance organisations is not stipulated in the insurance code and are also not covered by company law. The way mutual insurance organisations are governed is laid down in the Bylaws of the organisation.

Rights of members No specific information in the law concerning mutual insurance organisations

Voting and representation of members in general meetings No specific information in the law concerning mutual insurance organisations

Type of shares if any? No specific information in the law concerning mutual insurance organisations

Reserves No specific information in the law concerning mutual insurance organisations

Possibility for non members investors No specific information in the law concerning mutual insurance organisations

Transparency and publicity requirements/ related auditing issue No specific information in the law concerning mutual insurance organisations

Protection of assets No specific information in the law concerning mutual insurance organisations

E) Additional information: insurance market in Cyprus

According to the Insurance Companies Control Service, mutual insurance organisations do not (seem to) operate in Cyprus (except from one mutual insurance organisation which is not covered by the Law on Insurance Services and Other Related Issues (and hence not subject to the Solvency Directive).4

4 See: Insurance Companies control service (2010), Report on insurance in Cyprus 2009.

54 5 Czech Republic

Country study on the current situation and prospects of mutuals

Czech Republic

Solvency II applies to the following company forms (both non-life and life insurance): ak- ciová společnost (joint-stock company), družstvo (cooperative). Reinsurance can only be offered by akciová společnost (joint-stock company).

A) Definitions of mutuals

In general, Czech legislation prohibits the creation of societies in mutual form, apart from the health insurance funds which are not-for-profit and which provide compulsory health insurance (not subject to insurance legislation).

The term of “mutual”, as well as mutuals, are not defined by Law in the Czech Republic.1

In the Czech health care sector, there are Health Care Funds (Zdravotní pojišťovna), and all 9 Health Care Funds2 are under control of the state though they are founded as “sectoral” ones. The General Health Care Foundation which is held by the state is not included. Clients (“members”) of each of Health Care Fund are obliged to pay a fee (a part of their salary or income) for the Fund according the Health Insurance Law. Employers also pay a fee. The state provides for some redistribution of resources among the Health Care Funds system. Spending on concrete health care is regulated by quota system for treatment and medica- ments. The quota are negotiated each quarter between the state administration and the professional chamber of medical doctors. Payment is provided through the Health Care Fund for each patient as applicable. These Czech Health Care Funds are not mutuals, but are similar to the German Krankenkassen.

In the Czech Republic, some mutual-type associations exist:  Funeral societies (pohřební společnost; “Friends of cremation” association dating from the 19th century, and similar funeral societies within Jewish communities) which are originally mutual associations. The basis is support and risk spreading amongst members within communities;  The Solidarity Fund of Policemen and Firemen (as a kind of mutual life-insurance), and Firemen Mutual Insurance Co. was created by the Voluntary Firemen Crews Association to produce profit, as an additional financial source for financing equipment for Voluntary Firemen Crews.  Social funds which resemble Mutuals in some respects have been created and are held by Employers for their Employees in many of enterprises in cooperation with labour unions.

The number of Credit-cooperatives is low in the Czech Republic. Credit-cooperatives generally operate like banks nowadays; they have lost their mutuality. The number of credit- cooperatives is 15 recently.

1 Please note that Česká pojišťovna ,the oldest insurance institution in the Czech lands, is the legal successor to First Czech Mutual Insurance Company (První česká vzájemná pojišťovna), which was founded in 1827. It was part of the original State Insurance Company (Státní pojišťovna) until 1969 when, on the basis of the territorial principle, Státní pojišťovna was broken up into Česká státní pojišťovna and Slovenská státní pojišťovna

2 See: http://www.vzp.cz/en/public-health-insurance.php

57 Czech Republic

B) Legal types (if more types exist)

Art 3 (2) of the Czech Insurance Act stipulates that (2) Insurance undertaking with its seat in the territory of the Czech Republic may carry on insurance activity under the conditions of this Act, if established as a joint stock company or as a co-operative.

The Insurance Act of 2010 (according to article 1 (4)) shall not apply to the activity of mutuals and co-operatives, where the indemnity differs according to the resources available and which require that each and every of their members pays the same contribution.3

The above article of the Insurance Act implies that some type of mutuals do exist, although the Act does not apply to them. Other sources state that Czech law prohibits the establishment of mutuals. Yet, the Health Care Funds that run the compulsory health insurance systems are described as mutual societies. Legally, these funds fall under Health Insurance Law (“o nemocenském pojištění”).

C) Methods of creation (required capital or assets)

The law prohibits the creation of societies in mutual form, apart from the Health Care Funds. Mutuals are not covered by national legal- and policy-frameworks in the Czech Re- public, but Foundations and Credit-cooperatives are.

The above-mentioned mutual type organisations are organised under the Law of “associations of citizens”, the Law of “Foundations”, and the Law of “Social Funds” (created and held by Employers for social affairs of their Employees).

Solidarity funds (social endowment, pensions, health care etc.) are mostly still held by the state as a part of Public Finance (Budget and State Funds). Since recently, they may also be pushed to the market, due to social reform initiatives.

The Insurance Act implies that some type of mutuals do exist, although the Act does not apply to them. Other sources state that Czech law prohibits the establishment of mutuals. Yet, the health insurance funds that run the compulsory health insurance systems are described as mutual societies. Legally, these funds fall under Health Insurance Law (“o nemo- cenském pojištění”).

The lack of legal frameworks for establishing mutuals creates a very significant barrier for mutuals to operate on the Czech market.

D) Management and corporate governance

N.A.

3 This translates article 9 (1) of the SII directive, based on the equivalent articles in the life and non-life directives, intended to exclude mutual-benefit institutions of the flat-rate type from insurance legislation, but not intended to exclude the mutual society form from insurance.

58 6 Germany

Country study on the current situation and prospects of mutuals

Germany

For non-life, life and re-insurance the Solvency II Directive applies to the following company forms: Aktiengesellschaft (joint-stock company), Versicherungsverein auf Gegenseitigkeit (mutual insurance association); and öffentlich-rechtliches Wettbewerbsversicherung- sunternehmen (public law insurance companies).

A) Definitions of mutuals

Within legal texts there is not a direct definition of mutuals.

The main legal text concerning mutual societies is to be found in the German Insurance Su- pervision Act (DE: Gesetz über die Beaufsichtigung der Versicherungsunternehmen (Versi- cherungsaufsichtsgesetz - VAG) hereafter called German Insurance Supervision Act)1.

This German Insurance Supervision Act includes a chapter on mutuals (§ 15 to § 53b Ger- man Insurance Supervision Act) which contains all corporate regulations. According to § 15 German Insurance Supervision Act a mutual insurance society is an association which conducts insurance of its members according to the principle of mutuality (Ein Verein, der die Versicherung seiner Mitglieder nach dem Grundsatz der Gegenseitigkeit betreiben will). This Act does not cover the following areas of law: labour, taxation, competition and intellectual property.

Mutuals are hence by their legal framework insurance companies and compete on the insurance market with joint-stock corporations (DE: Aktiengesellschaften) both in life and non- life insurance business. Insurance means private insurance as defined under Article 2 and 3 of the Solvency II Directive (L335/19, 17.12.2009).

As a general characteristic, a insurance mutual (Versicherungsverein auf Gegenseitigkeit) is a private insurance company on the basis of an association with legal personality (wird da- durch rechtsfähig, daß ihm die Aufsichtsbehörde erlaubt, als "Versicherungsverein auf Ge- genseitigkeit" Geschäfte zu betreiben, art 15 ) whose members are the policyholders2. A German insurance mutual has the following characteristics:  insurance only – no statutory social protection: unlike in some other member states, where mutuals are allowed to operate in all fields of human endeavour, mutuals in Ger- many are restricted to operate in insurance services only. Insurance means private insurance as defined under Article 2 and 3 of the Solvency II Directive (L335/19, 17.12.2009). There are no mutual benefit or health provident societies and insurance activities forming part of the statutory social security system are excluded.  private legal entities: Mutuals are private legal entities. They do not belong to the statutory social protection system nor do they depend on state subsidies to exist.  generally inseparable relationship between membership and being a policyholder; exceptionally non-member business is permitted. Generally the membership in a mutual insurance association is acquired at the same time as signing an insurance contract, no special membership fee is required. Only exceptionally non-member business is also permitted by law (VAG § 21 para.2).  jointly owned by the members-policyholders: The members of a German mutual insurance association are owners of the company and hold ownership rights. The own funds of a mutual insurance association remain the property of all its current members and are therefore truly collective and indivisible.

1 See online version: http://www.gesetze-im-internet.de/vag/

2 See: http://www.versicherungsnetz.de/onlinelexikon/VersicherungsvereinaufGegenseitigkeit.html

61 Germany

 democratically controlled by the member-policyholders: The democratic control of the mutual insurance association in Germany can be granted by way of an assembly of all members or an assembly of delegates of the members, both are co-equal under German law.  solidarity among members: The equality principle (Gleichbehandlung) among members is stipulated in VAG § 21.  no shares; limited access to capital markets: The German mutual insurance association has no shares and thus only limited access to capital markets.

B) Legal types (if more types exist)

Insurance mutuals fall under the German Insurance Supervision Act. Articles 15-53b of this law contains special regulations for mutuals, regarding establishment, organisation, financing and winding up.

Within the German Insurance Supervision Act a distinction is made between the large and the small insurance mutuals. For the smaller insurance mutuals that insure only a specific group of people or very specific risks and which are organised locally, simplified statutory provisions are stipulated (§ 53 VAG). Small mutual insurance associations are according to article 53(1) associations which have a limited geographical activity field, or limited insurance focus (Für Vereine, die bestimmungsgemäß einen sachlich, örtlich oder dem Per- sonenkreis nach eng begrenzten Wirkungskreis haben (kleinere Vereine), They are called klVaG although this is not a legal term. The difference between the small and large insurance mutuals is not only a matter of size, as the small ones are not considered trading entities according to the Handelsgesetzbuch.3

Some provisions of the Companies Act, the Commercial Code, the Works Constitution Act 1952, the Cooperatives Act and the Civil Code also apply to insurance mutuals4.

The difference between large and small insurance mutuals is decided upon by the National supervising authority (DE: Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin))5. In general, the smaller mutuals (under 5 million Euro gross premiums as mentioned in the SII Directive) are supervised by the Länder, the larger ones fall under the supervision of BaFin.

As a result there are different regimes for these small insurance mutuals (Kleine Versi- cherungsvereine):6  The first is an easing of requirements at the discretion of the supervisor.  The second one is exemption on the basis of the size of a small mutual. If a mutual is too small according to certain standards, it is eligible for exemption.  The third regime applies to small mutual insurers with limited operations in certain lines of business. Additionally, these small non-life mutual insurers may not write any liability, credit and suretyship insurance and life insurers may not write pension or funeral insurance. Furthermore, they should include in their bylaws the possibility for supplementary calls or proportional claims settlement.  The fourth regime is related to pension funds of considerable economic importance which fulfil the solvency rules. They are subject to rules applicable to small mutual insurers but with additional requirements as long as they fulfil solvency rules. If a pension fund has total assets (Bilanzsumme) of more than €250 million, or if a sectoral pension fund has

3 http://www.versicherungsnetz.de/onlinelexikon/VersicherungsvereinaufGegenseitigkeit.html

4 http://www.arge-vvag.de/fsets/fthemen.htm

5 See: http://www.bafin.de

6 See: AMICE (2012), Facts and Figures: Mutual and cooperative insurancein Europe

62 Germany

total assets of more than €50 million and a yearly premium income of €2.5 million, it no longer qualifies for this regime.7

The non-directive regime is open to “Sterbekassen” and “Pensionskassen”. It is also open to private health insurers (private Krankenversicherer), animal insurers (Tierversicherer) and non-life insurers (Sachversicherer) under the following conditions:  They are limited in geographical scope,  have a small number of policyholders, according to the federal supervisor, “normally” 750 members, and  their annual premium income is “normally” less than €40,000.8 These small organisations are considered mutuals.

The key determinant for being a mutual is that the company is owned by its members. There are a number of organisations in Germany that share a number of characteristics of mutuals without being owned by the members (principles such as democratic governance and solidarity among members). This is for instance the case with organisations falling under public law: Krankenkassen and Ersatzkassen. Both Ersatzkassen and Krankenkassen (statutory health insurance funds) are bodies governed by public law, their functions are spelled out in the provisions of the Social Code9 and the state supervises them through the German Federal (Social) Insurance Office, i.e. both are subject to the same legal provisions within the German Social Code and the same supervisory law applies. In particular, persons contributing to the compulsory security system are completely free to choose between “Er- satzkassen” and “Krankenkassen”; membership is not dependent on certain conditions. Enti- tlements to benefits and contribution are the same as these are written down within the German Social Code. Today, the only difference between “Ersatzkassen” and “Krankenkas- sen” is their historical background as the reasons of foundation have different origins. They have tax advantages as they are, for instance, exempt from paying value added tax, corporate income tax, and business tax. In contrast, German insurance mutuals are privately organized institutions regulated by supervisory law, which deviates from the public law. As private corporations they have, contrary to “Ersatzkassen”/“Krankenkassen”, to consider and apply the Solvency II-provisions. With regard to financing, insurance mutuals compete on the open market. In contrast, “Ersatzkassen/Krankenkassen” are funded by financial contributions from the statutory health insurance.

C) Methods of creation (required capital or assets)

Formation of a insurance mutual is possible by at least two natural persons who agree on the statutes/articles of association and the appointment of the executive board and the supervisory board. The statutes need to be notarized (VAG § 17).

Formation is also possible by way of merger of at least two existing insurance mutuals10. It is not possible to convert another legal form (i.e. joint-stock company) into a insurance mutual.

7 In German, the regimes are called “Sonderregelungen” (special arrangements), distinguishing between “kleine VVaG”, “kleine VVaG mit Erleichterungen kraft Ermessensentscheidung”, “kleinste VVaG mit Freistellung”, “kleine VVaG mit grössenmässig begrenzter Geschäftsfähigkeit in bestimmten Sparten” and “kleine VVaGPensionskassen mit erheblicher wirtschaftlicher Bedeutung und Erfüllung der Solvabili- tätsregeln” (small mutuals/small mutuals with reduced requirements due to individual decision/very small, exempt mutuals/ small mutuals with restricted business in terms of size and lines of business/small pension mutuals with significant economic importance and fulfilling solvency requirements). Martin Prölss, the author of “Versicherungsaufsichtsgesetz”, the source of this part on regimes for small mutual insurers, deplores in his commentary the complexity and fragmentation of the regulatory regime. For him the value of such detailed regulations for tiny operators is doubtful and he suggests streamlined standards for all lines of business.

8 AMICE (2012), Facts and Figures: Mutual and cooperative insurancein Europe

9 http://www.gesetze-im-internet.de/sgb_5/BJNR024820988.html#BJNR024820988BJNG004001308

10 See: Umwandlungsgesetz (UmwG): http://www.gesetze-im-internet.de/umwg_1995/index.html

63 Germany

Due to the licensing system an insurance mutual additionally needs the permission of the German Insurance Supervisory Authority, BaFin to become effective in law.

Once the insurance license is received, the insurance mutual will be registered in the commercial register.

A mutual, before becoming an insurance mutual, does not have authorised capital. Costs for formation and operating costs for the first years are covered by an effective initial fund (is that called eingezahlte Gründungsstock). Creation, interest calculation and repayment of the initial fund are subject to the approval of BaFin and are laid down in the statutes of the insurance mutual. The initial fund has to be paid in cash and has to be repaid by using the annual surplus in the first years. There is no minimum threshold determined as initial fund. The insurance mutual has to provide evidence that it is able to fulfil the obligations of the insurance contracts on a sustained basis.

As the mutual is an insurance company, it also has to fulfil the capital requirement for insurance companies as laid down in § 5 para. 4 and § 53c para.2 of the German Insurance Supervision Act (Mindestbetrages des Garantiefonds). Ordinary European rules apply to the minimum guarantee fund. A third of the solvency margin is considered the guarantee fund. It is not explicitly mentioned that mutual-type organisations are allowed to have a lower minimum guarantee fund.

In principle, for small insurance mutuals, the same rules apply as to the ordinary insurance mutuals concerning capital requirements. However, as they are non-Directive insurers, they do not have to comply with the requirements concerning the minimum guarantee fund.

D) Management and corporate governance

The corporate governance bodies of a German insurance mutual are:  the general assembly (of members or of members’ representatives): highest authority in the organisation (VAG § 29)  the supervisory board and  the management board (two-tier system).

The management board has to consist of at least two natural persons (VAG § 34). The management board manages the insurance mutual. The member or members of the management board shall have the power to represent the insurance mutual in dealings with third parties and in legal proceedings.

The supervisory board has to consist of at least three natural persons (VAG § 35). The supervisory board shall supervise the duties of the management board. It may not itself exercise the power to manage the insurance mutual and cannot represent the insurance mutual in dealings with third parties. It shall represent the insurance mutual in dealings with members of the management board, or one of them, in case of litigation.

The general assembly can be organised as assembly of all members, which occurs in nearly all small insurance mutuals and to a lesser extent of the medium-sized and big insurance mutuals or the assembly of delegates of the members. The latter occurs in a significant number of the medium-sized and big insurance mutuals.

There is a wide legal framework for the corporate governance of insurance mutuals. With the exception of a few binding regulations, the German law allows insurance mutuals to define their own corporate governance in their statutes. According to VAG § 29 the composition of the corporate bodies of the mutual insurance mutual has to be laid down in the statutes.

64 Germany

Rights of members Rights of members are usually laid down in the statutes of the mutual insurance association. Only a few minority rights are stipulated in VAG § 36b. The following is stipulated concerning rights of members:  generally inseparable relationship between membership and being a policyholder; exceptionally non-member business is permitted. Generally the membership in a mutual insurance association is acquired at the same time as signing an insurance contract, no special membership fee is required. Only exceptionally non-member business is also permitted by law (VAG § 21 para.2).  jointly owned by the members-policyholders: The members of a German mutual insurance association are owners of the company and hold ownership rights. The own funds of a mutual insurance association remain the property of all its current members and are therefore truly collective and indivisible.  democratically controlled by the member-policyholders: The democratic control of the mutual insurance association in Germany can be granted by way of an assembly of all members or an assembly of delegates of the members, both are co-equal under German law.  solidarity among members: The equality principle (Gleichbehandlung) among members is stipulated in VAG § 21.

For the smaller insurance associations that insure only a specific group of people or very specific risks and which are organised locally, simplified statutory provisions are stipulated (§ 53 VAG). These small insurance mutuals can in contrast to the larger insurance mutuals not assure non-members.

Voting and representation of members in general meetings For both the large and the small insurance mutuals, the way members are represented is subject to the statutes of the organisation.

Types of shares if any German insurance mutuals do not have shares. According to VAG § 20, it is allowed for insurance mutuals to sell insurance to persons which are not member of the (ordinary) insurance mutual only if this is explicitly stipulated in the statutes of the organisation.

Small insurance mutuals can never have non-members, so also not non-member investors.

Reserves As other insurance providers.

Possibility for non-members investors According to Article 1 para. 3 (a) Directive 2002/13/EC of the European Parliament and of the Council of 5 March 2002 amending Council Directive 73/239/EEC as regards the solvency margin requirements for non-life insurance undertakings which has been transposed into German national law under VAG § 53c, insurance mutuals are allowed to issue profit- participation certificates and subordinated loans also to non-member investors.

For small insurance mutuals non-member investors is not possible.

Transparency and publicity requirements/ related auditing issue Neither German Insurance Contract law nor German Insurance Supervision law makes a difference between insurance mutuals or insurance joint-stock companies in terms of transparency and publicity requirements. The general provisions are applicable insurance mutuals.

The small insurance mutuals are supervised by the Länder and lower requirements are set concerning transparency and publicity requirements.

65 Germany

Protection of assets Special protective regulations against demutualisation like the “French lock” (i.e. in case of demutualisation, the assets need to be transferred to a similar organisation, and not to the members) do not exist in Germany. In addition, it appears not to be necessary to have such asset protection system. As the insurance mutuals have a comprehensive legal framework and are widely recognised legally and politically and have shown their advantages over centuries, this legal form is well established enough that there is no fear of demutualisation and no demutualisations have taken place in the last 50 years.

Also with regard the small insurance mutuals, there is no specific protective legislation. Again, this specific legislation is not felt necessary.

E) Additional information and representation

Some of the insurance mutuals belong to the largest insurance companies in Germany. Within the top 20 of largest insurance groups in Germany, there are a number of mutual insurance groups (Debeka is ranked 7th; Signal-Iduna 10th; HUK-Coburg 11th; Gothaer 12th; Alte Leipziger- Hallesche 16th; and Continentale VersicherungsVerbund 18th).11

In the German market no difference is perceived between joint-stock companies and insurance mutuals. Both are active on the market according to the same conditions. Both company forms have their pros and cons.

What has happened in many (large insurance mutuals is that ownership is split from contractual rights. People are insured by the subsidiaries of the insurance mutual and are no member of the insurance mutuals itself.

There are several associations which represent and support insurance mutuals:  GDV: Gesamtverband der Deutschen Versicherungswirtschaft e.V. (German Insurance As- sociation)12. This association represents the entire insurance industry (focussing on the large insurers) regardless the company form.  ARGE: Arbeitsgemeinschaft der Versicherungsvereine auf Gegenseitigkeit e.V. (Associa- tion of insurance mutuals)13: this association originated from the GDV in 1980 and focuses specifically at insurance companies based on the mutual legal form. The association cooperates in many occasions with the GDV. ARGE has around 60 members which are mostly large insurance mutuals.  VVaG: Verband der Versicherungsvereine auf Gegenseitigkeit e.V (Association of Insuran- ce mutuals)14. This association of small insurance mutuals is regarded a sister organisation of the GDV. The association has approximately 160 members. 13 members have a premium income from 5 to 125 million Euro; 17 members have a premium income from 0.5 million Euro to 5 million Euro; about 130 members have a premium income below 0.5 million Euro. Its members are mostly situated in the Northern part of Germany.

11 See: http://de.statista.com/statistik/daten/studie/1901/umfrage/top-20-der-deutschen- versicherungen/

12 See: http://www.gdv.de/

13 See: http://www.arge-vvag.de/index1.htm

14 See: http://www.vvag-nord.de

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1 Legislation impacting the functioning of mutuals:

1 Is there legislation on taxation issues (preferential treatment)?

There is no preferential tax treatment for insurance mutuals under German law.

Generally, direct insurers, reinsurers and other persons or entities providing insurance and reinsurance-related services are subject to regular taxation. The income of direct insurers and reinsurers is subject to corporate income tax at 15% (plus solidarity surcharge at 5.5% on this), and trade tax whose rate depends on the multiplier set by the competent municipality. Persons or entities providing insurance and reinsurance-related services are also either subject to personal or corporate income tax. In both cases solidarity surcharge and trade tax applies. Certain specific rules and exemptions from general rules apply15.

Very small insurance mutuals, as non trading entities, can be exempted from corporate income tax, depending on their business model. According to the law for corporate income tax and its specification (DE: Körperschaftssteuergesetz (KStG): § 5 I Nr. 4 (in connection with § 4 Körperschaftssteuer-Durchführungsverordnung (KStDV)16: turnover must be less than 0.798 million Euro when the insurance mutual underwrites life insurance or health insurance. For other types of insurance (non-life) the turnover must be less than 0.307 million Euro.

2 Is there legislation concerning employee involvement systems?

The general regulations concerning employee involvement systems are also applicable to insurance mutuals. A staff council is not obligatory, but employees have a right (but not the duty) to establish a staff council in case there are at least five employees. There is no special treatment with regard to insurance mutuals. That means that works councils may be established in an insurance mutual according to the Works Council Constitution Act (DE: Betriebsverfassungsgesetz17). If the insurance mutual has more than 500 employees, 2/3 of the supervisory board members have to be employees of the insurance mutual (§ 1 para.1 no. 4 One-Third Partici- pation Act-Drittelbeteiligungsgesetz)18.

There are two systems of employees participation according to German law. The operational co-determination on the one hand, dealing with the establishment and rights of a wokers' council at operational level and the corporate co- determination on the other hand, stipulating the rules for employees' participation in the supervisory board of a company. Conditions, requirements, rights and duties of the workers' council and the employees representatives in the supervisory board are totally different. The latter do have the same functions in the supervisory board as the other supervisory board members have. Members of the workers´s council may, but not automatically are at the same time employees' representatives in the supervisory board.

In terms of corporate structure a mutual (as well as the joint-stock company) consists of three corporate bodies:  management board (manages the company on operational level)  supervisory board (monitors and controls the operational work of the management board)

15 http://crossborder.practicallaw.com/0-501-3460?q=*&qp=&qo=&qe=

16 See: http://www.gesetze-im-internet.de/bundesrecht/kstg_1977/gesamt.pdf; http://www.gesetze-im- internet.de/kstdv_1977/BJNR008480977.html

17 See: http://www.gesetze-im-internet.de/betrvg/

18 See: http://www.gesetze-im-internet.de/drittelbg/index.html

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 supreme representation (general assembly) (convention of the members of the mutual or as the case may be members' representatives) The general assembly has the right and duty to take decision in all strategic important questions of the company. It has the right to appoint the members of the supervisory board (except the employees representatives which are elected by the appoints the members), to grant discharge to the members of the managment board and the supervisory board, to decide on the allocation of net income etc.

As the supervisory board only has the function to take control on the operations of the management board the legislation on employees' participation does not impair the ownership rights of the members of the mutual. The supreme representation of the mutual, the general assembly, has the over all responsebility of all strategic decisions of the mutual.

3 What are the possibilities and regulations in a situation of demutualization (e.g. transforming a mutual to a traditional capital company) protection of assets in case of demutualization?

The conversion of an insurance mutuals into an insurance joint-stock company is stipulated under § 291 German Transformation Act (DE: Umwandlungsgesetz)19, also, the approval of the German Insurance Supervisory Authority is required (VAG § 14). The members of the insurance mutuals automatically receive shares of the new joint-stock company. A resolution of the general assembly is necessary. The resolution needs an approval of three quarter of the votes casted. There is no need for liquidation of the mutual insurance association first.

Special protective regulations against demutualisation like the “French lock” (i.e. in case of demutualisation, the assets need to be transferred to a similar organisation, and not to the members) do not exist in Germany. In addition, it appears not to be necessary to have this asset protection system. As the insurance mutuals have a comprehensive legal framework and are widely recognised legally and politically and have shown their advantages over centuries, this legal form is well established enough that there is no fear of demutualisation and no demutualisations have taken place in the last 50 years.

2 Concerning internal barriers (barriers mutuals face within their own country):

4 Issues concerning the legal entity:

 The obstacles operators may have when they want to create a mutual in a country;

There are no obstacles known regarding the foundation of insurance mutuals in Germany except that it might be difficult to obtain sufficient own (initial) funds. There are reduced requirements for non-Directive insurers and there is a comprehensive legal framework (VAG). The foundation process is as- sisted and controlled by the German Insurance Supervisory Authority (BaF- in).

As insurance mutuals are by definition insurance undertakings, there are no possibilities to establish mutual-type organisations active in other businesses.

19 http://www.gesetze-im-internet.de/umwg_1995/index.html

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 The obstacles operators may have when they want to proceed to a merger of mutuals/division/acquisition of a mutual;

There are no obstacles known. A merger of insurance mutuals has to proceed according to the general rules of the German Transformation Act (DE: Um- wandlungsgesetz) § 109.

It is possible to merge two or more insurance mutuals and to merge an insurance mutual and an insurance joint-stock company. In the latter case, the insurance mutual has to be the ceding company (there is no need for liquidation first). A resolution of the general assembly is required. The resolution needs the approval of ¾ of the votes casted. The approval of the German In- surance Supervisory Authority is required (VAG § 14). Merging of companies is furthermore determined by the activity the insurance company conducts. It is not possible to merge a life and a non-life insurance company (this is true for both insurance mutuals and joint-stock insurance companies) but a Konzern (see hereunder) could be an answer.

According to the German Stock Companies Act (§ 18 II Aktiengesetz – AktG), companies can form vertical or horizontal groupings The AktG regulates the requirements for horizontal and vertical groups under German law irrespective of the legal form of the constituting group companies. Thus these provisions are also applicable to insurance mutuals. - The vertical grouping (Unterordnungskonzern), however, is not possible for insurance mutuals since they cannot be owned by something else than the members. - According to the legal norm, a horizontal group (Gleichordnungskonzern) is a voluntary combination of legally independent companies under central management without financial links. Central management and uniform direction is usually achieved by identity of executive board members in all group companies (as far as legally permitted and approved by the insurance supervisor). According to § 7a I VAG the number of mandates in an executive board of an insurance company is generally restricted to two mandates per person. If group companies are concerned, it is BaFin’s discretion to allow more mandates per person. Rules of interpretation are laid down in an administrative act20.

Due to the absence of shares and the ownerships structure (the insurance mutual is owned by its members) an acquisition of an insurance mutual by another organisation is not possible.

 The obstacles operators may have when they want to convert to another type of legal entity

There are no obstacles known. A conversion of an insurance mutual has to proceed according to the general rules of the German Transformation Act and the legal provisions of the VAG (e.g. § 14 1 and § 44 VAG or §§190 – 304 UmwG (of which some can be restrictive)). A conversion can only proceed towards a joint-stock company, not to a cooperative society which is not recognized in German insurance law.

20 Bafin, VA 5 -I 2234 - 2011/0005, Merkblatt zu Geschäftsleiter-Mehrfachmandaten. According to this, the Supervisory Authority is obliged to take into account the specific characteristics of mutual insurance associations when deciding on admission of additional board mandates.

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5 Issues concerning the activity:

 Specific rules/obligation related to the nature of the business in which mutuals operate (e.g. insurance activities, providence services, management of hospitals, creation of subsidiaries etc.)

Mutuals in Germany are restricted to operate in insurance services only. In- surance means private insurance as defined under Article 2 and 3 of the Sol- vency II Directive (L335/19, 17.12.2009).

There are some simplifications for smaller mutuals, for example if it comes to reporting duties. Insurance mutuals and insurance joint-stock companies that have a premium income lower than 5 million Euro, are currently foreseen to be exempted from the Solvency II regime.

6 Issues concerning the neglect of mutuals in policy making:

 National rules which by not taking into account the mutual specificities hinder the mutuals’ development (e.g. public procurement, specific tax rules, etc.).

Mutuals are not directly hindered in their development by existing national rules, but, indirectly they have a disadvantage in relation to joint-stock companies (which is at the same time an advantage).

According to the German Stock Companies Act (§ 18 II Aktiengesetz – AktG), companies can form vertical or horizontal groupings. This legal norm regulates the requirements for horizontal and vertical groups under German law irrespective of the legal form of the constituting group companies. Thus these provisions are also applicable to mutual insurance associations. - The vertical grouping (Unterordnungskonzern), however, is not possible for insurance mutuals since they cannot be owned by something else than the members. - According to the legal norm, a horizontal group (Gleichordnungskonzern) is a voluntary combination of legally independent companies under central management without financial links. Central management and uniform direction is usually achieved by identity of executive board members in all group companies (as far as legally permitted and approved by the insurance supervisor). According to § 7a I VAG the number of mandates in an executive board of an insurance company is generally restricted to two mandates per person. If group companies are concerned, it is BaFin’s discretion to allow more mandates per person. Rules of interpretation are laid down in an administrative act21.

Concerning the grouping of companies there are two issues which may affect insurance mutuals: - The current Solvency II Directive is at this moment not clear how to treat horizontal groupings concerning calculation of capital requirements, governance (dominance of one organisation over the other) and hence needs to be completed. - Groups of companies can have a corporate tax advantage when the companies can report the accounts of the group instead of the separate companies. This is however only possible for vertical groups and not for horizontal groups. Hence insurance mutuals, due to the fact that they cannot be owned by something else than the members, have a tax disadvantage.

21 Bafin, VA 5 -I 2234 - 2011/0005, Merkblatt zu Geschäftsleiter-Mehrfachmandaten. According to this, the Supervisory Authority is obliged to take into account the specific characteristics of mutual insurance associations when deciding on admission of additional board mandates.

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3 Concerning cross border barriers (barriers mutuals face when operating across barriers):

According to VAG Articles 13 a to c, it is possible for German insurance mutuals to set up branches in other EU Member States or to transact insurance business by way of freedom of services. The VAG Articles 13 a to c are based on standards set by the EU Insurance Directives.

Articles 110 a to d of the VAG deal with the reverse case, i.e. business operations of an insurance company domiciled in another EU or EEA Member State via a branch or by way of freedom of services into Germany. These rules are based on Community law as well.

In general, there is no indication that insurance companies with a mutual legal form have a disadvantage in operating across borders compared to their joint stock peers. What complicates matters is that in many cases, the large insurance mutuals operate across border via subsidiaries or foreign branches. There are not so many examples of insurance mutuals having members in other countries which have the same rights and obligations as German members.

An example of an insurance mutual having members abroad is Vereinigte Hagel VVaG (see case study).

8 Issues concerning cross-border cooperation with other European partners for the creation of groups of mutuals, or to create a local subsidiary.

The same legal regulations apply to insurance mutuals as to joint-stock insurance associations; therefore, no competitive disadvantages exist. The only disadvantage insurance mutuals have is that they cannot form a vertical grouping of mutuals which gives them a disadvantage to cooperate with other mutuals (either German or foreign) on corporate tax and solvency issues. Also, when forming a horizontal grouping with foreign insurance mutuals, it remains unclear how these groups are regarded in terms of solvency margins as the horizontal group in the case of insurance mutuals does not allow dominance of one undertaking over the other (i.e. it would disturb the mutual form as not the members are the highest authority).

9 Examples of existing cross-border co-operations and their legal form

There are a number of insurance mutuals that do operate cross-borders. This is mostly done through subsidiaries or local branches of which the mutual insurance association is (partly) the owner. To mention a few examples:  In 2010 German Gothaer Group (Gothaer Finanzholding AG) acquired a majority stake in Polskie Towarzystwo Ubezpieczeń S.A. (PTU)22. Gothaer’s subsidiaries are also active in cross-border co-insurance and reinsurance.  HUK-Coburg a. G. (insurance mutual) as well as HUK Coburg Allgemeine AG (p&c insurance joint-stock company) manages in Germany claims files while acts as correspondent for foreign insurance companies. The assistance group companies HUK-Coburg Assistance GmbH and Private Healthcare Assistance GmbH organise in Germany the processing of health insurance claims and assistance services abroad (to some extend with the assistance of foreign corre- spondents).

22 http://www.ptu.pl/1402/

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 WWK Lebensversicherung auf Gegenseitigkeit (life insurance mutual) has a majority shareholding in Luxemburg, namely, WWK Investment23.  A number of mutual (and non-mutual) insurance groups organised themselves into Eurapco24. Eurapco serves as the preferred platform for knowledge exchange, aiming at being the number one source of practical information for the Partners in order to enable them to leverage pan-European business. The following companies are member of Eurapco: Achmea (NL), Caser (ES), Covéa (FR), Gothaer (DE), LF (SE), Swiss Mobiliar (CH) and Tapiola (FI).25

The smaller types of insurance mutuals do not operate across borders and by their nature, are excluded from cross-border business.

10 Examples of autonomous expansion across the frontiers of mutuals.

 Gothaer (the insurance mutual and the joint-stock insurance companies) has the licence to carry on insurance activities in all EU member states under the freedom to provide services provisions. Gothaer has also branches in France, Spain and Austria. Furthermore the French branch carries on insurance activities in Greece as the Austrian branch does in Italy.  HDI has activities in middle and Eastern Europe via its financial and management holding Talanx AG. Additionally the group has branches in France, Swit- zerland, UK, Italy, Greece, Norway, Czech Republic, Slovakia and Hungary. Furthermore it has subsidiaries in the Netherlands, Austria, Spain, Belgium, Italy, Poland, Bulgaria and Hungary. In Hungary it has a sales cooperation with the Hungarian post.  WWK Lebensversicherung auf Gegenseitigkeit (life insurance mutual) has insurance intermediaries in Austria.  Vereinigte Hagel VvaG (insurance mutual) carries on its insurance activities in Denmark and Poland under the freedom to provide services and in the Nether- lands, Italy and Luxemburg via branches (see case study).

4 Concerning national measures, for promoting mutuals and measures aiming at access to finance for mutuals:

The general rules for internal financing of insurance companies are applicable (VAG § 53c to 54d). There is no special treatment of insurance mutuals.

Besides the rules of the “VAG” (see e.g. § 53 c), most of the smaller insurance mutuals do have the right to call for additional premium payments (supplementary calls) according to their articles of association but due to competition none of them ever does.

The possibility exists for insurance mutuals to access the capital market via a subsidiary (joint-stock company).

23 http://www.wwk-investment.lu/

24 https://www.eurapco.com/eurapco_web_db/web/website-T.nsf/welcome_page.xsp

25 https://www.eurapco.com/eurapco_web_db/web/website- T.nsf/public_page.xsp?page=view_partners&Menu=3

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No state subsidies for insurance mutuals. Only when they are very small (Kleine Vereine), they are exempt from tax.

13 The existence, if any, of national, regional or local policies aiming at the promotion of mutuals, such as tailored business support services, specialised agencies, creation of federations etc.

There are no specific national, regional or local policies aiming at the promotion of mutuals. As has been mentioned there are a number of associations of mutual insurers.

The VVaG can be seen as a “support” for the mutual insurance sector in the Ger- man market concerning small and very small mutuals. This association helps the mutuals (most of its member mutuals are operated on a volunteer base where the management is not a paid job) with any problem that might occur: Claims handling, new legislation, distribution activities, etc.

The large insurance mutuals are federated in ARGE, which has a slightly different function as the large insurance mutuals are able and professional enough to organise themselves.

In the German market the mutual insurance sector has a long tradition and is one of the legal forms of insurance companies that operates in competition with the others. Insurance mutuals have always been in the German market so there are no special needs with regard to their legal form. It is just the same challenges they have to face as joint-stock corporations or public law insurance corporations.

There is no active competition of legal forms in Germany as every legal form has its advantages and disadvantages. The large variety of legal forms is seen as an enrichment of the insurance market which affects innovation and progress.

What smaller insurance mutuals in the German market do need is a consistently applied implementation of the “proportionality” principle to fulfil the future regulatory requirements.

73 Germany

74 7 Denmark

Country study on the current situation and prospects of mutuals

Denmark

The Solvency II Directive applies to the following company forms:  Non-life insurance: ‘aktieselskaber’ (companies), ‘gensidige selskaber’ (mutual insurance companies)  Life insurance: ‘aktieselskaber’, (companies), ‘gensidige selskaber’ (mutual insurance companies), ‘pensionskasser omfattet af lov om forsikringsvirksomhed (tværgående pensionskasser)’ (institutions covered by the Insurance Business Act (pension funds))'  Reinsurance: ‘aktieselskaber’ (companies), ‘gensidige selskaber’ (mutual insurance companies).

A) Definitions of mutuals

There is no general definition of mutual. In Danish legislation special regulations related to the mutual business legal form are stated only in the Consolidated Financial Business Act (Bekendtgørelse af lov om finansiel virksomhed, no 705 of 25/06/2012)1. Thus the mutual form can only be used for insurance companies and no other business activities in Denmark can be established in the mutual form.2

The Insurance Statistic 1997 (Forsikringsselskaber 1997) states that “mutual companies ("gensidige selskaber") are insurance companies owned by their policyholders. Policyholders are also known as members. In a mutual insurance company its policyholders (members) are liable for the company.”3

B) Legal types (if more types exist)

In Danish legislation, special regulations related to the mutual business legal form are stated only in the Consolidated Financial Business Act (Bekendtgørelse af lov om finansiel virksomhed, no 705 of 25/06/2012). Thus the mutual form can only be used for insurance companies and no other business activities in Denmark can be established in the mutual form4.

Mutual insurance companies fall under the Financial Business Act (Lov om finansiel virksomhed), which includes some special regulations for mutual insurance companies regarding organisation and financing.5 This act has 3 regimes for mutual insurance companies:

 The mutual insurance companies regime (i.e. the ordinary regime); in the articles of association provisions must be taken up regarding  1) the liability of members and guarantors to the obligations of the company, and regarding the mutual liability of members and guarantors, cf. section 284(2),  2) whether the company shall be permitted to accept reinsurance without mutual liability, and

1 https://www.retsinformation.dk/Forms/R0710.aspx?id=142178; an English translation of a previous consolidated act can be found at: http://www.finanstilsynet.dk/Regler-og-praksis/Translated- regulations/~/media/Regler-og-praksis/2011/CAct_885_2011new.ashx

2 see http://ec.europa.eu/enterprise/policies/sme/files/mutuals/gensidig-forsikring-dk_en.pdf

3 http://www.finanstilsynet.dk/upload/Finanstilsynet/publik/publikationer/forsikring97/dn28_ord.html

4 Association of Mutual Insurance Companies in Denmark - The EU Commission's "Consultation Docu- ment" of 03/10/2003 on "Mutual Societies in an enlarged Europe"

5 Consolidating Act no. 885 of 8 December 2011, Financial Business Act: http://www.finanstilsynet.dk/Regler-og-praksis/Translated-regulations/~/media/Regler-og- praksis/2011/CAct_885_2011new.ashx

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 3) whether the guarantee capital shall be subject to interest, and if so, under which regulations (art 112)  A special regime for non-life mutual insurance companies with limited objects on condition (de minimis regime I):  1) that the objects of the company are limited to effecting contracts of insurance against accidents and sickness in such manner that the insured parties are also policyholders, or to effecting contracts of insurance for livestock,  2) that the company only carries out business in Denmark,  3) that the company does not affect contracts of insurance for periods of more than one year at a time,  4) that the company only effects direct insurance contracts,  5) the maximum sum which the company may accept on a single risk without reinsurance, or state a provision to the effect that regulations thereon shall be laid down by the Danish FSA in connection with the issue of the concession, and  6) the possibility of collecting supplementary contributions or reducing the benefits.  according to art 301 (1) they shall designate themselves as mutual companies;  An exempted regime for mutual non-life assurance company (de minimis regime II) if  1) its annual premium income exceeds an amount fixed by the Danish FSA, fixed in art 302 (1) as max 6 mio DKK gross premium written, with one single contract not exceeding 3% of total annual premium income or  2) less than one-half of its annual premium income derives from natural persons who are members of the company and  3) the company only effects insurance contracts within a limited geographical area and only for a single type of insurance.(exempted mutual insurance companies) (art 295 (2) and art 302 (1)

Note that the Danish FSA has the discretionary potential to apply the de minimis II regime to other mutual insurance companies not falling under art 294 (2) on condition that no liability insurance, industrial injuries insurance, motor vehicle insurance, credit or suretyship insurance are underwritten.

C) Methods of creation (required capital or assets)

The Financial Business Act provides for special regulations for mutual insurance companies regarding establishment etc.

In art 23, special regulations for mutual insurance companies are stated regarding the establishment. It states that Part 3 of the Danish Act on Public and Private Limited Companies (the Danish Companies Act)) (lov om aktie- og anpartsselskaber (selskabsloven))6 in general applies. This means that one or more people (promotors) can form a company, a memorandum of association has to be signed and articles of association need to include:  1. the company’s name and any secondary name(s);  2. the company’s object(s);  3. the amount of the share capital and the number or nominal value of the shares (for mutual insurance companies ‘share capital’ is replaced by ‘guarantee capital’);  4. the rights attaching to the shares (shares replaced by guarantors’);  5. the company’s governing bodies;  6. notice of general meetings; and  7. the company’s financial year. According to article 33 of the Company Act 33(1) An amount equal to 25% of the share [guarantee] capital, but not less than DKK 80,000, must be paid up at all times.

6 See English translation: http://www.dcca.dk/graphics/_ny%20eogs/English%20version/Legislation/The%20Danish%20Compani es%20Act%20-%2006122010.pdf

78 Denmark

In addition to what has been indicated in the Company Act, the articles of association of a mutual insurance company has to include the following (Section 112 of the Financial Busi- ness Act)  1) the liability of members and guarantors to the obligations of the company, and regarding the mutual liability of members and guarantors, cf. section 284(2),  2) whether the company shall be permitted to accept reinsurance without mutual liability, and  3) whether the guarantee capital shall be subject to interest, and if so, under which regulations.

Ordinary mutual insurance companies: According to article 126 (2), the capital base of insurance companies and multi-employer occupational pension funds shall constitute no less than:7  1) 4 percent of the risk-weighted items for life-assurance provisions plus 0.3 percent of the risk-weighted items for the risk sum for life-assurance business in insurance classes I-IV and VI where the company has an investment risk,  2) 1 percent of the risk-weighted items for life-assurance provisions plus 0.3 percent of the risk-weighted items for the risk sum for life-assurance business in insurance class V, and in insurance class III where the company does not have an investment risk, and

7 Insurance classes refer to: Insurance activities - non-life: Classification of risks by means of classes of insurance. 1) Accidents (including industrial injuries and occupational illness): fixed pecuniary benefits, benefits in the nature of indemnity, combinations of the two, and passenger transport. 2) Sickness: fixed pecuniary benefits, benefits in the nature of indemnity and combinations of the two. 3) Fully comprehensive insurance for land vehicles (other than railway rolling stock): all damage to or loss of land motor vehicles and land vehicles other than motor vehicles. 4) Fully comprehensive insurance for railway rolling stock: all damage to or loss of railway rolling stock. 5) Hull insurance for aircraft: all damage to or loss of aircraft. 6) Hull insurance for ships (sea, lake and river and canal vessels): all damage to or loss of sea, lake and river and canal vessels. 7) Goods in transit (including merchandise, baggage, and all other goods): all damage to or loss of goods in transit or baggage, irrespective of the form of transport. 8) Fire and natural forces: all damage to or loss of property (other than property included in classes 3, 4, 5, 6 and 7) due to fire, explosion, storm, natural forces (other than storm), nuclear energy or land subsidence. 9) Other damage to property: all damage to or loss of property (other than property included in classes 3, 4, 5, 6 and 7) due to hail or frost, and any event such as theft, other than those mentioned under 8. 10) Third-party liability insurance for motor land vehicles: all liability arising out of the use of motor land vehicles (including carrier's liability). 11) Third-party aircraft liability: all liability arising out of the use of aircraft (including carrier's liability). 12) Third-party liability for ships (sea, lake and river and canal vessels): all liability arising out of the use of ships, vessels or boats on the sea, lakes, rivers or canals (including carrier's liability). 13) General liability: all liability other than those forms mentioned under 10), 11) and 12). 14) Credit: insolvency (general), export credit, instalment credit, mortgages and agricultural credit. 15) Suretyship: direct suretyship and indirect suretyship. 16) Miscellaneous financial loss: employment risks, insufficiency of income (general), bad weather, loss of benefits, continuing general expenses, unforeseen trading expenses, loss of market value, loss of rent or revenue, indirect trading losses other than those mentioned above, other financial loss (non-trading) and other forms of financial loss. 17) Legal expenses: legal expenses and costs of litigation. 18) Assistance: assistance for persons who get into difficulties while travelling, while away from home or while away from their permanent residence. Insurance activities – life: Classification of risks by means of classes of insurance. I. General life assurance: a) Life assurance (that is to say, the class of insurance which comprises, in particular, assurance on survival to a stipulated age only, assurance on death only, assurance on survival to a stipulated age or on earlier death and life assurance with return of premiums), b) annuities, c) supplementary insurance contracts underwritten in connection with life assurance (in particular, insurance against personal injury including incapacity for employment and insurance against death resulting from an accident or insurance against disability resulting from an accident or sickness). II. Marriage assurance and birth insurance: a) Marriage assurance; b) birth insurance. III. Insurance attached to collective investment funds: a) Life assurance (that is to say, the class of insurance which comprises, in particular, assurance on survival to a stipulated age only, assurance on death only, assurance on survival to a stipulated age or on earlier death, life assurance with return of premiums, marriage assurance and birth insurance), b) annuities. IV. Permanent health insurance (long-term sickness insurance): sickness insurance which is written for a long period and is in- terminable for the insurance company in the entire period. V. Tontine: system entailing establishment of member associations with a view to joint capitalisation of contributions and payment of the resulting funds to either the survivors or to the heirs or beneficiaries of deceased members. VI. Capitalisation: activities based on actuarial calculation which include liabilities with a fixed term and amount against payment of a lump sum or predetermined regular payments.

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where the amount intended to cover the operating costs set in the insurance contract shall be determined for a period of more than 5 years,  3) 25 percent of the previous year's insurance-related administration costs plus 0.3 percent of the risk-weighted items for the risk premium for life-assurance business in insurance class III, where the company does not have an investment risk, and where the amount intended to cover the operating costs set in the insurance contract shall not be determined for a period of more than 5 years,  4) 25 percent of the previous financial year’s insurance-related administration costs for separate SP (Special Pension Savings Scheme) accounts,  5) the largest amount in a non-life assurance company of  a) 18 percent of the risk-weighted items for the maximum of gross premiums and gross premium income up to EUR 57.5 million plus 16 percent of amounts exceeding this figure, and  a) the annual average of 26 percent of the risk-weighted items for the gross costs of claims for amounts up to EUR 40.3 million and 23 percent of amounts exceeding this figure in the last 3 financial years,  6) EUR 3.5 million for insurance companies and multi-employer occupational pension funds carrying out life-assurance business,  7) EUR 2.3 million for insurance companies and multi-employer occupational pension funds carrying out activities within insurance classes 1-9 and 16-18,  8) EUR 3.5 million for insurance companies carrying out activities within insurance classes 10-15,  9) EUR 3.2 million for insurance companies carrying out reinsurance activities, and  10) EUR 1.1 million for captive reinsurance companies.

(5) The minimum capital requirement may be reduced for mutual insurance companies covered by subsection (2), no. 7 or 8 on more detailed conditions.

(6) For mutual insurance companies covered by subsection (2), no. 7 or 8, which fulfil the conditions in subsections (5) and (7), the minimum capital requirement shall be reduced to the largest amount of  1) EUR 0.225 million for a licence within insurance classes 1-8, 16 and 18, and  2) EUR 0.15 million for a licence within insurance classes 9 and 17.

(7) In order to be covered by the reduced capital requirement mentioned in subsection (6), a mutual insurance company shall, apart from the conditions mentioned in subsection (5), fulfil the following conditions:  1) The articles of association shall provide the possibility for charging extra or reducing the benefits,  2) the previous financial year's gross premium income may not exceed EUR 5 million,  3) the company may not hold a licence within insurance classes 10-15, and  4) no less than half of the previous financial year's gross premium income shall originate from insurance contracts where the policyholders are natural persons who are members of the company.

Mutual insurance companies of the de minimis I regime type must not comply with article 126 (2) about the minimum capital base.

Mutual insurance companies of the de minimis regime II : no requirements

In case an insurance company is liquidated and the insurance portfolio cannot be transferred to another company, the administrator shall convene a general meeting of the policyholders in order to establish a mutual company formed by the estate under administration (See section 258 of the Financial Business Act).

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D) Management and corporate governance

Ordinary mutual insurance companies:

According to the Financial Business Act there are special regulations regarding mutual insurance companies on the management and governance of the company.

All financial undertakings including the mutual insurance companies shall have a board of directors and board of management. The right of members and guarantors to make decisions in a mutual insurance company shall be exercised at the general meeting.

De minimis regime I: There are special regulations for mutual non-life insurance companies with limited object whose articles of association state (Financial Business Act, Section 294-1): these mutual insurance companies may function without a board of management (art 295 (2)). If the company has no board of management, the duties imposed on the board of management by this Act shall be performed by the board of directors (art 299).

Rights of members Ordinary mutual insurance companies/de minimis regime I: Financial Business Act, Section 112. The articles of association of mutual insurance companies shall […], contain provisions regarding: the liability of members and guarantors to the obligations of the company, and regarding the mutual liability of members and guarantors, cf. section 284(2). Financial Business Act, Section 111. The right of members and guarantors to make decisions in a mutual insurance company shall be exercised at the general meeting.

According to Financial Business Act, Section 284 (1) Members of a mutual insurance company shall only be the policyholders of said company. (2) If the members are to be liable for the liabilities of the company, the extent of such liability shall be stipulated in the articles of association

Additionally for the De minimis regime I mutual insurance companies, art 296 stipulates that no members or guarantors may be enrolled before draft articles of association have been drawn up. The draft articles of association shall be available on such enrolment.

Voting and representation of members in general meetings Ordinary mutual insurance companies/de minimis regime I: Financial Business Act, Section 111: Each member and guarantor shall have at least 1 vote. (2) […] the articles of association may stipulate that the general meeting shall consist of representatives elected by the members and guarantors, or their proxies.

Types of shares if any Ordinary mutual insurance companies/de minimis regime I: There are no shares in a mutual insurance company.

In general, the same rules apply for mutual insurance companies as for other types of insurance companies with that respect that ‘share capital’ should be replaced by ‘guarantee capital’ and ‘shareholders’ by ‘members’. Related to these changes, there is some relaxa- tions with regard to supervisory rules.

Reserves Ordinary mutual insurance companies/de minimis regime I: According to Financial Business Act, section 290 (1), only the profit for the year in accordance with the audited annual report for the most recent financial year, retained earnings from previous years, and other reserves that are not non-distributable in pursuance of legislation or the articles of association of the company after deduction of both uncovered losses and amounts that must be allocated to a contingency fund or other purposes in pursuance

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of legislation or the articles of association of the company may be used as dividends to shareholders, interest to guarantors, or payments to members of mutual companies. (2) Funds covered by subsection (1) and the profit for the current financial year up to the date of the interim balance sheet, cf. section 183(2) of the Companies Act, may be utilised for extraordinary dividends, if the amount has not been distributed, used or tied. Distributable reserves arising or released in the current financial year may also be utilised for extraordinary dividends.

Possibility for non members investors Ordinary mutual insurance companies/de minimis regime I: Mutual insurance companies can have guarantors, which are holders of guarantee capital. On this capital they receive guarantee interest (if allowed in the articles of association)

Transparency and publicity requirements / related auditing issues Ordinary mutual insurance companies/de minimis regime I: The same rules apply to mutual insurance companies as to other insurance operators.

Protection of assets Ordinary mutual insurance companies/de minimis regime I: There is no asset protection regulation. Any payment to members is subject to the articles of association.

E) Additional information on the possibility to group

The Consolidated Financial Business Act (Bekendtgørelse af lov om finansiel virksomhed, no 705 of 25/06/2012)8 includes a section on groups. Groups shall mean a parent undertaking and its subsidiary undertakings. In section 5 a more elaborated description is provided:  5a. A parent undertaking together with one or more subsidiary undertakings comprise a group. An undertaking may only have one direct parent undertaking. If several undertakings satisfy one or more of the criteria in section 5b, only the undertaking that actually exercises the controlling influence over the undertaking’s financial and operating decisions shall be deemed the parent undertaking.  5b.-(1) Controlling influence is authority to control the financial and operating decisions of a subsidiary undertaking.  (2) Controlling influence in relation to a subsidiary undertaking exists when the parent undertaking, directly or indirectly through a subsidiary undertaking, owns more than one- half of the voting rights in an undertaking, unless, in exceptional circumstances, it can be clearly demonstrated that such a ownership does not constitute controlling influence.  (3) Where a parent undertaking holds no more than one-half of the voting rights in an undertaking, controlling influence exists if the parent undertaking has  1) the power to exercise more than one-half of the voting rights by virtue of an agreement with other investors,  2) the power to control the financial and operating policies of an undertaking pursuant to the articles of association or an agreement,  3) the power to appoint or remove the majority of the members of the supreme management body, and this body has controlling influence on the undertaking, or  4) the power to exercise the actual majority of votes at the general meeting or an equivalent body and thus hold actual controlling influence of the undertaking.  (4) The existence and effect of potential voting rights, including rights to subscribe for and purchase equity investments that are currently exercisable or convertible, shall be taken into account when assessing whether an undertaking has controlling influence.

8 https://www.retsinformation.dk/Forms/R0710.aspx?id=142178; an English translation of a previous consolidated act can be found at: http://www.finanstilsynet.dk/Regler-og-praksis/Translated- regulations/~/media/Regler-og-praksis/2011/CAct_885_2011new.ashx

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 (5) Any voting rights attaching to equity investments owned by the subsidiary undertaking itself or by its subsidiary undertakings shall be disregarded in the determination of the voting rights in a subsidiary undertaking.

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84 8 Estonia

Country study on the current situation and prospects of mutuals

Estonia

Solvency II applies to the following company form for non-life, life and reinsurance: aktsi- aselts’ (limited liability company).

A) Definitions of mutuals

In the area of insurance, Mutual and cooperative insurance undertakings are not allowed to be established in Estonia1. According to the Insurance Activities Act, unless otherwise provided by law, an insurance undertaking shall only be founded as a public limited company or a European company2. Thus there is also no insurance mutual definition in Estonia.

B) Legal types (if more types exist)

There is no legal framework available for mutual-type organisations.

C) Methods of creation (required capital or assets)

There is no legal framework available for mutual-type organisations. Imposing insurmount- able internal barriers for establishing mutuals.

D) Management and corporate governance

N.A.

3 Concerning cross border barriers (barriers mutuals face when operating across barriers):

1 Issues concerning expanding across the frontiers in order to offer cross-border mutual services or to establish as mutual in a country other than the one of the registered office of the main mutual.

A foreign insurer and/or reinsurer may underwrite insurance or provide capacity to underwrite insurance in Estonian jurisdiction, provided that the foreign insurer/reinsurer has established a branch office or registered as a provider of cross- border insurance activities. Foreign insurer and reinsurer are not to be separately licensed in Estonia if the laws of the country, - where the company has been established and where it has been provided the right to carry out insurance/reinsurance activities -, allow the company carrying out insurance activities also in Estonia. However, a local branch office should be established or the foreign insurer should be registered as a provider of cross-border insurance activities.  If the insurer has been established in a country not belonging to the European Economic Area (EEA), then, as a rule, the insurer needs a permission of the Es- tonian Financial Supervision Authority in order to establish a branch office or to carry out cross-border insurance activities in Estonia. The permission requirement is not applied to carrying out cross-border reinsurance activities – then a notification is required.

1 AMICE, The market share of Mutual and Cooperative Insurance in Europe 2008.

2 See Estonian Insurance Activities Act: http://www.legaltext.ee/text/en/X90004.htm

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 Insurers/reinsurers established in the EEA countries may establish a branch office or carry out cross-border insurance activities in Estonia without any separate permission. A notification should then always be submitted to the Estonian Financial Supervision authority through the financial supervision authority of the country where they are established12

1 Lepik & Luhaäär Lawin (2010), Foreign Insurers, Estonia.

2 Note that Gjensidige (NO) and Fennia(FI) had at some point small non-life insurance branch operations in Estonia; Fennia sold it to If in 2009; Gjensidige changed corporate structure in December 2010 and is since then no longer a mutual insurer.

88 9 Greece

Country study on the current situation and prospects of mutuals

Greece

With regard to non-life insurance and reinsurance, the Solvency II Directive applies to the following company forms: ‘ανώνυμη εταιρία’ (limited company) ‘αλληλασφαλιστικός συνεταιρισμός (mutual insurance cooperatives). Life insurance can only be provided by ανώνυμη εταιρία’ (limited company).

A) Definitions of mutuals

According to the insurance legislation: 'Mutual insurance cooperatives' (Mutual Insur- ance Cooperatives – Mutual Insurance Funds: Αλληλασφαλιστικοί Συνεταιρισμοί - Αλληλα- σφαλιστικά Ταμεία) provide mutual insurance exclusively to their member policyholders1. Their operation is governed by Articles 35, 36 and 37 of Legislative Decree 400/1970 («Περί Ιδιωτικής Επιχειρήσεως Ασφαλίσεως»)2. Their activity is restricted to the area of non-life insurance.3 According to the Law Regarding Private Insurance Undertakings (Legislative De- cree 400/1970), providing mutual insurance to their members must be the exclusive object of mutual insurance cooperatives. These organisations are essentially cooperatives.

There are also mutual benefit societies called mutual health funds (‘Allilovoithitika Ta- mia’/ ‘Αλληλοβοηθητικά Ταμεία’), which are organizations set up by professional unions. Their legal identity is ‘Legal Persons Governed by Private Law’ / ‘Private Law Entities’ (professional associations). They were established according to the provisions of the Royal De- cree 15/20.05.1920:

Licensed/Recognized Professional Associations and Unions may establish and sustain Mutual health or pension Funds for their members. These Funds, constituting Legal Entities, have separate management, but their administration can as well be assigned to the persons running the professional Association or their Union.

Art.34.-1. The Mutual health funds, governed by own Statute which defines clearly their aims and their resources, are more or less intended to the following objectives: a) to provide members or their families with medical and/or medicinal care, in case of illness and treatment, b) provide cash benefits in case of illness, accident, temporary incapacity for work, child birth, unemployment, pay the funeral expenses of deceased members, provide an allowance or lump sum (when retired) to members incapable for work due to ageing, accident or illness, or the families of deceased members, provide loans, according to social criteria. The capital and the resources of a Mutual fund cannot be disposed for purposes other than what is previewed, except for administrative and management expenses.’…)

They are subject to the provisions applicable to "Mutual Health Funds' (Law 281/1914, Law 2151/1920, and the general provisions of the Civil Code regarding Associations). They operate under compliance to their Statutes.

The main features of the mutual health funds are insurance solidarity, mutual democratic management, and their non-profit and self-governed character according to OATYE4. They are not treated as social security institutions, since the Greek legal order ex- cludes private bodies from the scope of social insurance, and they form part of the second

1 http://www.bankofgreece.gr/Pages/en/deia/PrivateInsuranceFirms.aspx#mutual

2 http://www.eaee.gr/cms/eng/uploads/nd400-70en.pdf

3 http://www.bankofgreece.gr/Pages/en/deia/PrivateInsuranceFirms.aspx#mutual

4 http://www.oatye.gr/index-en.php

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pillar5 (they mainly duplicate the compulsory health care offer for their members). Affiliation is voluntary.

Benefits (medico-pharmaceutical care and primary healthcare) are financed through members’ contributions, but employers may also choose to contribute.6

From the EP study: Although most health insurance funds in Greece are public entities, there are also mutual benefit societies offering compulsory health insurance, covering about 110,000 people. These funds, which do not offer voluntary health insurance, are restricted to certain professional groups and are related to trade unions.7 Some of these mutual benefit societies have been in existence since the 1930s (such as the National Bank of Greece Personnel Health Fund (T.Y.P.E.T.). In general, Greece exhibits a very specific situation in Europe, resulting from a fragmented social protection system laid down in hundreds of legislative texts.8

The following mutual benefit societies are members of O.A.T.Y.E. (FEDERATION OF GREEK MUTUALITIES):  1. T.Y.P.E.T. (Mutual Health Fund of the National Bank of Greece Personnel)  2. T.Y.P.A.T.E. (Mutual Health Fund of the Agricultural Bank of Greece Personnel)  3. A.T.P.S.Y.T.E. (Mutual Health Fund of the Bank of Greece Personnel)  4. E.D.O.E.A.P. (Mutual Health Fund of Journalists)

B) Legal types (if more types exist)

See above. Articles 35-37 of decree 400/1970 only apply to those mutual insurance companies provided they fulfil cumulatively the following conditions under a-c:  (a) Their articles of association provide for the possibility of calling up additional contributions or reducing the foreseen benefits.  (b) Their business does not cover civil liability risks, unless the latter constitute ancillary cover within the meaning and under the conditions of article 3 para. 1 hereof, of credit and suretyship risks.  “(c) The amount of the annual contribution must not exceed the sum of 5.000.000 euros.” Also, only the provisions of article 35 to 37 incl. are applied to mutual insurance cooperatives which have made an agreement with another cooperative of this nature which provides either for the full reinsurance of all the insurance policies issued by them or under which the concessionary undertaking is subrogated to the liabilities arising under such insurance in the place of the ceding cooperative regardless of the fact that the ceding cooperative fulfils all the above conditions a-c. The reinsuring or the ceding mutual insurance cooperative is at all events subject to the provisions of the following paragraph.

To mutual insurance cooperatives not falling within the provisions of the preceding paragraph shall also apply mutatis mutandis, further to the provisions of articles 35 to 37, the other provisions hereof, in particular the provisions relating to solvency margin, guarantee fund, technical reserves and scheme of operations. These cooperatives are dispensed from the obligation under article 36 para. 1 to deposit guarantee.

Hence the legal framework only allows small mutual insurance companies. If they grow larger, they have to convert into another company form.

5 http://www.isi.org.gr/GR/files/Greek%20Benefits.pdf

6 http://www.isi.org.gr/GR/files/Greek%20Benefits.pdf , see also: http://www.mzes.uni- mannheim.de/eurodata/newsletter/no7/feature.html 7 Report 2008 of the AIM working group on health system reform “Healthcare protection today: Structures and trends in 13 countries”.

8 Amitsis, Gabriel, Current Policies and Reform Plans for the Greek Benefits Framework, Benefits & Compensation International, Volume 31, Number 7, March 2002.

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C) Methods of creation (required capital or assets)

Concerning mutual insurance cooperatives article 36 of Decree 400/1970 states: For the granting of license the cooperatives shall submit to the Ministry for Commerce an application accompanied by the following documents:  (a) Certified copy of the Articles of association, approved according to the provisions of Law 602/1915 (substituted by Law 1667/1986) "as regards Cooperatives" along with a list of their active members. The Articles of association shall include in detail provisions on the risks insured, the contributions payable, the way of coverage of risks and of the settlement of indemnities, the keeping of the technical reserves provided under the present Decree Law and in general the way of organization and operation of mutual insurance of members.  (b) Written declaration of the Cooperative on the establishment of a Mutual Insurance Fund, stating that it undertakes the full cover of the insurance risk from the rest of its assets in case of non cover of the risk by the income of the Fund and.  (c) Proof of deposit of a guarantee to an approved Bank operating in Greece of an amount of Drs. 3.000.000 by the Mutual Insurance Cooperative, which is placed according to the provisions of art 8 para. 15 second case of the present Decree Law. The license is granted by decision of the Minister for Commerce, published in the Govern- ment Gazette (Bulletin of Societes Anonymes and Limited Liability Companies). The lawful operation of the Mutual Insurance Cooperative and of the Mutual Insurance Fund begins as of the publication of this license.

Regarding the three (3) Mutual Health Funds of Banks (T.Y.P.E.T., A.T.P.S.Y.T.E., T.Y.P.A.T.E.), these organisations were established by the employees’ unions of the respective banks, following General Assembly resolutions. There is no need for notarial act or license. The supervision or controlling authority is the Auditing Committee.

Establishing an association in Greece, does not require a specific capital. The aims of the association are implemented through their resources, which are mainly the contributions of its members.

Regarding the Mutual Health Fund of Journalists (E.D.O.E.A.P.), this organisation was established by its member’ associations (ESIEA, EPIEA, ESIEMTH, EPIEMTH). There was a one-off proportionate contribution to the capital of the mutual health fund. The contribution from members-in-active-employment are withheld.

D) Management and corporate governance

Generally, the management is regulated by the activity the mutual health fund carries out (health and care regulations), the statutes of the organisation, decisions of the Board of Di- rectors and the General meeting.

 Rights of members: Previewed by the Statutes and Regulations of the Mutual Health Funds. The members of the Mutual health funds are considered as their owners.  Voting and representation of members in general meetings: Following elections every two (2) or three (3) years. The first, formal required rate of participants (regular members with voting right) for the quorum is (according to the Funds’ Statutes) : for a) T.Y.P.E.T. → at least 1/20 of the nationwide total of regular members with voting right, b) A.T.P.S.Y.T.E. → at least 1/3 of the total of regular members within Attica basin with voting right, c) T.Y.P.A.T.E. → at least 1/30 of the nationwide total of regular members with voting right, d) E.D.O.E.A.P. → at least 1/3 of the total of regular members within Attica and Thessaloniki region with voting right. (In case of no quorum gathered in the first assembly or in case of extraordinary general meetings, for purposes such as, e.g. Statutes’ amendments, then other conditions are presupposed). Each regular member holds one vote.

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 Types of shares if any: Not applicable.  Reserves: The decisions to reserve or to distribute are taken by the Association’s bodies acquiring a decisive responsibility, based on the Statutes of each Association (e.g. Gen- eral Assembly, Board of Directors etc) and according to the existing legislation. The Mu- tual health funds A.T.P.S.Y.T.E. and E.D.O.E.A.P. are obliged by Law 1611/1950 to deposit the major amount of their reserves in the Bank of Greece, in a common -between each carrier and the Bank-, account. T.Y.P.E.T. and T.Y.P.A.T.E. are not linked to this Law. All funds do also keep assets in bank accounts.  Possibility for non members investors: Not applicable  Transparency and publicity requirements: Annual Reports and Balance Sheets, under approval by the General Assembly.  Related auditing issues: Auditing by: a) Audit Committee, b) internal control, c) auditors  Protection of assets: In case of demutualisation for: a) the Mutual health funds T.Y.P.E.T. – A.T.P.S.Y.T.E. – E.D.O.E.A.P., it is previewed that property will be allocated for purposes similar to those indicated in the Funds’ Statutes and in benefit of their members, following relevant resolutions of the General Assembly. Regarding b) the Mu- tual health fund T.Y.P.A.T.E., the property goes either to the Employees’ Association of the Agricultural Bank or the Welfare Fund of the Agricultural Bank.

No specific provision in the law concerning mutual insurance cooperatives.

1 Legislation impacting the functioning of mutuals:

1 Is there legislation on taxation issues (preferential treatment)?

The mutual health funds which are associations (and not companies) are based on the Civil Code and as all other not for profit organisations they do not pay company taxes. The advantage not to pay company tax depends on their legal status of not being a company.

2 Is there legislation concerning employee involvement systems?

There is no specific legal regulation on this issue; however, it is foreseen in the statutes of the mutuals.

3 What are the possibilities and regulations in a situation of demutualization (e.g. transforming a mutual to a traditional capital company) protection of assets in case of demutualization?

The demutualisation needs to be approved by the General Assembly, reaching the quorum as specified in the statutes, the Civil Code and other existing legislation. According to articles 103, 104, 105, 106 of the Civil Code, ‘the association can be dissoluted at any time, further to relevant General Assembly resolution. The union can be dissoluted according to the provisions set by the Statutes. The union is dissoluted if less than 10 people remain as members. Further to a resolution by the Court of First Instance, the union can be dissoluted, if its Management authority (Board of Directors) asks for it or the 1/5 of its members or its supervision authority. Regarding the property, the union cannot distribute it to its members.

In case of demutualisation for: a) the Mutual health funds T.Y.P.E.T. – A.T.P.S.Y.T.E. – E.D.O.E.A.P., it is previewed that property will be allocated for purposes similar to those indicated in the Funds’ Statutes and in benefit of their members, following relevant resolutions of the General Assembly. Regarding b) the Mutual health fund T.Y.P.A.T.E., the property goes either to the Employees’ Asso- ciation of the Agricultural Bank or the Welfare Fund of the Agricultural Bank.

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2 Concerning internal barriers (barriers mutuals face within their own country):

4 Issues concerning the legal entity:

 The obstacles operators may have when they want to create a mutual in a country;

There is no specific regime to create a mutual in Greece. The existing legal system does not allow establishment of a new Mutual Health Fund. The insurance legislation does not provide for the establishment of mutuals.

 The obstacles operators may have when they want to proceed to a merger of mutuals/division/acquisition of a mutual;

The Mutual Health Funds have the opportunity to join a union with another mutual health fund or other associations, provided that this does not jeop- ardize their independence and after prior, relevant approval by the General Assembly. Hence, they are allowed to associate themselves with others, but no allowed to create financial, or ownership ties between them.

 The obstacles operators may have when they want to convert to another type of legal entity

Only by Statutory General Assemblies and in accordance with applicable national laws. There is no relevant experience so far. Still, in case of intention to convert to another type, there should first be dissolution and then creation from the start to the new type.

5 Issues concerning the activity:

 Specific rules/obligation related to the nature of the business in which mutuals operate (e.g. insurance activities, providence services, management of hospitals, creation of subsidiaries etc.)

The Greek mutual health funds provide their members with: medico- pharmaceutical care and primary healthcare, (medical, dental, pharmaceutical, hospital care, in kind and in money. Benefits and aids of all kinds, such as pregnancy, childbirth, postpartum, early childhood nursery, illness, hydro- therapy etc. Funeral expenses, hospitalisation expenses within the country and abroad, transfer expenses for hospitalization abroad, ( Plus the Mutual Health Fund of the National Bank of Greece Personnel – T.Y.P.E.T., owns a private clinic, therefore it is the only one to provide also Secondary healthcare), based on their Statutes and the Health / Care Regulations. The Mutual Health Fund of Journalists (E.D.O.E.A.P.) provides also supplementary (subsidiary) insurance (‘επικούρηση’/ ‘epikourisi’) and lump sum when being retired.

6 Issues concerning the neglect of mutuals in policy making:

 National rules which by not taking into account the mutual specificities hinder the mutuals’ development (e.g. public procurement, specific tax rules, etc.).

The legislation does not always take into account the particular characteristics of mutual health funds.

95 Greece

3 Concerning cross border barriers (barriers mutuals face when operating across barriers):

Not applicable and no provision for expansion of mutual health services across borders. The health benefits are regulated by Legislation and the existing interstate legislations, through the European provisions on social security (Health Insurance Cards and interstate documents).

8 Issues concerning cross-border cooperation with other European partners for the creation of groups of mutuals, or to create a local subsidiary.

There is no legal provision for expanding across borders.

9 Examples of existing cross-border co-operations and their legal form

Except from service contracts to cover foreign citizens in Greece, there are no examples of cross-border operations of Greek mutual benefit societies.

An example of a service contract is the following: A mutually signed contract (by the legal representatives) between the Greek federation O.A.T.Y.E. and the French Federation FNMF for mutual exchange of health services to the Greek and French insured members (undergraduates) in the Clinics ‘Ygeias Melathron' (GREECE) and 'Institut Mutualiste Montsouris' (FRANCE).

10 Examples of autonomous expansion across the frontiers of mutuals.

Non applicable

4 Concerning national measures, for promoting mutuals and measures aiming at access to finance for mutuals:

Previewed by the Greek Legislation, combined with the Statutes of the Mutual Health Fund. Mutual health funds are allowed to: abide bank accounts with treasury balance (which can be retracted or liquefied if necessary), invest in securities (eg shares, bonds, unit trusts etc), purchase and sell property. They can also take part in national subsidized programmes (e.g. NSRF – National Strategic Reference Framework), if they meet the requirements respectively set by the Ministry.

None

13 The existence, if any, of national, regional or local policies aiming at the promotion of mutuals, such as tailored business support services, specialised agencies, creation of federations etc.

None

96 Greece

None

97 Greece

98 10 Spain

100

Country study on the current situation and prospects of mutuals

Spain

The Solvency II Directive applies to the following company forms in both non-life and life insurance: ‘sociedad anónima’ (joint-stock company), ‘sociedad mutua’ (mutual company), ‘sociedad cooperativa’ (cooperative). Reinsurance can only be provided by ‘sociedad anónima’ (joint stock company).

A) Definitions of mutuals

Is there not a general definition of mutuals in Spanish law.

Article 7, 1 of the Royal legislative decree 6/2004 of 24 October 2004 (hereafter called RLD 2004)1 mentions the forms insurers can take: these include 2 mutual forms, mutual insurance companies (mutuas de seguros) and mutual provident societies (mutualidades de previsión social).

1) Mutual insurance companies (mutuas de seguros) can be defined as private non- profit organisations that are intended to cover their members’ (natural or legal persons) risks (see article 9 and 10)

2) Mutual provident societies (mutualidades de previsión social or MPS)2 are private non-profit organisations that provide voluntary health insurance, complementary to the compulsory social security system. Again, policyholders are also members (Regulation on Mutual provident societies (Reglamento de mutualidades de previsión social 20023, hereafter referred to as the 2002 Regulation).

Both types of mutuals can be of a fixed or variable premiums type:  Fixed premiums (article 9): which are private non-profit organisations that are intended to cover their members’ (natural or legal persons) risks on the basis of a fixed premium. Policyholders are also members.  Variable premiums (article 10): which are private non-profit organisations based on the principle of mutual aid, aimed at covering of risks incurred by the members (socios) and where the members are charged with variable premiums. The mutuals with variable premiums can only be active in non-life insurance businesses.

B) Legal types (if more types exist)

There are several legal types of mutuals, each having their own legislative framework:

1) Mutual insurance companies, covered by the Law on Private Insurance Organisation and Supervision (Ley de ordenación y supervisión de los seguros privados 2004)4 and the Regulation on Private Insurance Organisation and Supervision (Reglamento de Ordenación y

1 Real Decreto Legislativo 6/2004, de 29 de octubre, por el que se aprueba el texto refundido de la Ley de ordenación y supervisión de los seguros privados: http://noticias.juridicas.com/base_datos/Privado/rdleg6-2004.html#

2 According to art 3,3 of decreto 2002, the abbreviation M.P.S. may be used

3 Real Decreto 1430/2002, de 27 de diciembre, por el que se aprueba el Reglamento de mutualidades de previsión social: http://noticias.juridicas.com/base_datos/Admin/rd1430-2002.t1.html

4 Real Decreto Legislativo 6/2004, de 29 de octubre, por el que se aprueba el texto refundido de la Ley de ordenación y supervisión de los seguros privados: http://noticias.juridicas.com/base_datos/Privado/rdleg6-2004.html#

101 Spain

Supervisión de los Seguros Privados 1998)1, which include special provisions for mutual insurance companies regarding organisation, financing, mergers and demutualization. As mentioned sub A) mutual insurance companies can be organized with fixed or variable premiums.

2) Mutual provident societies: Special provisions for these mutuals, regarding establishment, activities, organisation and financing, can be found in the Regulation on Mutual provident societies (Reglamento de mutualidades de previsión social 2002)2. As mentioned sub A) mutual provident societies can be organized with fixed or variable premiums and can even combine both systems in the same mutual: see article 7 of the 2002 Regulation:

However, mutual provident societies also have the characteristics of an insurance undertaking and are also subject to RLD 2004. They can only provide insurance of the person, so there are restrictions as to the insurance classes they may operate. There are also restrictions as to the amount of premiums they may write.3 According to article 4 of the 2002 Regulation, they can also engage in pension fund management.

In total there are in 2011, 34 mutual insurance companies and 55 mutual provident societies. Besides these insurance mutuals, there are also mutual companies active in workers’ accident prevention.4

This factsheet will focus on the national legal framework for the mutual insurance company and the mutual provident society.

C) Methods of creation (required capital or assets)

1) Mutual insurance companies need to comply with the following (main) procedures for establishing the company5:  Adopt one of the possible legal forms and, where appropriate, provide information on the existence of close links with other persons or entities.  Limit its objectives to the insurance business and operations, excluding any other commercial activity.  Submit and follow a work program (guiding principles, lines of business etc.)  Having the capital stock or mutual fund (fondo mutual) as required by Article 13, in general, companies need to have the following -minimum capital:  9,015,181.57 Euro in life or suretyship, or credit, or liability or reinsurance classes  2,103,542.37 Euro in the fields of accident, health, legal assistance and death.  3.005.060,52 Euro, for the other classes. Mutual insurance companies with fixed premiums however need to provide three quarter of these amounts as permanent mutual fund or fondo mutual permanente. Mutual insurance companies with variable premiums need to have a permanent mutual fund whose amount shall be at least EUR 30,050.61.  Having a guarantee fund (fondo de garantia) as provided for in Article 18. The guarantee fund for mutual insurance companies is three quarters of the regular minimum of 3.2 million Euro for entities operating in some of the classes of life, suretyship, credit and any liability risk and 2.2 million Euro for other entities. When these entities do not operate in

1 Real Decreto 2486/1998, de 20 noviembre, por el que se aprueba el Reglamento de Ordenación y Su- pervisión de los Seguros Privados: http://noticias.juridicas.com/base_datos/Privado/rd2486-1998.html

2 Real Decreto 1430/2002, de 27 de diciembre, por el que se aprueba el Reglamento de mutualidades de previsión social: http://noticias.juridicas.com/base_datos/Admin/rd1430-2002.t1.html

3 AISAM/AMICE (2007), Mutual Insurance Companies in Spain, The regulatory, financial and fiscal arrangements

4 See: http://www.amat.es/

5 Real Decreto Legislativo 6/2004, de 29 de octubre, por el que se aprueba el texto refundido de la Ley de ordenación y supervisión de los seguros privados: http://noticias.juridicas.com/base_datos/Privado/rdleg6-2004.html#

102 Spain

the field of civil liability, credit, suretyship nor conduct reinsurance business only, and its annual amount of premiums or contributions are not exceeding five million Euro during three consecutive years, the guarantee fund will be at least 800,000 Euro if they operate in the field of life, at least 200,000 Euro if they operate in other classes of property damage, legal assistance or death, and at least 300,000 Euro if they operate in the remaining insurance classes. According to article 18,2 there is a de minis regime: exempted from the minimum mutual guarantee fund are those mutuals not operating in the fields of life, liability and credit or bond or reinsurance and where its annual amount of premiums or contributions is not exceeding 750,000 Euro.  Indicate the contributions and interests in the equity or mutual fund of all partners.  Be effectively run by persons meeting the requirements of good repute and professional qualifications or experience.

2) Mutual provident societies The Regulation on Mutual provident societies (Reglamento de mutualidades de previsión social 20021) describes what is legally required to establish mutual provident societies in art. 8. At least 50 persons who agree with the establishment are needed and the names and age of the principle persons within the organisation need to be provided. Also, the statutes need to contain the following (Art. 10):  a. The name and address of the entity.  b. Submission of the entity to the specific regulations on management and supervision of private insurance and supplementary provisions.  c. The purpose of the entity, with specific reference to insurance transactions to be covered and, where appropriate, social benefits and other activities permitted by law  d. Geographical areas in which is will develop its activity.  e. Objective criteria to be met by member/policyholders for admission.  f. Rights and obligations of policyholders.  g. Indication of the patron members and obligations assumed in connection with the mutual.  h. Date of commencement of operations.  i. Rules for the constitution of the mutual fund, reimbursement of the contributions of the members and interest accrued by them.  j. Regime of mutual responsibility for the debts  k. Consequences of failure to pay up additional contributions and the compulsory contributions.  l. Regulation of corporate bodies.  m. How members can examine the public documents  n. Rules to be applied to the calculation and distribution of the expenses.  ñ. Settlement rules of each fiscal year.  o. Where appropriate, the submission of the members, as such and not as borrowers or secured, to the jurisdiction of the courts of the registered office of the entity.  p. The financial compensation, if any, which members can receive when bringing in new members or when they are involved in management.  q. Indication, where appropriate, of the possibility of agreeing on the need for up additional contributions or reducing benefits.

According to RLD 2004 (article 64 and further) the mutual provident societies have to comply with the same capital requirements as the mutual insurance companies (See article 67, 2). According to article 67,1 and article 66 however, there are mutual provident societies for which other rules apply as they obtained the administrative authorization for extension of benefits under specific conditions.

1 Real Decreto 1430/2002, de 27 de diciembre, por el que se aprueba el Reglamento de mutualidades de previsión social: http://noticias.juridicas.com/base_datos/Admin/rd1430-2002.t1.html

103 Spain

D) Management and corporate governance

1) Mutual insurance companies, Management and corporate governance: The rules and regulations concerning management and corporate governance are the same as for other insurance companies.1 Specific rules on mutualistic principles and values are described in the Regulation on Private Insurance Organisation and Supervision (Reglamento de Ordenación y Supervisión de los Seguros Privados 1998)2. For instance, this regulation mentions in art. 15 that the governing bodies of the mutual insurance companies with fixed premium are the General Assembly and the Board of Directors. The rules of these bodies are subject to the bylaws.

Right of members: According to article 13, each member is eligible for being elected for positions in the company.

Voting and representation of members in general meetings: According to article 13, each member has one vote. Everyone can attend the general meeting, submit proposals and take part in discussions and voting.

Types of shares if any: Shares are not possible for mutual insurance companies

Reserves: According to the AISAM/AMICE study, profits recorded in the accounts for a given period can be partially or totally distributed to the members. The distribution of profits is statutory: there must be a “loss share regime” provided (non-life mutuals). The General Assembly decides on the distribution of profits. The distribution of profits to members is optional.3

Possibility of non-members investors: According to AISAM/AMICE study, in Spain, mutual insurance companies can issue subordinated loans (art 59 of the 1998 Regulation. These financial instruments are considered as elements of the solvency ratio in accordance with the 1992 EU Directives in the proportion of 25% for limited duration and 50% for total subordinated debt. Prior authorization for issuance is not needed; only in case of early repayment is approval necessary. The Ministry of Economic Affairs and the Insurance Supervisor supervise the issuing of these loans.4

Transparency and publicity requirements/ Related auditing issues: As all insurance companies

Protection of assets: According to the AISAM/AMICE study, in case of winding-up, liquidation, all members, current and past (minimum of the last three years) are entitled to the net assets according to the articles of association . In case of “aportaciones al fondo mutual”, only the members who have contributed to the “fondo mutual” have preferential rights to the reimbursement of their investment under the terms foreseen at the origin of the “aportacion”. If no rules

2 Real Decreto 2486/1998, de 20 noviembre, por el que se aprueba el Reglamento de Ordenación y Su- pervisión de los Seguros Privados: http://noticias.juridicas.com/base_datos/Privado/rd2486-1998.html

3 AISAM/AMICE (2007), Mutual Insurance Companies in Spain, The regulatory, financial and fiscal arrangements

4 AISAM/AMICE (2007), Mutual Insurance Companies in Spain, The regulatory, financial and fiscal arrangements

104 Spain

were foreseen, other conditions are applicable. For the rest of the “Fondo”, all members including the members who have contributed are entitled to those assets.1

2) Mutual provident societies:

Management and corporate governance: The management and corporate governance is described in Title IV and V of the Regulation on Mutual provident societies (Reglamento de mutualidades de previsión social 20022). The governing bodies are the General Assembly (Article 36-38) and the Board of Directors (Arti- cle 39-42). Also, when these organisations are involved in insurance, the need to comply with the Regulation on Private Insurance Organisation and Supervision (Reglamento de Or- denación y Supervisión de los Seguros Privados 1998)3 in the same way as mutual insurance companies.

Right of members: Article 31 of the 2002 Regulation states that the status of the policyholder or insured is inseparable from that of membership.

Voting and representation of members in general meetings: Concerning voting rights the same rules apply as for the mutual insurers (Article 32)4. This means that each member has one vote.

Types of shares if any The same rules apply as for the mutual insurance companies (see above).

Reserves The same rules apply as for the mutual insurance companies (see above).

Possibility of non-members investors The same rules apply as for the mutual insurance companies (see above).

Transparency and publicity requirements When a mutual provident society exceeds the territory of a Region, it shall be supervised by the Central Government (Ministry of Economy). Otherwise, it is subject to the competence of the Region. There is a central registrar and an inspection regime

Protection of assets The same rules apply as for the mutual insurance companies (see above).

1 AISAM/AMICE (2007), Mutual Insurance Companies in Spain, The regulatory, financial and fiscal arrangements

2 Real Decreto 1430/2002, de 27 de diciembre, por el que se aprueba el Reglamento de mutualidades de previsión social: http://noticias.juridicas.com/base_datos/Admin/rd1430-2002.t1.html

3 Real Decreto 2486/1998, de 20 noviembre, por el que se aprueba el Reglamento de Ordenación y Su- pervisión de los Seguros Privados: http://noticias.juridicas.com/base_datos/Privado/rd2486-1998.html

4 Real Decreto 2486/1998, de 20 noviembre, por el que se aprueba el Reglamento de Ordenación y Su- pervisión de los Seguros Privados: http://noticias.juridicas.com/base_datos/Privado/rd2486-1998.html

105 Spain

106 11 Finland

107

108

Country study on the current situation and prospects of mutuals

Finland

For non-life, life and re-insurance the Solvency II Directive applies to the following company forms: "keskinäinen vakuutusyhtiö/ömsesidigt försäkringsbolag" (mutual insurance companies), "vakuutusosakeyhtiö/försäkringsaktiebolag" (insurance company), "vakuutusyhdistys/försäkringsförening" (insurance associations).

A) Definitions of mutuals

There is no general legal definition of mutuals in Finland. However, the following can be said on the definition of different types of mutuals. Finnish insurance legislation distinguishes between small mutual insurers (operating in no more than 40 municipalities), which are called insurance associations (“vakuutusyhdistys/försäkringsförening”), and larger mutual insurers, which are called mutual insurance companies (“keskinäinen vakuutusy- htiö/ömsesidigt försäkringsbolag”).

In the Insurance Companies Act, (Vakuutusyhtiölaki /Försäkringsbolagslag 18.7.2008/521)1 a definition can be found of mutual insurance companies. According to this Insurance Com- panies Act (521/2008), the purpose of mutual insurance companies is to provide profit or other economic benefit to members, unless otherwise prescribed by the statutes.

In the Law on Insurance Associations (Vakuutusyhdistyslaki/Lag om försäkringsföreningar 31.12.1987/1250)2 a definition is provided on insurance associations. According to the Law on Insurance Associations, an insurance association is an insurance company based on the members’ mutual liability.

According to the Act on Pension Insurance Companies (Laki työeläkevakuutusyhtiöistä/ Lag om arbetspensionsförsäkringsbolag 354/1997)3, the owners of a mutual insurance company are the policyholders, i.e. the employers and the insured, i.e. the employees, as well as any holders of guarantee shares.

B) Legal types (if more types exist)

There are 3 type of mutuals in Finland, 2 in insurance and one in statutory pension insurance. All mutuals are fixed premium mutual; no variable mutual are allowed.

Insurance: According to the insurance legislation, there are two types of mutual insurers. Finnish insurance legislation distinguishes between small mutual insurers (operating in no more than 40 municipalities), which are called insurance associations (“vakuutusyhdistys/ försäk- ringsförening”), and larger mutual insurers, which are called mutual insurance companies (“keskinäinen vakuutusyhtiö/ömsesidigt försäkringsbolag”).

 Mutual insurance companies fall under the Insurance Companies Act (Vakuutusy- htiölaki/ Försäkringsbolagslag 18.7.2008/521), which includes special regulations for mutual insurance companies regarding establishment, organisation, financing, mergers, de-

1 http://www.finlex.fi/fi/laki/ajantasa/2008/20080521

2 http://www.finlex.fi/fi/laki/ajantasa/1987/19871250

3 See: http://www.finlex.fi/sv/laki/alkup/1997/19970354; and: http://www.etk.fi/en/service/pension_insurance_companies/1492/pension_insurance_companies

109 Finland

mutualization and winding up. According to the Insurance Companies Act (521/2008), the purpose of mutual insurance companies is to provide profit or other economic benefit to members, unless otherwise prescribed by the statutes. These mutual insurance companies can be active in life insurance, non-life insurance and reinsurance. Policyholders of mutual insurance companies are also members4.  Insurance associations are covered by the Law on Insurance Associations (Vakuu- tusyhdistyslaki /Lag om försäkringsföreningar 31.12.1987/1250), which includes regulations on establishment, financing, organisation, mergers, winding up and inspection of this type of mutuals. According to the Law on Insurance Associations, an insurance association is an insurance company based on the members’ mutual liability, which operates in no more than 40 municipalities within a single area or is exclusively engaged in insurance of fishing equipment. These insurance associations may only underwrite voluntary non-life insurance.

Currently many of the insurance associations (all those related to Local Insurance), will merge with Tapiola non-life mutual insurance company. The insurance associations in Finland are independent, mutual enterprises owned by their policyholders. After the merger of Tapiola and Local Insurance, the insurance associations are expected to be active only in specialised insurance services for fishermen. Their operations are subject to a special law, the Insurance Associations act.

The Insurance Companies Act (521/2008) regulates the carrying out of direct insurance business outside pension insurance. It also applies to reinsurance companies (which are generally not expressly regulated)5.

All insurers and reinsurers in Finland are generally regulated in the same way, although different laws may apply depending on the company form (for example, mutual insurers are governed by different legal provisions concerning establishment, organisation, financing, mergers, demutualization, winding up and inspection, compared to other insurance companies).

Pension: A pension insurance company is a strictly regulated company form (regulated by the Act on Pension Insurance Companies (Laki työeläkevakuutusyhtiöistä/ Lag om arbetspensions- försäkringsbolag 354/1997)6. A pension insurance company may be a limited liability insurance company (incl. a public one) or a mutual insurance company. The owners of a mutual insurance company are the policyholders, i.e. the employers and the insured, i.e. the employees, as well as any holders of guarantee shares.7

The business of statutory pension is not classified as life insurance and hence is not regulated by the EU life Directive. The business is regulated by different laws. The private sector laws have been bundled into the TYEL-law starting January 1, 20078. Nevertheless, all these laws follow the same basic principles for private and public sector employment and self- employed persons. The main law for private sector pensions is the Employees' Pension Act (known as TyEL), which covers three fourths of the insured in the private sector. In practice, almost all employed persons, irrespective of nationality, are covered by Finnish employment pension legislation.9

4 See: http://www.finlex.fi/sv/laki/ajantasa/2008/20080521

5 http://crossborder.practicallaw.com/7-504-6240?q=*&qp=&qo=&qe=

6 http://www.etk.fi/en/service/pension_insurance_companies/1492/pension_insurance_companies

7 http://www.etk.fi/en/service/pension_insurance_companies/1492/pension_insurance_companies

8 See: http://tyoelakelakipalvelu.etk.fi/fi/saados/en/20060395/?_navi=haku

9 IGP (2011), Summary of Social Security and Private Employee Benefits FINLAND 2011: http://www.igpinfo.com/igpinfo/public_documents/ss_summaries/Finland.pdf

110 Finland

Foreign pension insurance companies may not directly engage in statutory pension insurance in Finland, but a foreign corporation or natural person may establish a pension insurance company in Finland. The company shall be subject to the same restrictions regarding line of industry and concessions as a pension insurance company established by Finns. So far, no foreign insurance company is engaging in the earnings-related pension insurance business in Finland.

C) Methods of creation (required capital or assets)

1) Mutual insurance company To establish a new insurance undertaking (including a mutual insurance company) in Finland generally the Company law (Osakeyhtiölaki/ Aktiebolagslag 21.7.2006/624) applies. To obtain a licence from the Financial Supervisory Authority, the application must, according to the Insurance Companies Act (Vakuutusyhtiölaki/ Försäkringsbolagslag 18.7.2008/521), article 3:10

 Refer to the particular insurance classes to be provided.  Be accompanied with documentation, including:  an action plan, with details on the:  intended business;  estimated premium income;  administrative structure and its costs;  reinsurance strategy; and  other aspects possibly requested by the Financial Supervisory Authority (its guidelines and prerogatives may contain more details).  documents providing information about the management of the company and its shareholders;  evidence about payment of the initial (foundation) fund;  an account of potential conflicts of interest.

The licence applies within the EEA or, on the request of the applicant, beyond the EEA depending on agreements entered into by the Finnish authorities with other states.

The sum of required capital/assets is the same for mutual insurance companies and for incorporated insurance companies, being 1,000,000 Euros for reinsurance captives, 2,000,000 Euros for standard non-life insurers, 3,000,000 Euros for life insurers, non-captive reinsurers and certain non-life insurers (including transport and unspecified liability insurers, credit and surety insurers, unemployment and entrepreneurial risk insurers). For incorporated insurance companies these sums are for share capital, for mutual insurance companies they refer to the minimum initial (foundation) fund or guarantee capital (article 18, chapter 1 of the Insurance company Act). At least half of the amount specified above has to be paid in cash.

The law does not specify a minimum or maximum number of legal/natural persons needed to create a mutual insurance company.

The articles of association of insurance companies (i.e. not of insurance associations) must specify the following:  1) company name;  2) the municipality in Finland, which is the company's domicile,  3) the company's activities and the classes and class groups that the activity is intended to encompass  4) persons entitled to vote at the General meeting, and  5) the amount of a guarantee capital and/or initial (foundation) fund (in case of a mutual insurance company) or the share capital (in case of a limited company).

10 http://crossborder.practicallaw.com/7-504-6240?source=relatedcontent

111 Finland

The mutual insurance company's name needs to include the words "mutual", "insurance" and "company".

2) Mutual insurance association The insurance association may be establisedh by one or more natural or legal person (Va- kuutusyhdistyslaki/ Lag om försäkringsföreningar 31.12.1987/1250). The Memorandum of Association shall contain the statute of the association, specifications on the founding members and specifications concerning the guarantee capital. The Statutes will include (article 3):

 the association's business, which shall include the word "insurance association,"  the municipality in Finland, which is the association's home base,  the classes of risks the association is about to cover,  the amount of the association's guarantee capital and initial (foundation) capital or  the value of the shares making up the guarantee capital,  the conditions for interest on guarantee capital and the repayment of the guarantee capital,  the policyholders’ obligation to pay a surcharge to the association,  the term for the Board of directors and deputies,  the term of auditors and deputy auditors, and  an indication how the remaining assets are to be shifted when the mutual insurance association is dissolved.

An insurance association guarantee capital and foundation capital (authorized capital) must total at least EUR 42,000. If the association's activities include personal insurance, or its business scope covers more than 25 municipalities, the foundation capital must be at least 84,000 euro (see: Vakuutusyhdistyslaki/ Lag om försäkringsföreningar 31.12.1987/1250, article 5).

3) Statutory Pension mutual insurance company Provisions on the nominal capital of insurance companies engaged in statutory pension insurance can be found in the Law on Pension Insurance Companies (Laki työeläkevakuutusy- htiöistä/ Lag om arbetspensionsförsäkringsbolag 354/1997). The minimum basic capital (for joint stock companies share capital and for mutual insurance companies guarantee capital and initial (foundation) fund) required for a pension insurance company is EUR 5 million. In addition, a pension insurance company handling statutory earnings-related pension insurance is required to have a concession granted by the Council of State (cabinet). The Council of State may include conditions in its concession, necessary to safeguard the interests of the policyholders and the insured, to ensure the stable functioning of the company and to promote the healthy development of the earnings-related pension insurance business. Moreover, a pension insurance company’s articles of association and any changes to them must be confirmed by the Insurance Supervisory Authority.11

A pension insurance company may not handle any other type of insurance activities than insurance under the Employee's Pensions Act and the Self-Employed Persons' Act and related reinsurance.

The EU Life Insurance Directive is not applied to Finnish pension insurance companies, which is why statutory earnings-related pension insurance has to be kept legally separate from the group’s other insurance activities.

The assets of a pension insurance company have to be kept separate from the assets of companies that belong to the same group as the pension insurance company. The annual accounts of the pension insurance company may not be included in the consolidated accounts of another company.

11 http://www.etk.fi/en/service/pension_insurance_companies/1492/pension_insurance_companies

112 Finland

Moreover, the financial management and payments traffic of the pension insurance company must be arranged so that assets are not used for arranging the financial management or payments traffic of another company which belongs to the same group as the pension insurance company.12

D) Management and corporate governance

1) Mutual insurance companies Most, if not all mutual companies in Finland apply a two-tier governance structure, where the Board consists of knowledgeable persons from the company and where the supervisory board is composed of members or representatives of members. The requirements for board members are strict (and will under pressure of Solvency II even become stricter).

Rights of members All Policyholders of mutual insurance companies are members. But not all members are policyholders. There are also member investors (see hereunder). The Statute determine what right non-member investors have.

The rights of the members are essentially those of owners of limited companies, where applicable. According to article 21, chapter 1 of the Insurance Company Act, the shareholders exercise their power of decision at the general meeting. Decisions are taken by simple majority of votes cast, unless otherwise provided in the Act or the statutes.

Voting and representation of members in general meetings The starting point is that all members of the mutual insurance company are equal. Company rules (laid down in the Statutes) may, however, alter the voting rights to be contribution based, so that the each member receives an amount of votes in general meetings related to the size of his contribution to the mutual. For instance in Tapiola, every policyholder has at least one vote, with additional votes being conferred on the basis of insurance premiums (Tapiola General and Tapiola Pension) or life insurance savings (Tapiola Life).13

Types of shares if any Only guarantee shares are possible in mutual insurance companies.

Reserves Same as for other insurance providers.

Possibility for non members investors Through the use of guarantee capital, non-member investors are possible in mutual insurance companies. Guarantee capital is constituted by policyholders/owners who invest funds. (only at foundation or throughout the life of the mutual insurance). They receive an interest of 5-6 per cent (set by the statutes) on the invested funds. If the funds are returned to the investors, you only receive back your own investments (book value) and not the share of the capital. Guarantee capital is therefore different from share capital as the owner will not receive the return on investment. Just like the policyholders/ members, the owners of the guarantee capital, have voting rights on how the capital will be invested.14

Through the guarantee capital mutual companies (i.e. Tapiola, life, non-life and pension insurance) can have financial ties as they can cross-own each others guarantee fund. The guarantee capital is supervised by the Financial Supervisory Authority.

Transparency and publicity requirements/ related auditing issue

12 See: http://www.etk.fi/en/service/pension_insurance_companies/1492/pension_insurance_companies

13 See: http://www.tapiola.fi/wwweng/Briefly/The+Tapiola+Group/Business+idea+and+values/Policyholders%E 2%80%99+influence.htm

14 This is similar to rules that apply to cooperatives.

113 Finland

Concerning disclosure, life assurance and non-life insurance companies must submit, four times a year, results of specific insurance mathematical tests required by law to the Finan- cial Supervisory Authority. Insurance companies must be specifically audited in relation to certain insurance mathematical aspects ten times a year. In certain forms of insurance with a specific regulatory framework (such as motor or third party liability insurance), there are annual reporting obligations for statistical purposes. In addition, insurance undertakings must contribute to the costs of the Financial Supervisory Authority by paying an annual fee whose amount is stipulated by law.15

Protection of assets In case of demutualisation of a mutual insurance company, the assets will be distributed amongst the shareholders (i.e. the policyholders). The same rules apply for mutual insurance companies as for incorporated company models.

2) Mutual insurance associations The administrative structure of insurance associations resembles the administrative structure of mutual insurance companies.

Rights of members The rights of the owners are essentially those of owners of mutual insurance companies, where applicable. According to article 1, chapter 7 of the Insurance Associations Act, the shareholders exercise their power of decision at the meeting. According to article 17, decisions are taken by simple majority of votes cast, unless otherwise provided in the Act or the statute.

Voting and representation of members in general meetings According to article 4, chapter 7 of the Insurance Associations Act, all members of the insurance association has one vote, unless otherwise provided in the statute.

According article 3, the member exercises his right at the meeting personally or through the advocate.

Types of shares if any Only guarantee shares are possible.

Reserves Almost same as for other insurance providers.

Possibility for non members investors Through the use of guarantee funds, non-member investors are possible.

Transparency and publicity requirements/ related auditing issue Concerning disclosure, the insurance associations must submit annual accounts, key figures and analysis of insurance business to the Financial Supervisory Authority annually.

Protection of assets In case of demutualisation, the assets will be distributed amongst the policyholders (i. e. the members).

3) Statutory pension mutual insurance companies The administrative structure of the companies involved in statutory earnings related pension schemes follows the normal model for companies (whether they are limited companies or mutual insurance companies).

15 http://crossborder.practicallaw.com/7-504-6240?source=relatedcontent

114 Finland

At the annual general meeting, power of decision is exercised by the company's shareholders in accordance with the Insurance Companies Act. The Supervisory Board is elected at the general meeting, and the obligations of the Supervisory Board are determined according to the legislation on limited companies.

The Supervisory Board nominates the members of the Board of Directors. The Supervisory Board and the Board of Directors have to be representatives for the policyholders and the insured chosen from the persons suggested by the central labour market organisations representing the employers and the employees. There must be an equal number of such representatives for the employees and for the employers, and their total number has to be at least half of the total number of members in the Supervisory Board and Board of Directors, respectively.

The pension insurance company must have a separate nominating committee, half of which consists of persons suggested by representatives of the policyholders and half of which by representatives of the insured. The nominating committee makes proposals concerning the remuneration and nomination of the members of the Supervisory Board to the general meeting, and proposals concerning the remuneration and nomination of the members of the Board of Directors to the Supervisory Board.

Following normal practices in limited companies, the Board of Directors elects the managing director and supervises the managing director’s activities. The managing director of a pension insurance company may not function as the managing director of a credit institution or investment service company in the same company group or financial and insurance con- glomerate as the insurance company. Nor may the managing director be a member of the Supervisory Board or of the Board of Directors of the company.16

E) Finnish insurance market

The Finnish insurance market is dominated by insurance groups (conglomerates of limited companies and banks) which offer comprehensive insurance products through specialised companies in particular insurance fields. These groups usually have stable market shares, with only minor changes. Increasingly, banks have formed business partnerships with insurance groups to form "financial department stores" offering a wide range of financial services.17

In 2010 there were in total 85 non-life insurance companies with a total premium of 3.548 billion Euro. This includes the 64 mutual insurance associations of the Local Insurance Group.18 In life insurance, 11 companies were active totalling 5.220 billion Euro. Within statutory employment pension insurance, 7 companies were active having a total premium value of 10.652 billion Euro. Of the 7 statutory pension insurance companies, 6 are mutual:  Etera Mutual Pension Insurance Company  Ilmarinen Mutual Pensions Insurance Company  Pensions-Alandia Pension  Fennia Mutual Insurance Company  Tapiola Mutual Pension Insurance Company  Varma Mutual Pension Insurance Company19

16 See: http://www.etk.fi/en/service/pension_insurance_companies/1492/pension_insurance_companies

17 http://crossborder.practicallaw.com/7-504-6240?source=relatedcontent

18 The Local Insurance Group comprises 64 insurance associations plus Local Insurance Mutual Company and the Federation of the Local Insurance Group: http://www.lahivakuutus.fi/FI/Brieflyinenglish/Sivut/default.aspx

19 FSA-FIN (2011), The Insurance Companies 2010

115 Finland

An important feature of the Finnish insurance market concerns pension insurance companies. Employers obtain pension insurance for their employees from one of the private insurance firms (which in many cases form part of insurance groups). Finland maintains a system which requires establishment in Finland in order to offer pension insurance in Finland. This system is allowed by the EU through a non-treaty derogation, although no prospect of removing this derogation is pending since little competition is expected due to different pension systems in other Member States.20

According to the FSA-FIN, in 2010, the number of Finnish insurance companies remained unchanged, while that of local mutual insurance associations fell from 88 to 70.21 Besides the 64 insurance associations grouped in Local Insurance, there are a number of ‘independent associations’. Currently, Tapiola and Local Insurance are merging to form one mutual financial group. The new group, which will be owned by its members/ policyholders, will be established by merging the Local Insurance Mutual Company and the Tapiola General Mutual Insurance Company to form the group’s central company. The regional insurance associations will be transformed into mutual insurance companies. The financial ties between the group-members will be established via guarantee capital.22 The main reason for the merger is to strengthen the mutual sector against the large bank-insurer-conglomerates operating in the Finnish market. Local Insurance-Tapiola Group will become Finland’s largest and most solvent non-life insurer. Although, there is not a direct pressure from Solvency II, it relieves pressure on the insurance associations to potentially implement it for their small mutual association. The merging will be finalised in 2013.23

1 Legislation impacting the functioning of mutuals:

1 Is there legislation on taxation issues (preferential treatment)?

Taxed as other companies. According to PWC, there is no special treatment for mutual insurers, nor for insurance associations nor for statutory pension mutual insurance companies.24 Although there is no preferential treatment concerning particular company forms, there is some preferential treatment concerning specific lines of business. Insurance and reinsurance companies and other providers of insurance-related services are subject to tax on the company's income (based on the company's financial results) at the flat rate of 26%.25 Different tax rules apply to different business forms, such as partnerships or limited partnerships. In Finland an insurance premium tax of 23% is imposed on insurance premiums when the in-

20 http://crossborder.practicallaw.com/7-504-6240?source=relatedcontent

21 FSA-FIN (2011), The Insurance Companies 2010

22 Guarantee capital is created by policyholders/owners who invest funds. They receive an interest of 5-6 per cent over the invested funds. If the funds are returned to the investors, you only receive back your own investments and not the share of the capital. Guarantee capital is therefore different from share capital as the owner will not receive the return on investment. As the policyholders/owners are the guarantee capital they have voting rights on how the capital will be invested. Through the guarantee capital mutual companies (i.e. Tapiola, life, non-life and pension fund) can have financial ties as they can cross-own each others guarantee fund. The guarantee capital is supervised by the Financial Super- visory Authority.

23 Local Insurance-Tapiola Press release 7 February 2012: http://www.tapiola.fi/wwweng/Briefly/Media+centre/News/Local+Insurance+and+Tapiola+to+merge.ht m

24 PWC (2011), International comparison of insurance taxation: http://www.pwc.com/at/de/publikationen/financial-services/international-comparison-of-insurance- taxation-2011/finland-insurance-taxation-2011.pdf

25 PWC (2011), International comparison of insurance taxation: http://www.pwc.com/at/de/publikationen/financial-services/international-comparison-of-insurance- taxation-2011/finland-insurance-taxation-2011.pdf

116 Finland

sured property is situated in Finland. Life insurance and pension insurance are not subject to insurance premium tax.26 Insurance tax is a substitute for value added tax (VAT). However, it is separate from VAT, and therefore VAT deductions cannot be deducted from insurance tax (or vice versa).27

2 Is there legislation concerning employee involvement systems?

Nothing specific to mutual-type organisations. Standard Finnish legislation for all companies applies here, as well.

3 What are the possibilities and regulations in a situation of demutualization (e.g. transforming a mutual to a traditional capital company) protection of assets in case of demutualization?

In the case of demutualization of a mutual insurance company, the whole stock of the newly created limited company is held by the former members of the mutual. The process is governed by the same Insurance Company Act and is as light as company type change can be made according to Finnish law.

A compensation for the shareholders, in the case of a mutual insurance company, member policyholders, may be also money or other assets. The Financial Supervi- sory Authority supervises that the rights of the policyholders are not endangered in the transformation of company form, which needs permission from the Authority.

Demutualization in Finland is a transformation and does not imply first a liquidation, and then a creation.

Similar rules apply to the insurance associations and pension providers.

2 Concerning internal barriers (barriers mutuals face within their own country):

4 Issues concerning the legal entity:

 The obstacles operators may have when they want to create a mutual in a country;

There are no legal-form specific barriers for mutual-type organisations. The only limitation would be the method how the initial fund is gathered (i.e. not using share capital). In relation to limited companies, however, mutuals (of all types) do have the disadvantage not to be able to issue shares and hence easily raise capital levels. Through this disadvantage, mutuals need to be able to maintain capital levels continuously above the solvency requirements which prevents/refrains them from conducting short-term investments. Par- ticular financial instruments to raise capital levels for mutual companies could be: 1) possibility to raise additional guarantee capital; and 2) possibility for mutuals to issue subordinated loans.

26 PWC (2011), International comparison of insurance taxation: http://www.pwc.com/at/de/publikationen/financial-services/international-comparison-of-insurance- taxation-2011/finland-insurance-taxation-2011.pdf

27 http://crossborder.practicallaw.com/7-504-6240?source=relatedcontent

117 Finland

 The obstacles operators may have when they want to proceed to a merger of mutuals/division/acquisition of a mutual;

Concerning acquisition; it is not possible to buy a mutual insurance company or mutual insurance association..

In case of a merger of mutuals, all debts and assets will be put together and policyholders/owners become the owner of the new company. In practice, for the policyholders/owner nothing changes as their positions are not changed. There are no legal barriers within a merger, it might be more time consuming for mutuals to merge as the owners need to be convinced of why the merger would benefit them. However, the same applies to incorporated companies.

By means of the use of guarantee capital, financial ties can be established between different mutual insurance companies and insurance associations (see current establishment of LocalTapiola).

 The obstacles operators may have when they want to convert to another type of legal entity

The legal frameworks for both mutual insurance companies and insurance associations include possibilities to convert to another company form (and vice versa). In additions, rules are included on portfolio transfers. For all changes of legal forms, a permit from The Financial Supervisory Authority is required which guarantees the rights of policyholders.

5 Issues concerning the activity:

 Specific rules/obligation related to the nature of the business in which mutuals operate (e.g. insurance activities, providence services, management of hospitals, creation of subsidiaries etc.)

Mutual-type organisations are legally limited to insurance and statutory pension insurance. Mutual insurance companies can create branches and subsidiaries similar to incorporated insurers.

The statutory earnings-related pension scheme is regulated separately.

6 Issues concerning the neglect of mutuals in policy making:

 National rules which by not taking into account the mutual specificities hinder the mutuals’ development (e.g. public procurement, specific tax rules, etc.).

There is no indication that this is the case. In relation to limited companies, however, mutuals (of all types) do have the disadvantage not to be able to issue shares and hence easily raise capital levels. Through this disadvantage, mutuals need to be able to maintain capital levels continuously above the solvency requirements which prevents/refrains them from conducting short- term investments. Particular financial instruments to raise capital levels for mutual companies could be: 1) possibility to raise additional guarantee capital; and 2) possibility for mutuals to issue subordinated loans. This should be repeated in the point on creation of a mutual and barriers to create.

118 Finland

3 Concerning cross border barriers (barriers mutuals face when operating across barriers):

According to the Act on Foreign Insurance Companies, there are no specific regulations concerning foreign mutual insurance companies.28

Foreign pension insurance companies may not directly engage in statutory pension insurance in Finland, but a foreign corporation or natural person may establish a pension insurance company in Finland. The company shall be subject to the same restrictions regarding line of industry and concessions as a pension insurance company established by Finns. So far, no foreign insurance company is engaging in the earnings-related pension insurance business in Finland.29

Finnish mutual insurance companies choose hitherto to concentrate on domestic markets. Although some do have subsidiaries in the Baltic states.

One issue concerning operating across borders, which is however not emphasised in Finland, is the fact that mutual insurance companies cannot merge or regroup cross-border.

8 Issues concerning cross-border cooperation with other European partners for the creation of groups of mutuals, or to create a local subsidiary.

One issue concerning operating across borders, which is however not emphasised in Finland, is the fact that mutual insurance companies cannot merge or regroup cross-border.

9 Examples of existing cross-border co-operations and their legal form

One of the largest mutual insurance companies Tapiola cooperates with other companies in foreign countries. In the Nordic Countries, Tapiola engages in project- based and information exchange collaboration with Länsförsäkringar Ab in Sweden, Gjensidige NOR in Norway and Topdanmark in Denmark. In Denmark Tapiola also co-operates with International Health Insurance Danmark (IHI). Other significant international partners are XL Insurance Global Risk of the Bermudan XL Capital Group and the Italian company Generali. The co-operation partner in Russia, the Baltic Countries and Poland is Ergo of the German Münich RE Group. In Russia Tapiola also cooperates with Ingosstrakh.30

10 Examples of autonomous expansion across the frontiers of mutuals.

There are no examples known of autonomous expansion of mutuals across frontiers.

28 Act on Foreign Insurance Companies, Issued in Helsinki on 17 March 1995, No. 398/1995

29 http://www.etk.fi/en/service/pension_insurance_companies/1492/pension_insurance_companies

30 See: http://www.tapiola.fi/wwweng/Briefly/cooperation/Co_operation_with_insurance_companies/etusivu.ht m

119 Finland

4 Concerning national measures, for promoting mutuals and measures aiming at access to finance for mutuals:

The Finnish legislator’s aim is to treat different ways of doing business as equally as possible. Thus, there are no specific measures directed at mutuals and as several thriving mutuals operate in Finland, it would appear that there has been no need.

None needed, as far as the Federation of Finnish Financial Services knows.

13 The existence, if any, of national, regional or local policies aiming at the promotion of mutuals, such as tailored business support services, specialised agencies, creation of federations etc.

There is not a specific federation of mutual insurance companies. They are represented by the Federation Finnish Financial Services, which is the central organisation of Finnish banks and insurance companies, including reinsurance companies. It has a number of responsibilities, including: lobbying in favour of its members; providing services to member companies and the industry in general by organising training end examinations; statistical co-operation and publishing activity.31

There is practically very little happening in this area besides the efforts of the mutual insurance sector itself to lobby for the sector, the mutual companies together are doing their best to promote the idea and discuss the issue with politicians and university representatives. So far not really included in any curricula.

31 www.fkl.fi

120 12 France

121

122 Country study on the current situation and prospects of mutuals

France

The Solvency II Directive applies to the following company forms for non-life, life and reinsurance: ‘société anonyme’ (joint-stock company), ‘société d’assurance mutuelle’ (mutual insurance company), ‘institution de prévoyance’ under the code de la sécurité sociale’’, ‘institution de prévoyance’ under the code rural’, ‘mutuelles under le code de la mutualité’ (mutual).

A) Definitions of mutuals

There is no general definition in French law of a mutual.

There are however several special legislations which define mutuals:

In France, there is a distinction between Société d’assurance mutuelle (officially and hereafter abbreviated as SAM) "mutual insurance companies" which are regulated under the Insurance code ("Code des assurances")1, and mutuelles “mutuals”, mainly involved in complementary health insurance, which follow the French code of mutuality ("Code de la mutualité")2. The word ‘mutual’ is only used for organisations which fall under the Code de la Mutualité. (when we refer hereafter to mutuelles, we will use the term mutuals with capital letter, when referring to both SAM and Mutuals, we will use the term mutuals (without capital letter) or mutual organisations).

In this factsheet, the questions are answered separately for each of the two types of mutual organisations. Sections which concern the mutual insurance companies (SAM) are indicated by “1”, the sections concerning Mutuals are indicated by “2”.

1) Mutual insurance companies (SAM) According to article L 322-26-1 of the Insurance code, “the mutual insurance companies have a non-commercial purpose. They are established to insure the risks of their members, against payment of a fixed or variable fee. The mutual insurance companies engaged in the operations of life insurance or capitalization, however can not receive variable contributions. These companies function without shareholder capital, with fixed premiums.”

The activities of the SAM mutual insurance companies may vary from all classes of non-life and life insurance. etc. SAM are covered by the insurance code (Code des assurances).

The Insurance code contains special provisions for mutual insurance, regarding establishment, organisation and financing. There are 4 subgroups of mutual insurance companies in France (See legal types, here below).

2) Mutuals Mutuals (also called "mutuelles 45", because they were dedicated in 1945 to the complementary health insurance system when the statutory health insurance system was established), according to article L 111-1 of the Code de la Mutualité, “are not-for-profit legal entities under private law. They carry out provident, solidarity and mutual aid-based work, by means including contributions paid by their members, and in the interests of these latter and their beneficiaries, in order to contribute to the cultural, moral, intellectual and physical development of their members and to improving their living conditions.” Under

1 Code des assurances: http://www.legifrance.gouv.fr/affichCode.do?cidTexte=LEGITEXT000006073984

2 Code de la mutualité : http://www.legifrance.gouv.fr/affichCode.do?cidTexte=LEGITEXT000006074067&dateTexte=20080505

123 France

article L112-1: mutuals cannot collect medical information from their members; or their potential members; or establishing the premiums according the state of health of the person.

The Mutuals, follow the French Mutuality code ("Code de la mutualité”) which consists of five Livres, or books:  Livre (Book) I contains general provisions (e.g. definitions).  Livre (Book) II details and specifies insurance activities.  Livre (Book) III specifies in-kind services like prevention, social action and social and health care.  Livre (Book) IV concerns governance and  Livre (Book) V dealing with supervision, completes this specific legislation. The code has separate sections for mutuals active in insurance (Livre II) and those active in prevention, social action and other health/social/cultural activities (Livre III). Livre II and Livre III activities can not be provided by the same legal entity.

The majority of them (Livre II mutuals) offer mainly complementary health insurance according to classes of insurance in annex 1 of the EU 1st non-life directive.3

Although the Mutuals are mainly active in complementary health insurance, some are also active in the compulsory statutory insurance domain. The three large health insurance regimes (public servants, self employed (AMPI) and agricultural workers (AMEXA)), are in varying degrees managed by the mutuals, the so-called delegated organisms “organismes délégués” (OD). This delegated statutory health insurance has historic roots. In total these delegated mutuals have 11 million members (in 2004).4 Although all (sub 1 and 2) are considered as ‘mutuals’, the activity which the organisation is involved in, rather than whether is it either governed by the Code de la Mutualité or the

3 1. Accident (including industrial injury and occupational diseases): fixed pecuniary benefits; benefits in the nature of indemnity; combinations of the two; injury to passengers; 2. Sickness: fixed pecuniary benefits; benefits in the nature of indemnity; combinations of the two. Additionally, the mutuals can receive an agreement from the supervisory authorities for the following classes of non-life insurance: 15, 16, 17, 18, and the following in life insurance: 20, 21, 22, 24, 25, 26. Hundred mutuals in France (among these, 32 are only active in provident insurances) are active in “provident activities” both in life and non-life insurance representing 3,8 billion € in 2010. They received an agreement for the non-life insurance classes 1 and 2 for the daily sickness benefits, temporary or permanent disability, 15 (guarantee), 16 (financial losses), and for the life insurance classes 20, 22, 24, 26 (payable on death insurance, saving and pension). They can also manage facilities dealing with health, culture and society.

4 Mutuelles gestionnaires du régime obligatoire: Les mutuelles de fonctionnaires : fonctionnaires civils de l’Etat et les magistrats (art L. 712-6 du code de la sécurité sociale) : 5 378 000198 assurés par des mutuelles de la fonction publique; Les mutuelles étudiants : (art L. 381-3) : 1 600 000 étudiants sur 2 100 000 relèvent d’une mutuelle d’étudiants. Les étudiants travaillants plus de 60 heures par mois ou de 120 heures par trimestre sont gérés, pour leur part, directement par les CPAM. Une partie des autres assurés : selon l’article L. 211-4, un groupement mutualiste remplissant certaines conditions peut être habilité par la CPAM en qualité de section locale. Les prestations gérées dans ce cadre concernent 1 130 500 assurés et ayants droits. Les fonctions publiques territoriales et hospitalières sont fortement mais non exclusivement représentées, ainsi que les bénéficiaires du statut des industries électriques et gazières. Les mutuelles de travailleurs indépendants: Les prestations maladie des trois millions de bénéficiaires de l’AMPI sont gérées pour moitié par des mutuelles, et pour moitié par des sociétés d’assurances. Le régime des exploitants agricoles: L’AMEXA laisse aux assurés le libre choix entre une caisse de MSA (choix de 90% des assurés), une mutuelle ou une société d’assurance. Sur personnes protégées contre le risque maladie. Les salariés agricoles sont, quant à eux, automatiquement affiliés aux caisses de MSA sans choix possible. Tous régimes confondus, les fonctionnaires constituent près de la moitié des effectifs gérés par des mutuelles et des sociétés d’assurance, les ressortissants du régime des non salariés non agricoles un peu plus du quart et les exploitants agricoles, à peine plus de 2% du total. Au total, les mutuelles géraient fin 2005 l’assurance maladie obligatoire de 9,6 millions de bénéficiaires, soit 85 % des assurés et ayants droits gérés par délégation. Les assurances géraient les 15% restants (1,7 millions, tous régimes confondus) essentiellement des professions indépendantes dont elles gèrent la moitié des assurés.

124 France Code des assurances, determines the difference between mutual organisations in France. This further translates in the fact that mutual insurance company may select risks, whereas Mutuals under the mutuality code may not (Article L112-1-1 also dictates solidarity-based criteria). These Mutuals cannot differentiate on the basis of gender or pregnancy.

B) Legal types (if more types exist)

As indicated, there are two main legal types of mutual organisations, one legal type of mutual organisations regulated by the Insurance code and another one by the Mutuality code. They are both supervised by the same authority (ACP, Autorité de Contrôle Prudentiel)5.

1) Mutual insurance companies (SAM) Besides the ordinary SAMs, there are 4 subgroups of mutual insurance companies in France:  firstly, the société mutuelle d’assurance (SMA): only non-life insurers, must be variable premium companies with limited activities as regards geographical size or affinity group insured (trades or professions). They do not remunerate intermediaries. The surpluses are fully redistributed to the member policyholders in accordance with the bylaws cf. R 322-93 of the “Code des Assurances”);  secondly, tontines (life insurers);  thirdly, caisse d’assurance mutuelle agricole (CAMA) subject to the “Code Rural”;  finally, caisse de réassurance mutuelle agricole (CRMA). subject to the “Code Rural”.6

The insurance code contains special provisions for each of these types of mutuals and contains the following books:  Livre (Book) I concerns the insurance contract  Livre (Book) II deals with compulsory insurance  Livre (Book) III concerns the insurance companies  Livre (Book) IV has as subject specific insurance schemes and organisations  Livre (Book) V deals with intermediaries.

2) Mutuals There are 3 subgroups of mutuals, Mutuals involved in insurance (livre II), hereafter referred to as ‘Mutuals livre II’, Mutuals involved in in-kind service (Livre III), hereafter referred to as ‘Mutuals livre III’ and finally, Mutuals delegated to operate statutory health insurance, hereafter referred to as ‘Mutuals OD’. This Chapter, when referring to Mutuals, will focus on the Mutuals livre II and Mutuals livre III.

Possibilities to group Over the last years, French mutual organisations have sought ways to group, considered very important for several reasons: 1. Need for a framework for mergers of mutuals while remaining mutual, or for intensive cooperation (integrative) forms 2. Growth as such may not be very important for mutuals, but economies of scale are. 3. Solvency policies drive mutuals to seek shelter with peers.

Today, several forms of groupings of Mutuals exist, such as  A) Union de mutuelles in the Code de la Mutualité  B) Société de Groupe d’Assurance (SGA) and Société de Groupe d’Assurance Mutuelle (SGAM) under the Insurance code  C) Union de groupe mutualiste (UGM)  D) Union mutualiste de groupe(UMG) .

5 http://www.acp.banque-france.fr/accueil.html

6 AMICE (2012), Facts and figures, Mutual and cooperative insurance in Europe 2011 edition.

125 France

Here below, these grouping forms are explained in more detail.

A) Union7 de mutuelles in the Code de la Mutualité As the name indicates, “union (group) of mutuals” is a legal form that is open to mutuals and unions of mutuals, allowing them to group in order to share resources and services. There is no difference in nature, but only in objectives between a Union du Livre I, a Union du Livre II and a Union du Livre III. In fact, Book I of the Code de la Mutualité is dedicated to the common rules for all unions. On that basis a differentiation is made according to the insurance activities of Book II and the prevention and social and health care services of Book III. Those that do not fall under Book II and III, are considered under Book I and usually concentrate their joint actions on administration, ICT, bookkeeping and finance.

1. Union de mutuelles Book I A Union of Mutuals Book I is a union that by its objectives, does not fall under Book II or III, meaning that it does not pursue insurance or health and social activities. It is a not-for-profit legal entity according to private law created by more Mutuals or unions of Mutuals.8 The main objective of a Union of Mutuals Book I would be the co-ordination of activities of its members, and in most cases has a mere political character. The Union of Mutuals Book I is created by its constituting assembly, composed of representatives of the Mutuals and/ or unions of Mutuals that form the new union. The constituting assembly deliberates by majority present or represented. It adopts the constitution, names the first board of directors (at least 10 persons) for one year.9

2. Union de mutuelles Book II A Union of Mutuals Book II focuses on insurance activities and hence is regulated under Book II of the Code de la Mutualité. Its definition does not differ from the one of Book I. The objective of a Union of Mutuals Book II is to provide insurance products and services to its members and the beneficiaries. There are two ways of forming a Union of Mutuals Book II.  The formation of an autonomous union is done by the constituent assembly, composed of representative of the partners. The constituent assembly deliberates by majority of the members present or represented.10 It adopts the constitution, names the first board of directors (for one year), fixes the formation fund and an activity plan for five years.  The formation of a dedicated union goes along the same lines, but needs a quorum of the general assembly of the partner unions.11 A Union of Mutuals Book II can only be composed of Mutuals or unions of Mutuals of Book II. A physical person can only benefit directly from the services and products of the Union if he is a member of the subsequent partner Mutuals.

3. Union de mutuelles Book III A book III Union of Mutuals focuses on health and social activities. Furthermore, the same rules apply as to the Union de mutuelles Book II.

7 The French word ‘union’ should be understood as grouping, not as union in the English language.

8 Article L.111-2 Code de la Mutualité

9 Article L.113-1 Code de la Mutualité

10 Article L.113-1 Code de la Mutualité

11 Article L.114-12 Code de la Mutualité

126 France B) Société de Groupe d’Assurance (SGA) and Société de Groupe d’Assurance Mutuelle (SGAM)12 under the Insurance code

1. A Société de Groupe d’Assurance is regulated by the Code des assurances (art. L322-1- 2) and is open to all EU/EEA insurance companies, whatever legal form. The only restriction to form a SGA is that at least one partner should have its registered office in France and be regulated by the Code des Assurance.

2. Société de Groupe d’Assurance Mutuelle (SGAM)13 is also a grouping form under the Code des assurances. In addition to the criteria of the SGA, the SGAM has to fulfil extra criteria (art L322.1- 3): It may function without a social capital or fund (if one of the affiliates is a SAM)  t counts at least two organisations, of which one is a société d’assurance mutuelle  It can include Mutuals and unions of Mutuals according to Livre II or III but also other organisations.14,  The articles of association of each member mutual of the SGAM must foresee the possibility to form a SGAM  But most importantly the basis must be important and sustainable financial solidarity links, laid down in an affiliation convention (convention d’affiliation)15 The aim of the SGAM is to manage the important and sustainable financial solidarity links and these linkscan take different forms. Also, the SGAM is not a holding company exercising control over the participating organisations

Examples of SGAMs existing in France are:  Covéa (MAAF – MMA, 2003)16;  SMABTP (SMABTP, SMAvie BTP, 2006)17;  AG2R Prévoyance/La Mondiale (2007)18;  Sferen (MACIF-MAIF-MATMUT, 2010)19; and  MACSF (MACSF - le Sou Médical, 2009)20.

C) Union de Groupe Mutualiste (UGM) (article L111.4-1, Code de la mutualité) The UGM is a grouping form which is open to so-called Institutions de prévoyance21 which are regulated by Title III of Livre IX of the Code de la Sécurité Sociale or by article L.727-2 of the Code Rural, to mutual insurance companies according to the Code des assurances, and to other mutual or cooperative insurance bodies from the EU/EEA Member States. The Union de Groupe Mutualiste shall facilitate and develop, through coordination, activities of

12 See: What is a SGAM?, Lieve Lowet, Financieel Forum-Bank en Financiewezen, 2008/8, pp 497-503 (translated from Dutch).

13 See: What is a SGAM?, Lieve Lowet, Financieel Forum-Bank en Financiewezen, 2008/8, pp 497-503 (translated from Dutch).

14 des institutions de prévoyances ou unions relevant du titre III du livre IX du Code de la securité sociale, des sociétés d’assurance mutuelle relevant du Code des assurances ou des entreprises d’assurance ou de réassurance à forme mutuelle ou coopérative ou à gestion paritaire ayant leur siège social dans un autre Etat membre de la Communauté européenne ou partie à l’accord sur l’Espace economique européen.

15 » Lorsque la société de groupe d’assurance a, avec une entreprise affiliée au sens du 4° de l’article L.334-2 des liens de solidarité financière importants et durables qui ne résultent pas de participations au sens du 2° de l’article L.334-2, ces liens sont définis par une convention d’affiliation. »

16 http://www.covea.eu/index.php

17 http://www.smabtp.fr/

18 http://www.ag2rlamondiale.fr/

19 http://www.sferen.fr/

20 http://www.macsf.fr

21 Which are managed by representatives of employers and employees.

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its members, who, each and every one, are directly responsible for the guarantee of their commitments. In any way, the Union de Groupe Mutualiste cannot carry out insurance or reinsurance operations. Links between the Union de Groupe Mutualiste and adhering organisations are defined by a convention.

D) Union Mutualiste de Groupe (UMG) under the code de la Mutualité (article L 111.4.2) An important element of the UMG (and SGAM) is the concept of financial solidarity between the partners. This financial solidarity, or guarantee, is laid down in a private contract and assures the financial liability of the group and its subsequent partners/members. It also differentiates the UMG from the Union des mutuelles. UMGs are not considered to be an insurance organisation neither a reinsurance structure, or a self-reinsurer between the constitutive members. In a sense the UMG is a social economy structure to participate in capitalistic structures.

To form an UMG the partners should be authorised to do so by their own constitutions or articles of association. The UMG then is formed by its constituent assembly, composed of representatives of the founding members. The assembly deliberates by majority of the members present or represented. It adopts the constitution, and names the board of directors (for one year).22

According to article L 111-4-2 of the Code de la Mutualité, the UMG is an enterprise, but not a mixed financial holding company, within the meaning of Article L212-7-1, and “whose principal activity is to acquire and manage equity interests, within the meaning of Article L212-7-1 second subparagraph, in enterprises submitted to the state’s control pursuant to Article L310-1 or article L310-1-1 of the Code des Assurances, or in insurance or reinsurance undertakings whose head office is located outside France, or to build and manage important and sustainable links of financial solidarity with mutuals or unions ruled by book II of the Code de la mutualité, with pension institutions or unions ruled by title III, book IX of the Code de la sécurité sociale, with mutual insurance companies ruled by the Code des assurances or with insurance or reinsurance undertakings of mutual or cooperative type or of joint administration whose head office is in a Member state of the European Community or in another state that is part of the agreement on the European economic area. Of its members at least one is a mutual or a union according to Book II of the Code de la Mutualité”.

One example of such UMG is Istya, hereunder described23:

Created in 2011, Istya is a Union mutualiste de Groupe (UMG) consisting of the Mutuelle Générale de l’Education Nationale (MGEN), the Mutuelle Nationale Territoriale (MNT), the Mutuelle Nationale des Hospitaliers (MNH), the Mutuelle Générale Environnement et Territoires (MGET), the Mutuelle des Affaires Etrangères et Européennes (MAEE) and the Mutuelle Civile de la Défense (MCDEF). Together, ISTYA offers products and services to 6.3 million people and has a turnover of € 3.5 billion. Istya will focus on civil servants in a first instance, but will enlarge the scope of its activities to other populations in the future. The basis of this grouping is the financial solidarity between the partners and the combined accounts. While keeping their autonomy and freedom to act, the partners nevertheless will jointly decide on important decisions i.e. mergers, loans etc.

22 Article L.113-1 Code de la Mutualité

23 COMMUNIQUÉ DE PRESSE 10 mai 2011: http://www.mgen.fr/fileadmin/user_upload/Accueil/Communiques_de_presse/20110510creationIstya.p df

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C) Methods of creation (required capital or assets)

Concerning the methods of creation, both mutual type organisations (Code des Assurance and Code de la Mutualité) are discussed separately here below

1) Mutual insurance companies Concerning mutual insurance companies, the constitution is governed by the Insurance code24 , articles R322-1 et seq. and by articles R322-42 et seq. of the same Code applicable specifically to mutual insurance companies.

As explained in the AISAM/AMICE study, various constitutive stages are required for the formation of a mutual insurance company. Firstly, the draft articles of association are in the form of a notarial deed or private deed in two original copies (article R322-46 of the Insurance Code). Then, a notarial declaration by the founders is necessary (article R322-51 of the Insurance Code) as well as the meeting of the constituent assembly (article R322-52 of the Insurance Code). Lastly, publication in an official journal and inscription in public registers are required. In order to do so, the founding members deposit the constituent deeds of their company with the office of the Clerk to the Court of First Instance of the registered office (articles R322-85 and R322-86 of the Insurance Code).25

Article R322-47 §2 states that the minimal number of members needed for in a mutual insurance company (SAM) is 500.

The articles of association should include (Article R322-45 and R322-47) (i.e. this applies to each mutual insurance company):  1 Indicate the purpose, duration, seat, the name of the company and the territorial reach of its operations, determine the mode and the general conditions under which commitments are contracted between the company and sociétaires=member- policyholders, and specifying the classes of insurance directly underwritten or reinsured;  2 Establish a minimum number of members, which cannot be less than 500; this minimum number is set at seven for organizations mentioned in Article L. 771-1 of the Rural and Maritime Fishing Code (so for CAMA’s) ;  3 Fix the minimum amount of contributions paid by members for the first annual period and indicate that these contributions must be paid in full prior to the declaration under Article R. 322-51;  4 Specify how compensation for the Management (la direction) and the Board (directoire) is arranged and, if applicable, for directors or members of the Supervisory Board in accordance with the provisions of Article R. 322-55;  5 Provide for the establishment of an initial fund intended to meet the expenses of the first five years and to guarantee the obligations of the company, and state that this initial fund will be fully paid in cash prior to the declaration provided Article R. 322-51, or the filing of the articles in the town hall for the organisations mentioned in Article 1235 of the Rural and Maritime Fishing Code;  6 Specify whether in relation to later complementing the initial fund, each new member, when buying the first insurance policy is required to pay an entrance fee or membership fee;  7 Provide for the manner of distribution of surplus funds;  8 Provide for companies engaged in the operations 20 to 26 mentioned in Article R. 321- 1, the payment of fixed premiums.

24 Code des assurances: http://www.legifrance.gouv.fr/affichCode.do?cidTexte=LEGITEXT000006073984

25 AISAM/AMICE (2007), Mutual Insurance Companies in France: The regulatory, financial and fiscal arrangements

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In France, as explained in the AISAM/AMICE study, upon formation of a mutual insurance company, and before the subscription of any policy or the receipt of the first contribution/premium, a minimum amount of own funds/equity is required, including the initial fund (article R322-44 of the Insurance Code). The minimum amount for mutual insurance companies with variable premiums is the following  400,000 Euros in case of activities in insurance classes 10 to 15, 20, 21, 22, 24, 25 of section A. 321-1 and reinsurance operations26;  240,000 Euros for the activities in any other insurance class No minimum initial fund exists for insurance mutual companies with fixed premiums (R322- 99 of the Insurance Code) by law; the level must be laid down in their articles of association. For tontines, the initial fund is €160,000 (R322-158). The role of the initial fund is to meet the expenses of the first five years and to guarantee the commitments of the company (article R322-47 of the Insurance Code).27

The guarantee fund (Fond de garantie), is according to Article R334-7 of the Insurance code for those operating in one or more non-life classes (classes 1 to 18, mentioned in article R321-1 of the Insurance code), equal to one third of the minimum solvency margin as defined in Article R. 334-5. The guarantee fund cannot be less than 2.3 million Euro. For insurers active in classes 10-15, the fund cannot be less than 3.5 million Euro. These amounts of the guarantee fund apply to all insurance companies. The mutual insurance companies have a diverging size of the guarantee fund. Mutual insurance companies, and their unions should have a guarantee fund of respectively 1.8 and 2.6 million Euro. When a company is licensed to practice operations falling into several classes, to calculate the guarantee fund, the class is considered having the highest amount.

Concerning the sub regimes, for establishing a SMA a minimum of 300 persons is required (Article R322-101). For the mutual insurers subject to the Code Rural, the minimum is set at seven persons (Article R322-47)

In addition, a de minimis regime is applied only to non-life mutual insurance companies and concerns the guarantee fund: “small” mutual insurance companies are exempt from the minimum amount of the guarantee fund but must comply with the minimum amounts of the initial fund. Small mutual insurance companies are mutual insurance companies which meet certain conditions laid down in article R334-9 of the Insurance Code:  Their articles of association envisage the possibility of making calls for contributions/premiums  As a general rule, they do not cover liability risks  The annual amount of contributions/premiums, including accessories and cancellations deducted, does not exceed €5,000,000  At least half of their contributions/premiums comes from natural persons28

26 That is: 10) Third-party liability insurance for motor land vehicles: all liability arising out of the use of motor land vehicles (including carrier's liability). 11) Third-party aircraft liability: all liability arising out of the use of aircraft (including carrier's liability). 12) Third-party liability for ships (sea, lake and river and canal vessels): all liability arising out of the use of ships, vessels or boats on the sea, lakes, rivers or canals (including carrier's liability). 13) General liability: all liability other than those forms mentioned under 10), 11) and 12). 14) Credit: insolvency (general), export credit, instalment credit, mortgages and agricultural credit. 15) Suretyship; 20) . General life Assurance; 21) Marriage assurance and birth insurance; 22) Insurance attached to collective investment funds; 24) Capitalisation; 25) Management of collective funds: http://www.legifrance.gouv.fr/affichCode.do;jsessionid=DB52A775916526D1CCC2EBAD8E0B445F.tpdjo 05v_1?idSectionTA=LEGISCTA000019749388&cidTexte=LEGITEXT000006073984&dateTexte=20120420

27 See as well: AISAM/AMICE (2007), Mutual Insurance Companies in France: The regulatory, financial and fiscal arrangements

28 See: AISAM/AMICE (2007), Mutual Insurance Companies in France: The regulatory, financial and fiscal arrangements

130 France 2) Mutuals Concerning ‘Mutuelles’, article L113-1 of the Mutuality code29 (all types) describes the way a Mutual can be formed. It states that it is a voluntary act of physical persons that come together in a general assembly. The constituent assembly deliberates by majority of its members present or represented. It adopts the constitution and names the first board of directors. Unions and federations are constituted by the general assembly of the representatives of the founding organisations, and follow the same procedure. Also, it needs to agree upon the statutes of the Mutual, which includes (Art L114-4):  1 ° The purpose, the seat, the name and for the organisations under Book II, classes of insurance or reinsurance;  2 ° The conditions and modes of adhesion, removal and exclusion of the participating members and honorary members and the conditions under which a person is considered to be entitled to a participating member;  3 ° Where applicable, the existence of a membership fee paid by each member, the amount, determined by the general assembly, of which is dedicated to the foundation funds;  4 ° The amount of the initial fund;( for insurance activities, the initial fund is established in accordance with the insurance directives)  5 ° The composition of the Board of directors, the method of election of its members in accordance with Article L. 114-16, the age limit that applies to all or part of them under the conditions defined in Article L. 114-22, the duration of their mandate, the voting conditions and presence, the conditions under which certain powers may be assigned, and the conditions under which professional posts vacancies by death or resignation or loss of quality membership are filled until the next general meeting;  6 ° The terms and conditions of the voting in the general assembly and the right for members to be represented and the organization that represent members, if applicable;  7 ° The conditions under which powers are delegated to officers employees;  8 ° The functions that the members of the Board can perform;  9 ° The representation of the mutual or union for acts of civil and legal actions;  10 ° The conditions of voluntary dissolution of the mutual or union, and its liquidation.

According to article R212-1 of the Code de la mutualité, the initial fund (Fond d’établissement) for Livre II Mutuals is:  381,000 Euro for activities related to life insurance  228,000 Euro for activities related to non-life insurance The fund must be fully paid in cash and the Law allows that the fund consists of loans, under the condition that the repayment period is agreed upon by the responsible Minister. Only upon payment of the initial fund, the Mutual are ask the Supervisory Authority for authorisation.

D) Management and corporate governance

1) Mutual insurance companies  Concerning management and corporate governance: there are two type of management methods in France. The change of governance from one system to another can be decided along the life course of the company. According to the Insurance code30 Art. L322-26-2, the mutual insurance company is managed by a board of directors and a Director General. In the board of directors, one or two directors represent the wage- earning staff and are elected by the staff. the directors are chosen from members which have paid their contributions/premiums (R322-55-2 of the Insurance code). The Director

29 Code de la mutualité :http://www.legifrance.gouv.fr/affichCode.do?cidTexte=LEGITEXT000006074067&dateTexte=20080505

30 Code des assurances: http://www.legifrance.gouv.fr/affichCode.do?cidTexte=LEGITEXT000006073984

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General is nominated by the Board of Directors (R322-53-2). In mutual insurance companies whose statutes subject the quality of member to the exercise of a specific professional activity, the statutes may envisage the election of non-member directors, max 1/3 of the Board. However, it may be stipulated by the statutes of any mutual insurance company that it is may be managed by an Executive Board and a Supervisory Board. Members of the Executive Board are nominated by the Supervisory Board. Members of the Supervisory Board are members which have paid their contributions/premiums and which are elected by the General Assembly (R322-55-2 of the Insurance code).  Concerning the rights of members, nothing is mentioned explicitly in the Insurance code. The concept of members or ‘sociétaire’ (= member policyholder) is defined by the articles of association. But it is mandatory to be insured to become a sociétaire, the insured becomes member upon acceptance by the Board of Directors. Article R322-58 deals with the organisation of the General Assembly and states that each member has one vote. In France, there are no different type of members.  Concerning voting and representation, article R322-58, the statutes shall determine the composition of the General Assembly. It consists either of all members, or of delegates elected by the members. All members have one vote, and one vote only, without it being possible to make exceptions to this rule in the statutes of the company.  Concerning types of shares, this is not possible according to law.  Concerning reserves, profits of one year can be used either to give rise to rebates (reimbursement of a premium/contributions), but only in mutual insurance companies with variable contributions, and if it becomes clear that the premium collected was excessive; but it can also be used to lower the level of contributions, to extend, at constant rates, guarantees; or be set aside, once the regulatory or contractual commitments are satisfied. Rebates are very much in use in France. This is not the same as a profit distribution, which is a share in the results, which is optional for non-life mutual insurance companies, whereas in life insurance it is governed by the Insurance code and the general and special conditions of the policies concerned.31  Concerning non-member investors: there are no possibilities for non-member investors and also not of non-member clients.  Concerning transparency and publicity requirements: Article R322-59 prescribes that the articles of association (statutes) must set out the conditions under which the notice of the general meeting is made. The meeting must be advertised in a newspaper authorized to publish legal notices in the headquarters’ department and is preceded by at least fifteen days of the date fixed for the general meeting . The announcement shall state the agenda. The meeting can not change the issues that are on the agenda. The agenda may only contain the proposals of the board of directors, management or supervisory board and those which shall have been notified at least twenty days before the General Assembly, signed by a tenth of the members, or at least one hundred members if a tenth is more than one hundred.  Concerning related auditing issues: the mutual insurance companies report to the ACP- Banque de France and are supervised by the ACP-Banque de France.  Concerning the protection of assets, in case of winding-up, for mutual insurance companies (Art L322-26-5 of the Insurance code), the net assets will be transferred to “other mutual insurance companies, or to associations of public benefit”.

31 See: AISAM/AMICE (2007), Mutual Insurance Companies in France: The regulatory, financial and fiscal arrangements

132 France 2) Mutuals (all types)  Concerning management and corporate governance: The functioning of the General Meeting (GM) is explained in the Mutuality Code32 L114-6: The general assembly of a mutual consists of honorary members and participating members of the mutual. However, the statutes may provide that it consists of delegates elected by local sections organized by the mutual. Delegates can be divided into several sections defined by the statutes. In case the mutual, whose general assembly is composed of delegates, performs collective operations referred to in Article L. 221-2, the articles may provide for the appointment of delegates representing legal persons underwriting group contracts as honorary members and delegates representing their employees participating members. The GM elects Board members (article L114.9) and can proceed directly to the President’s election. The GM can delegate for one year to the Board of directors all or part of its powers concerning the amounts and rates of premiums and benefits. Mutuals are run by a Board of directors (article L114.16) composed by a minimum of 10 members (elected among participating members and honorary members) and for a 6 years mandate. The Board of directors appoints one or several executive managers who can assist to the Board’s meeting (art L114.19).  Concerning the rights of members, (article L114.1): the internal rules define the content of the existing contractuals engagements between each member and the mutual (or union) concerning the benefits and premiums. The internal rules are adopted by the General Meeting under the Board’s proposal. Everyone can become “member” after signing the membership bulletin. Thus, the member accepts the statutes and the obligations defined into the internal rules further on. Any modifications shall be notified to the member.  Concerning voting and representation, each member of a mutual has one vote at the general meeting. For general meetings consisting of delegates of the sections, the articles may provide that each delegate elected by the section has one vote at the General Assembly, or the single delegate elected by the section has, in voting to general meeting, a number of votes equal to the number of members of the section.  Concerning types of shares, this is not possible.  Concerning reserves: Reserves are foreseen in the Code as any other insurance company because of the solvency rules. Article L212.1 specifies that mutuals must cover the capital requirement. R212.11 and R 212.12 specify the modalities of calculations of the capital requirement and the minimum capital requirement.  Concerning possibilities for non-members to invest, there is the possibility of subordinated liabilities (Articles L 114.44 and L114.45): mutuals can issue ‘titres participatifs’, ‘obligations’ and ‘dettes subordonnées’.  Concerning transparency and publicity requirements, according to Article L114-14, the procedures to make available documents to the members attending the general meeting should be fixed before the meeting.  Concerning related auditing issues, according to article 114-15, the annual accounts are provided by the mutuals, unions and federations to anyone who requests it, under conditions set by order of the Minister responsible for mutual affairs.  Concerning the protection of assets, the winding-up of a mutual, union or federation is decided by the general assembly (Art L113-4). The net assets will be transferred to other mutuals, unions or federations, as will be decided by the general assembly, or to a mutual solidarity fond (see art. L421-1) or to a guarantee fund (see art L431-1); the latter solution will be retained in case the GM took no decision (art L114-12).

32 Code de la mutualité :http://www.legifrance.gouv.fr/affichCode.do?cidTexte=LEGITEXT000006074067&dateTexte=20080505

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E) Federations of mutual-type organisations

As the distinction of Mutuals is made on the basis of their activity, and as they are regulated by two different legal frameworks, the representative landscape is quite diverse in France. Mutuals that are regulated under the Insurance code have 6 national representative associations (also representing non-mutual insurers), and the mutuals falling under the Mutuality code are represented by 3 associations.

For the Insurance code, there are  FFSA (Fédération Francaise des Sociétés d’Assurances)33, representing 248 insurance companies;  FFSAA, (Fédérations Francaise des Sociétés d’Assurances Anonymes), representing 112 joint-stock insurance companies  FFSAM (Fédération Francaise des Sociétés d’Assurance Mutuelles), representing 136 members, being mutual insurance companies and insurance branches of cooperative banks;  GEMA (Groupement des Entreprises Mutuelles d’Assurances)34, grouping 49 members;  AFA (Association Française de l’Assurance)35, regrouping of FFSA and GEMA  ROAM (Réunion des Organismes d’Assurance Mutuelle)36, representing 47 small and medium mutual insurance companies

For the mutuals falling under the Mutuality code, there are 3 representative organisations:  FNMF (Fédération Nationale de la Mutualité nationale)37, representing 600 mutuals providing insurance (life and non-life) and 2500 mutualist health care and social facilities and services organisations;  FNIM ( Fédération nationale indépendante des mutuelles)38, representing about 30 health and social mutuals;  ADPM (Association Diversité et Proximité)39, representing 80 small and medium health and social mutuals.

The complex landscape of the mutual federations is presented in the following overview:

33 www.ffsa.fr

34 www.gema.fr/

35 http://www.assfass.fr/

36 www.roam.asso.fr/

37 www.mutualite.fr

38 http://www.mut-fnim.fr

39 www.adpm-mutuelle.com

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1 Legislation impacting the functioning of mutuals: 1 Is there legislation on taxation issues (preferential treatment)? 1) Mutual insurance companies There is no tax legislation impacting the functioning of mutuals insurance companies. They are subject to the same taxation as the other insurance companies. Mutual insurance companies as of 2008 can benefit from the tax integration regime; this will allow for an integrated calculation of tax at group level but not on the basis of consolidated accounts40.

2) Mutuals From 1945 to 2012, the mutuals (under the Mutuality code) were exempted from corporate tax and business tax. Today the legislation has changed because the European Commission decided that this was contrary to EU rules on state aid. This is the reason why, from 1 January 2012,the formely exempted mutuals will gradually be taxed :  regarding corporate tax, they will pay 40% of the normal rate in 2012, 60% in 2013, and 100% thereafter.  regarding the business tax (now replaced by the territorial economic contribution mechanism –called “CET”), they will pay 40 % of the normal rate in 2013, 60% in 2014, and 100% thereafter. For UMGs the same rules apply as to SGAMs concerning taxation. 2 Is there legislation concerning employee involvement systems?

40 AISAM/AMICE (2007), Mutual Insurance Companies in France: The regulatory, financial and fiscal arrangements, p. 110.

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1) Mutual insurance companies Art. L322-26-2 of the Insurance code41 provides that "A board of directors shall manage a mutual insurance company. […] In addition to the directors, the number and method of appointment of which are provided for in this Code, the board of directors or the supervisory board shall include one or two directors appointed by the wage-earning staff. The number of said directors, which is set by articles of association, may not exceed four or exceed one third of the number of the other directors. When the number of directors or members of the supervisory board appointed by the wage-earning staff are equal to or superior to two, the management and assimilated staff shall have one less seat".

This provision is meant to avoid ‘over-representation’ by member-employees, as most employees of mutual insurance companies are a member of the mutual insurance company for which they work. As a member they have their own rights and duties, as do all other members. To avoid an overruling majority of the employees, the Law prevents them from being in a majority position in all governing bodies.

2) Mutuals In the Code de la Mutualité, there is no provision on this matter.

3 What are the possibilities and regulations in a situation of demutualization (e.g. transforming a mutual to a traditional capital company) protection of assets in case of demutualization? 1) Mutual insurance companies Concerning the protection of assets, in case of winding-up, for mutual insurance companies (Art L322-26-5 of the Insurance code), the net assets will be transferred to “other mutual insurance companies, or to associations of public benefit”.

According to the AISAM/AMICE study, “portfolio transfers between insurance companies with different legal forms are possible. Also, mergers between two mutual insurance companies are possible but not specifically regulated. A mutual insurance company may not merge with a limited company. It is also not possible for a mutual insurance company to be absorbed by a limited company. This is known as a portfolio transfer. A portfolio may be transferred from a limited company to a mutual insurance company. A mutual insurance company may not change into a limited company but the reverse seems possible (no practical experience to date).”42

2) Mutuals: (all books) Demutualisation de facto means the dissolution of the mutual. In those cases, the procedure for winding-up of a mutual comes in place, meaning that the decision is taken by the general assembly (Art L113-4 Code de la Mutualité). The net assets will be transferred to other mutuals, unions or federations, as will be decided by the general assembly or to a mutual solidarity fond (see art. L421-1) or to a guarantee fund (see art L431-1); the latter solution will be retained in case the General Meeting took no decision (art L114-12).

41 Code des assurances: http://www.legifrance.gouv.fr/affichCode.do?cidTexte=LEGITEXT000006073984

42 AISAM/AMICE (2007), Mutual Insurance Companies in France: The regulatory, financial and fiscal arrangements, p. 61.

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2 Concerning internal barriers (barriers mutuals face within their own country):

4 Issues concerning the legal entity:

 The obstacles operators may have when they want to create a mutual in a country; 1/2) Mutual insurance companies/Mutuals There are no specific obstacles. When persons want to create a mutual in a country, the operator must follow the rules related to its formation: R322-42 to R322-52 of the Insurance code) or look into the Mutuality code (Article L113.1 and further).

This being said, the numbers of members is quite high to start with (500) for the mutual insurance societies; there are no such requirements for the creation of a mutual.

Also, when being active in insurance, the “fond d’établissement” (initial fund) combined with the “fond de garantie” (guarantee funds) are a great obstacle reinforced by the further Solvency II provisions in both codes.

 The obstacles operators may have when they want to proceed to a merger of mutuals/division/acquisition of a mutual; 1) Mutual insurance companies The Insurance code does not provide rules for the mutual insurance company who want to proceed to a merger. This however does not mean it is not possible.

2) Mutuals The Mutuality code does provide for mergers and divisions of Mutuals:  According to Art. L113-2, the merger of several Mutuals, several unions or federations is a result of and adopted by the general meetings. These discussions are preceded by a review of a report by a commissioner appointed by the President of the County Court (Tribunal de grande instance). The Commissioner shall decide on the merger evaluation methods and the value of assets and liabilities of the organisations involved, and outline financial terms of the merger. To exercise its functions, the Commissioner of the merger may demand from each organisation disclosure of all relevant documents and will conduct any necessary checks. Members of organizations that have merged acquire membership of the organisation resulting from the merger. The absorbing group receives the assets and is liable to pay liabilities of the group absorbed.  Article L113-3 concerns the split of a Mutual, union or federation. The division is pronounced by the General meeting. This deliberation is preceded by a review of a report by a commissioner of the division designated by the President of the County Court. The commissioner decides on the split assessment methods and the value of assets and liabilities of the organisations involved and outlines financial terms of the split. To exercise its functions, the Commissioner of the split can demand from each organisation disclosure of all relevant documents and can conduct any necessary checks.

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 Under article L113-4, the dissolution of a Mutual, union or federation is pronounced by the GM. In those cases, the procedure for winding-up of a Mutual comes in place, meaning that the decision is taken by the general assembly (Art L113-4 Code de la Mutualité). The net assets will be transferred to other Mutuals, unions or federations, as will be decided by the general assembly (Art L114-12 Code de la Mutualité) (see above).  Under the Code of mutuality (articles L212-11 to L212-13), Mutuals and unions pursuing insurance activities, as well as their branches, may transfer their insurance portfolio – or part of it –to another Mutual, union or insurance company with its registered office in another member state of the EU or the EEA, with the specific approval of the supervisory authority.

 The obstacles operators may have when they want to convert to another type of legal entity No types of Mutual can convert to another type of legal entity. To abandon the mutual statute, Mutuals have to transfer their portfolios to a joint-stock insurance company and then dissolve. Moreover, the French legislation explains that, in the event of dissolution, net assets may not be distributed among member policyholders. Net assets must be transferred either to another mutual or mutual insurance company or to an association of public benefit. This is intended to discourage member-policyholders from carpet bagging.

1) Mutual insurance companies Article L322-26-5 of the Insurance code states: "In the event of winding-up not motivated by the withdrawal of authorization for a mutual insurance company, the excess of net assets over liabilities is distributed, by decision of the General Assembly, either to other mutual insurance companies or to associations recognised as having public utility."43

2) Mutuals The winding-up of a Mutual -, union or federation is decided by the general assembly (Mutuality code Art L113-4). The net assets will be transferred to other mutuals, union or federation, as will be decided by the general assembly (art L114-12) or to a mutual solidarity fond (see art. L421-1) or to a guarantee fund (see art L431-1); the latter solution will be retained in case the General Meeting took no decision (art L114-12).

5 Issues concerning the activity:

 Specific rules/obligation related to the nature of the business in which mutuals operate (e.g. insurance activities, providence services, management of hospitals, creation of subsidiaries etc.) 1) Mutual insurance companies The Insurance code stipulates that mutual insurance companies regulated by this code, carry out insurance activities only.

2) Mutuals Mutuals under the Mutuality code on the other hand are regulated for

43 AISAM/AMICE (2007), Mutual Insurance Companies in France: The regulatory, financial and fiscal arrangements, p. 114.

138 France activities in the insurance sector under ‘Book II’), They are regulated for activities in the prevention, social and healthcare sectors under ‘Book III’). In Book III (art. L320-4), it is additionally stated that mutuals and unions governed by this book may join in the management of facilities and services with a medical and social or cultural character of non-profit nature.

6 Issues concerning the neglect of mutuals in policy making:

 National rules which by not taking into account the mutual specificities hinder the mutuals’ development (e.g. public procurement, specific tax rules, etc.). There are no national rules that hinder the mutuals' development.

Tax exemptions, preferred policies and so forth may have been in place in history, today all (sorts of) mutuals are treated equally by law. Also, when competing with other types of organisations, mutual-type organisations do not anymore receive any kind of preferential treatment.

On the other hand, and as a result of the more cultural approach to mutuality in general, the mutual sector (as a movement, as a member-based grass- roots organisation) has (political) power. The mutualist movement is independent from any political party and takes position in favour or not, on proposed reforms by any government (right or left wing), and makes its own proposals. Recent reforms which would increase significantly the taxation of the mutuals were seriously criticised by all the movement, because it was understood that this would increase the difficulties for people to insure for their health and would increase health inequalities.

3 Concerning cross border barriers (barriers mutuals face when operating across barriers):

7 Issues concerning expanding across the frontiers in order to offer cross-border mutual services or to establish as mutual in a country other than the one of the registered office of the main mutual. The issue of moving cross-border is vivid in the French mutual sector. It is important to note that this issue is multi-faceted. On the one hand there is the element of mutual activity, on the other hand there are the mutual values.

In terms of activity, there seems to be barely any barrier. French mutuals may offer products and services to non-French European citizens (under the EU Treaty provisions of freedom to provide services), as all European citizens may adhere to a French mutual, and may profit from the services and products as all French members do.

MGEN (a mutual run under the Mutuality Code) is a good example as it offers through Europamut (a joint-stock subsidiary and distribution company) services to its Portuguese clients, who become a member of the French mutual.

Difficulties arise when the principles and values come into play. In the case of Europamut, the Portuguese clients cannot become a member of Europamut – as it is not a mutual itself. Democratic governance, one of the main principles of mutuality, applies at the scale of the MGEN group, which means developing 1. a new kind of ‘local committee’, 2. the relevant rules of representation in MGEN’s governance for the members from Portugal.

139 France

In addition to its Portuguese experience, MGEN is looking forward to finding a new relevant legal body – a European mutual group – to structure its various international co-operations.

French mutuals feel that it would be useful to imagine an instrument that will enhance cross-border co-operations between mutuals or similar organisations.

8 Issues concerning cross-border cooperation with other European partners for the creation of groups of mutuals, or to create a local subsidiary. French mutuals feel that it would be useful to imagine an instrument that will enhance cross-border activities, while avoiding the creation of a subsidiary or a branch. 9 Examples of existing cross-border co-operations and their legal form There is a number of international cross-border co-operations involving French mutuals.

One example of this is EURESA44. DEVK Versicherungen (Germany), LB Group (Denmark), Macif (France), Maif (France), P&V (Belgium), UNIPOL (Italy), Matmut (France), Atlantis (Spain), MACIF Portugal (Portugal), Syneteristiki (Greece), TÜW TÜW (Poland), Lagun Aro (Spain) and IMA (France) do co-operate on a cross- border basis within EURESA. EURESA provides a networking approach (sharing of resources, close co-operation in strategic areas, etc.) that enables its members to grow, innovate and meet tomorrow’s challenges. It relies on strong cultural links among mutual and cooperative insurers. There are two kinds of co-operations within EURESA, using two different legal tools: practical collaboration among the members (technical exchanges and the sharing of know-how and resources) within the EURESA EEIG; joint investments and support to “sister” companies in other countries with the EURESA Holding (joint-stock company). The objectives of EURESA EEIG and EURESA Holding are to make their members part of a European network, strengthen their positions on their respective markets but without diluting their respective identities, and provide capital or technical support.

10 Examples of autonomous expansion across the frontiers of mutuals. Many French mutual insurance companies hold subsidiaries in another European country. Here below some examples are presented:  MAIF (code des Assurances) has two insurance subsidiaries in Spain (ATLANTIS Seguros and ATLANTIS Vida);  MACIF (code des Assurances) has one in Portugal (MACIF Portugal) and one in Poland (MACIF Zycie).  SMABTP (code des Assurances) has a subsidiary in Spain (ASEFA)  MGEN (Code de la Mutualité), has a subsidiary in Portugal (Europamut).

International co-operation More and more French mutuals are seeking international co-operation with other like- minded organisations, preferably mutuals. As the legal characteristics of mutuals may differ per country, most French mutuals seek to safeguard the concept and principles underlying mutuality. As there is no legal vehicle to regroup or merge mutuals internationally in a mutual way, most initiatives seek alternative constructions to legally frame the co-operation.

44 www.euresa.org/

140 France Main issues are:

 Governance. The question here is how to maintain the democratic governance and control over the international co-operation project. MGEN is currently experimenting with a model of a customer/ member construction.

Case 1 : Europamut (FR and PT)45 Europamut – Mediacão de seguros S.A. is a fast-growing co-operation between 3 mutual insurers: MGEN (code de la Mutualité, focused on health insurance), UMR (Union Mutualiste Retraite) (FR) and Intégrale (BE mutual insurer) (the latter are both focused on life and retirement products). So far, as a joint-stock company, Europamut sells the MGEN health insurance products on the Portuguese market. In fact, the 6,000 (February 2012) clients in Portugal are members of MGEN and will soon be represented in the governance bodies of MGEN.

The reason to choose for the joint-stock company statute of Europamut has everything to do with the need to be visible on the Portuguese market. In fact, Europamut works as a Portuguese insurance broker to MGEN, which is the risk carrier.

 Lack of adequate legal framework to safeguard mutualistic principles.

Case 2 : Fondo Salute (FR and IT, 2011)46 The Milan-based Fondo Salute is a co-operation of Harmonie Mutuelles (code de la Mutualité) from France and the Italian mutual Cesare Pozzo mutual benefit societies (società di mutuo soccorso). Although both founding partners are a mutual, the cross-border cooperation in Fondo Salute could not be formalised in a mutual statute. As a best alternative, both founding mutuals opted for the SCE (European cooperative society) statute to underline the specific orientations and values of the co-operation, although not installing a social capital as is specific to cooperatives.

Case 3 : MGEN and Solidaris (FR and BE, 2012)47 In February 2012, French MGEN and Belgian Solidaris (mutualité) signed an agreement to co-operate and to join forces in the area of health services. Together they serve some 6.5 million people on the basis of solidarity, internal democracy and a not-for-profit orientation. A specific focus of their joint activities will be the servicing of their members in the Franco-Belgian border region. Although not more than just an agreement, both MGEN and Solidaris seek to formalise the co-operation and are calling for a European instrument to do so.

45 www.europamut.pt/

46 www.fondosalute.it

47 See: http://www.recma.org/node/1711

141 France

4 Concerning national measures, for promoting mutuals and measures aiming at access to finance for mutuals:

11 Measures allowing mutuals to achieve internal financing (e.g. investment titles, non- members clients, increase of members’ contributions etc) or to obtain external financing (banking loans, issuing of bonds or of specific investment funds etc.). 12 In France, Mutuals and SAM can both ask for membership fees, supplementary contributions, and borrow money from the financial market or from elsewhere, like all the other economic actors. It is not possible is to attract external share capital because mutuals do not have shareholders.

13 State support measures such as authorised subsidies, special tax incentives or fiscal exemptions etc. addressing mutual needs and justified by mutuals’ specificities, as well as case law (national or European) in the area of competition. 14 The general rule is that mutuals have neither specific subsidies nor tax incentives nor fiscal exemptions. Mutuals, which fall under the "Code de la mutualité" are no longer (since 1/01/2012) tax-exempted.

15 The existence, if any, of national, regional or local policies aiming at the promotion of mutuals, such as tailored business support services, specialised agencies, creation of federations etc. 16 There are no national, regional, or local policies aiming the promotion of mutuals. On the other hand, mutuality is a vast component of French culture and the mutual movement is omni-present. Directors and volunteers (“militants”) are often well- trained and equipped to operate as ‘ambassadors’ of the movement.

17 Other issues concerning visibility and increase of awareness of the mutual sector, such as counselling, or information related to advantages and disadvantages of the mutual form of business, when compared to the other legal forms of companies offering insurance or social services. The study should, for example, make reference to curricula of business studies, courses at secondary and university levels, etc.

In France, there is no reference to the mutual insurance business model in the general studies or courses (Economics, Law etc.). Only the business model of joint- stock companies is included in the corporate law courses for instance. Only students intending to work either in the insurance industry or in the field of Social economy (that means, in cooperatives, mutuals, associations or foundations) have a chance to get a course on the mutual insurance business model.

142 13 Hungary

143

144

Country study on the current situation and prospects of mutuals

Hungary

The Solvency II Directive applies to the following company forms in providing non-life and life insurance: ‘biztosító részvénytársaság’ ('Insurance company'), ‘biztosító szövetkezet’ (insurance cooperative'), ‘biztosító egyesület’ ('Mutual Insurance Association'), ‘külföldi székhelyű biztosító magyarországi fióktelepe’ ('Hungarian branches of foreign-based insurance'). Reinsurance can be offered by ‘biztosító részvénytársaság’ ('Insurance company'), ‘biztosító szövetkezet’ ('insurance cooperative') and "harmadik országbeli biztosító mag- yarországi fióktelepe" ("third-country insurance Hungarian branches").

A) Definitions of mutuals

There is no general definition of a mutual in Hungarian law;

There are two specific definitions in specific (financial) law:  In The Act XCVI of 1993 on Voluntary Mutual Insurance, Section 2. (2), a 'voluntary mutual insurance fund' (önkéntes kölcsönös biztosító pénztár) is defined as follows: “'voluntary mutual insurance fund' (hereinafter referred to as 'fund') shall mean an association created by natural persons (hereinafter referred to as 'fund members') under the principle of independence, mutuality, solidarity and voluntary participation for funding services to supplement, supersede or replace social security benefits and benefits for health protection (hereinafter referred to as 'services'). The fund shall record the membership payments it receives from members in individual accounts and shall organize, finance and provide its services accordingly. Regulations concerning financial management and liability and entitlements related to fund activities are governed by this Act. Accord- ing to the Act (Section 3)1:  'Mutuality' shall mean that fund members jointly accumulate the reserves required to provide benefits. The persons eligible to receive services shall have equal rights in respect of access. Each fund member has an ownership stake in the fund.  'Voluntary participation' shall mean that natural persons may, of their own free will, set up funds and may join and leave such funds in accordance with the provisions of the fund's bylaws.  'Independence' shall mean that funds are free to devise their scope of services and business policies within the framework of legal regulations.  'Solidarity' shall mean that the contributions payable by the fund members are established on the basis of standard principles, independent of the degree of individual risks and any settlement. The application for admission of a natural person who meets the criteria for membership cannot be rejected.  'Principle of association' shall mean that no discrimination is permitted on the grounds of religion, race, ethnic background, political affiliation, age or sex.  'Non-profit operation' shall mean that the fund may not disburse the profits of its operations as either dividends or profit-sharing and that it must use such profits in the interest of its basic activity.  Insurance Act2 19. § (1) defines a ‘biztosító egyesület’ or mutual insurance association as an association which operates the insurance on the basis of the principle of mutuality, exclusively based on the contracts of its members, provides its benefits for insur-

1 Act No. XCVI of 1993 on Voluntary Mutual Insurance Funds; see: http://www.euro.who.int/__data/assets/pdf_file/0006/80826/E68317.pdf

2 Act No. LX of 2003 on Insurance Institutions and the Insurance Business; see: http://net.jogtar.hu/jr/gen/getdoc.cgi?docid=a0300060.tv&dbnum=62

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ance fee, in case of the insurance events established in the insurance conditions occur.3 These mutual insurance associations include agricultural mutual insurance funds. Hungar- ian mutual insurance funds work according to the same main principles (not profit oriented, mutual and voluntary) as in the other Member States of the European Union. Foundation and operation of such funds are regulated by the “Act LX of 2003 on Insurers and insurance activity” and the “Act II of 1989 on Association” and the “Act C of 2000 on Accounting” which was later amended several times but mainly by the “Act XCIX of 2004 on the Amendment of the Act C of 2000 on Accounting” in order to comply with relevant regulations of the European Un- ion4.In order to begin operation after the constituent assembly and the preparation of different official documents (Application, Statutes, Rules of Operation, General and Extraordinary Condi- tions, Premium Calculation, Pricing Policy, Business Plan) the Hungarian Financial Supervisory Authority permits functioning and the local county court registers the given fund. The activities of these funds are reinsured and re-insurers make them interested in the proper risk management. Such funds focus on the hard-to-insure losses. Participation of at least ten natural persons and/or legal entities is required for establishment.5

B) Legal types (if more types exist)

There are two types of mutuals. A distinction should be made between voluntary mutual insurance funds which are mutual benefit provident funds and mutual insurance associations. Both are mutual type organisations but fall under different legal frameworks. Both are supervised by the HFSA (PSZAF)6.

Mutual benefit provident funds or provident mutuals are defined as sui generis legal entities by the Act No. XCVI. of 1993 on Voluntary Mutual Insurance Funds. The title of the act is the mirror translation of the words as used in 1993, when the general public had not been aware of the real meaning of this institution. The origin of the legislation has been rooted in the French “mutualités” and the Anglo-American occupational pension schemes. The types of entities are differentiated according to the provided benefits, and can be pension fund, healthcare fund, or social and labour (aid) benefits fund.7 So the wording of “mutual” and “fund” is used in the meaning of mutual benefit (provident) fund, like the German “Kasse”. However, in the case of a mutual pension provident fund, the rules does not require (but allow) lump sum payment at retirement. The word “provident” is used as a syno- nym of insurance, emphasising pre-funding.

The Act XCVI of 1993 on Voluntary Mutual Insurance Funds provides the legal framework for the establishment of provident mutuals, which can be set up within a company by the employees, or on the employer's initiative. The aim is to offer services for members that supplement or replace social security services, as well as services that promote healthy lives. There are voluntary mutual pension funds and voluntary mutual income replacement and health funds.

Major insurers and banks operating in Hungary, mostly transnational companies, have managed to establish provident mutuals under the Act. These entities use the brand name of the mother company. They respect the regulations, but are de facto run as business entities.

3 Act No. LX of 2003 on Insurance Institutions and the Insurance Business; see: http://net.jogtar.hu/jr/gen/getdoc.cgi?docid=a0300060.tv&dbnum=62

4 Gábor Erent (2002): “Tíz éve sikeresen működő kockázatkezelési rendszer: a biztosító egyesületi háló- zat”, Pénzügyi Szemle, vol. 3/2002, pp. 295-302.

5 Maria Bielza, Costanza Conte, Christoph Dittmann, Javier Gallego, Josef Stroblmair (2006), Agricultural Insurance Schemes: http://ec.europa.eu/agriculture/analysis/external/insurance/annex11_en.pdf

6 http://www.pszaf.hu/

7 All benefits are supplementary to state benefits.

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This act regulates the scope of activity, organisation, management, organisational changes and supervision of these provident mutuals8.

The mutual insurance associations are defined and regulated by the Insurance Act (Act LX of 2003) 10. § (2) (see above, hereafter called IA). This act refers to the Civil Code and the Associations Act. The Insurance Act is in full conformity with the EU Life and Non-Life Directives. According to the Civil Code, Section 61, which applies to the legal status of mutual insurance associations, “societies are voluntarily established self-governing organizations that are formed for the purposes defined in their statutes, have registered membership, and organize their members' activities in order to achieve their objectives. Societies are artificial persons.” All mutual insurance associations are of variable premium type.

Furthermore, concerning the legal entity, the Insurance Act refers to the Civil Code (Act IV of 1959) and to the Act of the right of the associations, and the operation of public and civil organisations (Act CLXXV of 2011)9

In the remaining of the country factsheet, the questions will be answered separately for each type of mutual. First the mutual benefit provident funds will be discussed, then the mutual insurance associations.

C) Methods of creation (required capital or assets)

The mutual benefit provident funds according to Act XCVI of 1993, section 5, may only be established by natural persons. At least 15 founding members are required for establishment. The establishment of a fund is declared by the inaugural meeting. The inaugural meeting shall also have competence to approve the bylaws and the initial financial plan, to elect officers and the auditor, and to determine the remuneration of officers, and to decide how to finance the costs incurred in connection with the foundation process up to the date of the inaugural meeting. The minutes of the inaugural meeting shall be signed by the chairman elected by the general meeting and the secretary of the meeting and witnessed by two designated members. The attendance list drawn up at the general meeting shall be signed by the chairman of the general meeting and the secretary. The bylaws and any amendments thereto shall be incorporated in a public document or a document counter- signed by an attorney (legal counsel). According to section 6 it shall be registered by the county (Budapest) court having jurisdiction over the place in which the fund is established. The application for registration shall be submitted to the court in writing within 30 days of the inaugural meeting. The applicant shall enclose with the application the bylaws approved by the inaugural meeting, the minutes and the attendance sheet of the inaugural meeting as well as a certificate from an authorized payment service provider stating the fund's account number. The court shall decide on the registration of the fund in non-litigious proceedings and notify the competent state attorney's office and the State Financial Institu- tions Commission (hereinafter referred to as 'Commission') regarding its decision. The fund shall enter into existence upon registration by the court, retroactive to the date of the inaugural meeting. Should the fund fail to be registered, legal disputes between the parties shall be settled in accordance with the provisions of Act IV of 1959 on the Civil Code of the Re- public of Hungary, frequently amended (hereinafter referred to as "Civil Code"). The fund may commence the activities after obtaining the operating license from the Commission. The procedural rules for licensing these activities are contained in Sections 60-64 concerning the application, financial management plan (there is no explicit capital requirement), facilities, equipment and personnel. They receive a license from the Financial Supervisory Au- thority (HFSA) to carry out the following activities:  the pension plan benefits (pension fund);

8 Central Administration of National Pension Insurance Hungary (2008), Information on the major benefit regulations and organisational structure of the pension insurance system in Hungary.

9 http://net.jogtar.hu/jr/gen/hjegy_doc.cgi?docid=A1100175.TV&celpara=#xcelparam

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 providing support in connection with social risks, supplementary provisions provided on the basis of the social obligations prescribed by legal regulation, financial support for the purchase of medicines and medical aids (mutual aid fund);  organization and funding of programs serving the protection of health and the purchase of health care services (health fund). The HFSA has drawn up a guideline concerning, amongst else, the procedures related to the voluntary mutual insurance funds.10

The mutual insurance associations are established by at least 10 members (Insurance associations may be established and operated by natural persons and legal persons as well as the organizations of such persons without legal personality). An initial fund of 1 Million HUF is needed and at least 70% of the initial found shall be paid in cash. An insurance association shall receive authorization to commence operations only if all of the cash contributions of the initial capital are paid up in full [IA § 20].

Also a foundation licence and an operation licence are required by the HFSA (2 step licensing process). The application of the founding licence shall contain (general insurance regulation) the articles of association; the plan of organisation, the decision-making and controlling bodies, rules of organisation and operation; a declaration of publication all material facts and data about the association; information about the members (if they are legal or natural persons) and their unit certificates. Within 90 days after obtaining the founding licence, the association shall apply for the operation licence otherwise the foundation licence is withdrawn by the HFSA. The application for the operation licence shall contain: certification of minimum capital; business plan; certification of computer system (data processing); accounting policy.

The members shall declare the establishment and accept the articles of association, elect the representative and administrative bodies. It shall have its seat in Hungary. The association shall apply for the entry of the association to the register [Civil Code 61. § (3)-(4), (6)]. Also, a licence of HFSA is needed (foundation licence and within 90 days, apply for operation licence) (IA 57).

The Statute of an insurance association shall stipulate (IA section 22):  a) the name and address of the association,  b) the objective and scope of the association's activities,  c) the procedures for establishing and terminating membership,  d) the organizational structure of the association,  e) the amount of initial capital and the manner in which it is to be paid up,  f) the principles governing the calculation of membership contributions, the amount for each class of insurance and the means of payment,  g) the principles on the appropriation of any profit,  h) the manner for settling any losses,  i) instructions relating to the possibility of any cutback in services, and on ordering members to provide additional contributions for the eventuality where other resources are not sufficient for meeting the association’s liabilities for the year,  j) the use of the association's assets in case of termination and the ways of settling existing liabilities, including underwriting obligations apart from other liabilities. No cutback in services as defined in Paragraph i) of Subsection (1) is allowed in respect of liability insurance policies.

Any insurance association averaging over one hundred members throughout a calendar year shall elect at its next annual general meeting

10 http://www.pszaf.hu/data/cms1288312/pszafen_authorguide_fundm100414.pdf

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 a) its board of directors consisting of a minimum of five and a maximum of eleven members, and  b) its supervisory board consisting of a minimum of three and a maximum of fifteen members.

D) Management and corporate governance

Concerning mutual benefit provident funds:  Management and corporate governance: The bodies of the fund are (section 19):  a) general meeting and, in the cases defined in the bylaws, the delegates' meeting or partial general meeting;  b) the board of directors;  c) the supervisory board. The bylaws may prescribe the establishment of expert committees. The board of directors and the supervisory board shall be composed of an odd number of members between 3 and 7 persons. The number of board members may be increased by the bylaws consistent with the fund's membership. Members of the board of directors and the supervisory board (hereinafter referred to as “executive officers”) shall be elected by secret ballot for a maximum term of five years. The appointment of an executive officer shall take effect when accepted by the person appointed. The chairmen of the board of directors and the supervisory board shall be elected from among the members of the board of directors and the supervisory board, respectively, by secret ballot. The persons nominated for the office of chairman of the board of directors and the supervisory board must have a degree in higher education. Unless provided in the bylaws to the contrary, the board of directors may employ a managing director to perform the day-to-day responsibilities. The managing director shall be invited to the meetings of the board of directors, except when matters affecting his person are discussed. The managing director shall attend the meetings of the board of directors in an advisory capacity. According to section 21, the fund's supreme body shall be the general meeting composed of all the members or, as defined in the bylaws, the body elected by the members directly or indirectly (delegates' meeting). In addition to the rules of competence and procedure, the bylaws may also provide for holding partial general meetings.  rights of members: Section 16 of the act on Voluntary Mutual Insurance Funds states that  (1) Fund members shall have the right to vote and, unless this Act or the bylaws provide otherwise, to be elected to the bodies of the fund.  (2) Fund members are entitled to have access, in the manner defined in the bylaws, to the documents and books of the fund (other than the minutes taken of closed meetings and the draft resolutions discussed there); they are also entitled to request information on the operation of the fund. Fund members may not use the information so obtained in a manner that violates the fund's interests, nor may they use the personal data of fund members in a manner that violates their personality rights.  (3) Fund members may use the services of the fund on the basis of the provisions of the bylaws.  voting and representation of members in general meetings: One person one vote; General Assembly of Delegates is regulated in details. Powers and Duties of the General Meeting Section 21 – 23/3.  types of shares if any: N/A  reserves: Detailed regulations define three types of reserve funds: operational, liquidity and other risks, and benefit funding reserves.11  possibility for non members investors: N/A  transparency and publicity requirements: Detailed reporting and disclosure rules to the Authority, to the public, and to the members. Privacy and complaints regulations also in place. Advertising is also regulated12.

11 See: Section 3. (2) 'Principle of closed financial management' Management and Reporting Rules of Funds Section 36. and subsequent sections

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 related auditing issues: they are supervised according to the regulations included in the Act XCVI of 1993 on Voluntary Mutual Insurance Funds. According to Section 8 judicial supervision of the funds shall be carried out by the public prosecutor’s office in compliance with the relevant governing rules, and government supervision shall be carried out by the State Financial Institutions Commission  protection of assets: According to section 13 of the Act, the bylaws shall provide for settlement with departing members as well as for the distribution of the assets of a fund terminating without a successor by taking into consideration the individual accounts as well as the fund's rules on the creation of reserves and cost accounting.

Concerning mutual insurance associations:  Management and corporate governance: A mutual insurance association (with more than 100 members) shall at least have a board of directors, consisting of a minimum of five and a maximum of eleven members and a supervisory board, consisting of a minimum of three and a maximum of fifteen members. The General Meeting will elect the members of the board of directors and the supervisory board.  rights of members: Entering into the association is only on condition having an insurance contract, by the expiration of the contract, the membership doesn’t cease unless the member stops paying membership fee or if she/he is not obliged paying a fee, comply with other obligations and enter into a new contract within one year [IA § 19 (2)- (3)]; refers to the CC13 § 62 (3) voting right and right of eligibility on General Assembly, right to take part on the events of the association. The members of the management board and supervisory board shall be elected by the GA.  voting and representation of members in general meetings: Maximum fifty Dele- gates are elected from the GA if membership is above 1000 persons over one year, the decisions of the GA require a majority of the votes cast (simple majority of votes) unless the articles of association stipulate a larger majority [IA § 22 (7)]  types of shares if any: shares are in principle not possible.  Reserves: Gains can be returned to the members (if statutes allow this) only if the reserves exceeds the solvency margin requirement, or the guarantee fund twice (IA § 23)14  possibility for non members investors: no possibility for members investors but by the expiration of the insurance contract, the membership does not immediately cease unless the member stops paying membership fee or, if she/he is not obliged paying a fee, comply with other obligations and enter into a new contract within one year [IA § 19 (2)- (3)]  transparency and publicity requirements: General insurance regulation apply, linked to conditions of entering into contract and issuing of the insurance policy and complaints handling (IA § 166 – § 167)  related auditing issues: General insurance regulation apply, except associations are not required to appoint external auditor (IA Chapter IV, § 143- § 152)  protection of assets: in case of liquidation, the sequence of payment of the remaining insurance contracts are mentioned in the law:  firstly health- and third-party insurance allowance liabilities,  secondly life-insurance liabilities,  thirdly liabilities of insurance events that occurred before the declaration of liquidation and originated from third-party insurance,  fourthly the liabilities of insurance events occurred before the declaration of liquidation,  fifthly the premiums paid in advance, and  finally the other liabilities. Hence, there is no mentioning that the assets will have to be transferred to another similar type organisation.

12 See: Sections 29/A, 40 and subsequent

13 The Civil Code has been updated 22th December, 2011.

14 The extent of the share of profits in a year and the mode by which this share is distributed among the insured persons shall be defined in the charter (IA Section 23).

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E) Additional information

The number of voluntary pension funds and members has seen a dynamic growth and by 1999 there had already been around 250 funds in operation. Between 1999 and 2009, funds have merged or dissolved. According to data from 2009, the number of voluntary pension funds was between 60 and 70, through they had almost 1.4 million members, representing nearly 30% of all employees. The accumulated assets amount almost to HUF 700 billion.15 Fund members are entitled to claim tax relief on payments made to a voluntary fund. Em- ployers may pay a monthly sum equivalent to the minimum wage on behalf of fund members, free of taxes and social insurance.

The first agricultural mutual insurance fund was the Crop Insurance Fund of Baranya County (Baranya Megyei Növénybiztosító Egyesület) that was founded in 1993 by 16 members. The profit oriented insurance companies did not predict positive perspectives for such an initiative and offered lower insurance premiums in the region to attract the local producers.In the beginning such funds were present only in the Western part of the country but after few years similar funds were established in the other parts of the country with the coverage of different crops. In 1996 the As- sociation of Hungarian Non-profit Insurance Funds (MANBESZ) was established. Currently there are 24 mutual insurance funds active in Hungary of which 22 are involved in crop insurance and the remaining two deal with livestock insurance.16

The table below reflects the performance of the mutual insurance funds in the last years.

1 Legislation impacting the functioning of mutuals:

1 Is there legislation on taxation issues (preferential treatment)?

Concerning mutual benefit provident funds there is legislation on taxation issues. Individual contributions from taxed income have tax advantages. Up to 30% of the contributions can be re-claimed, and the Tax Authority credits (transfers) it to the individual account of the member in a mutual benefit provident fund.

With regard to the mutual insurance associations, the income of the primary activity regulated in the Statute, is free of tax – Act LXXI of 1996 of the Company Tax, Appendix 6, A) 1. In general, long term life products, independent by whom provided, enjoy preferential treatment, regulated by the Tax Law.

15 Central Administration of National Pension Insurance Hungary (2010), Information on the major benefit regulation and organisational structure of the pension insurance system in Hungary.

16 Maria Bielza, Costanza Conte, Christoph Dittmann, Javier Gallego, Josef Stroblmair (2006), Agricultu- ral Insurance Schemes: http://ec.europa.eu/agriculture/analysis/external/insurance/annex11_en.pdf

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2 Is there legislation concerning employee involvement systems?

Concerning mutual benefit provident funds, the individual members are in the core of regulation, employers have only a limited role or rights in the present system.

Concerning mutual insurance associations, there are no specific rules. Only the Civil Code rules apply.

3 What are the possibilities and regulations in a situation of demutualization (e.g. transforming a mutual to a traditional capital company) protection of assets in case of demutualization?

For mutual benefit provident funds demutualisation as such is not an option. A mutual provident fund can only be terminated (winding up). According to section 45/A, members of a fund that is terminated without succession may either transfer their share when switching to another fund, in which case this amount shall be credited to the fund member’s account in this other fund, or withdraw their entire share. When a fund member is in the accumulation period, such payment shall not be construed as a fund service. According to Section 45/B, the assets can be util- ized to meet other liabilities only after satisfying the claims of fund members, their relatives and beneficiaries that are payable from the benefit funding reserve.

Regarding the mutual insurance associations, the Insurance Act explicitly regulates the winding up, mergers & acquisitions, and demutualization of the mutual insurance associations. An association can only be transformed into a private joint stock insurance company by resolution of the GA. Company Act applies, unless the Insurance Act stipulates otherwise. The pre-transformation own capital shall be transformed into stocks of the members. (IA § 28 - § 28/C). The resolution about transformation requires a majority of at least three quarters of the votes (GA). [IA § 27(2)]

Member’s share in the legal successor company is determined by the management board. Those members insurance contract, declared not continuing their membership, remain, but at the distribution of own funds, they shall not be taking into consideration. Until the 90th day after the transformation, association shall make a balance sheet to the day of the registration. [IA § 28/A (3), § 28/B (6), § 28/C (2)]

2 Concerning internal barriers (barriers mutuals face within their own country):

4 Issues concerning the legal entity:

 The obstacles operators may have when they want to create a mutual in a country;

In theory, or according to the wording of the Act, only natural persons are allowed to establish the mutual benefit provident fund. Other operators (administrators, service providers, asset managers, employers, etc.) are not allowed.

Obstacles specifically for insurance associations (in comparison to regular insurance companies) do not exist.

152 Hungary

 The obstacles operators may have when they want to proceed to a merger of mutuals/division/acquisition of a mutual;

Concerning mutual benefit provident funds, the merger/division/acquisition of a mutual is regulated by the Act on Voluntary Mutual Insurance Funds, and it is linked to the decision of the General As- sembly (Assemblies), and reported to the HFSA.17 Mergers and demergers are allowed and also formations of mixed-activity funds is possible.

Concerning mutual insurance associations, the Insurance Act refers to the Civil Code18: The decision-making about merger, division or acquisition is within the General Assembly’s competence [CC § 63.]

Merging into another mutual association is possible, but only if the association isn’t under liquidation, bankruptcy proceedings or final settlement and the foundation fund is available. They can only merge without liquidation and only through winding-up. The demergence of association isn’t mentioned by the law, but according to the judicial practice, it’s possible.

There are no other grouping possibilities for mutual insurance associations.

 The obstacles operators may have when they want to convert to another type of legal entity

It is for mutual benefit provident funds not allowed to convert. First they need to be liquidated.

For mutual insurance associations it is only possible to convert into a joint stock company, not into a cooperative company. [IA § 28/A(1)]. The management board shall make a proposal to the GA about: the economical purpose of the transformation; the view of the management board. The management board shall inform all the association’s members of the content of the proposal in accordance with the articles of association. The decision making about the transformation shall made in two steps (preparing and final decision) and is made by the General Assembly.

5 Issues concerning the activity:

 Specific rules/obligation related to the nature of the business in which mutuals operate (e.g. insurance activities, providence services, management of hospitals, creation of subsidiaries etc.)

With regard to the mutual benefit provident funds the administration, investment, financing of operations and benefits, reporting, and organisation are detailed in the Act and Regulations. Types of benefits are also listed. Healthcare benefits must be in-kind benefits, and can be provided only by contracted service providers (no ownership allowed). A special kind of subsidiary is allowed, the so called auxiliary business activities (supplementary enterprise) in relation with the core activities, limited up to 20% of the revenues.

Concerning the mutual insurance associations according to the Insurance

17 See Act No. XCVI of 1993 on Voluntary Mutual Insurance Funds; Chapter III TRANSFORMATION AND TERMINATION OF FUNDS Common Rules of Transformation Section 41. And subsequent.

18 Act 1959 - IV on the Civil Code of the Republic of Hungary: http://www.lexadin.nl/wlg/legis/nofr/eur/lxwehun.htm

153 Hungary

Act, they cannot enter into “financial” insurance lines of business (credit insurance, suretyship insurance, etc.) and providing reinsurance. (IA § 21).

6 Issues concerning the neglect of mutuals in policy making:

 National rules which by not taking into account the mutual specificities hinder the mutuals’ development (e.g. public procurement, specific tax rules, etc.).

In general, the regulation in its present form is tailored to the activities and operations of the mutual pension funds established by the banks and insurers. It makes the operations of the smaller independent and employer-based mutual provident funds unreasonably expensive.

Mutual insurance associations: There is no special regime among the mutuals (according to size, etc.), but as these insurance associations are all small, they are mostly agricultural mutuals.

3 Concerning cross border barriers (barriers mutuals face when operating across barriers):

The mutual benefit provident fund provides service only to its members. Citizens of an EU Member State can become members in the mutual benefit provident fund. The idea of cross-border establishment has not been incurred yet. The Act on the other hand does not prevent them from operating across borders.

Also for mutual insurance associations, they do not operate across borders. The possibility of cross-border mutuals isn’t regulated by the law, but as it is not for- bidden, it is possible. However, there are no examples of it in the Hungarian market.

8 Issues concerning cross-border cooperation with other European partners for the creation of groups of mutuals, or to create a local subsidiary.

N/A.

9 Examples of existing cross-border co-operations and their legal form

N/A.

10 Examples of autonomous expansion across the frontiers of mutuals.

N/A.

154 Hungary

4 Concerning national measures, for promoting mutuals and measures aiming at access to finance for mutuals:

Mutual benefit provident funds must be financed from contributions. The level of contributions by members and employers can be adjusted, but should be approved by the General Assembly. Donations from sponsors are allowed, but do not have tax preferences. External financing is prohibited.

The articles of association of the mutual insurance association shall stipulate that members shall be obliged to make supplementary contributions if other funds do not suffice for the coverage of losses or may also stipulate the reduction of the insurance benefits [IA § 22(1) f)]. All mutual insurers in Hungary are mandatory of the variable premium type. Concerning supplementary contributions and reduction of benefits, the Statutes shall contain only the obligation and the principles of payment, but not the exact sum (which is determined by the management board [IA § 24(1)], the decision of the statutory meeting is enough.

With regard to mutual insurance associations there are a number of regulations in favour of them: they are allowed to have an lower initial fund and lower minimum guarantee fund - (75%), following member state options in line with the EU directives. Associations not reaching 300 million HUF (≈ 1 million Euro) in contributions can employ the actuary, and the legal adviser by agency contract; associations not reaching 300 million HUF in contributions shall not elect auditor. They have a lower supervisory fee.

13 The existence, if any, of national, regional or local policies aiming at the promotion of mutuals, such as tailored business support services, specialised agencies, creation of federations etc.

N/A

There is a law (101/2001. decree of the Gov.) ensuring a one-time subsidy for agricultural insurance mutuals (that are mutual insurance companies). The amount of the scheme depends on the foundation fund of the mutual. The mutual shall require to fulfil the following conditions:

 The association is entered into the register  The members undertake to cease the operation of the association in 5 years and refund the subsidy  The association only insures the risks enumerated in the regulation  has at least ten members doing agricultural activities

155 Hungary

156 14 Iceland

157

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Country study on the current situation and prospects of mutuals

Iceland

A) Definitions of mutuals

There is no general definition in Icelandic law on mutual.

There is no specific definition in specific Icelandic law on mutual, such as e.g. insurance. The possibility to create mutual companies in insurance was deleted in 2010 at the occasion of the revision of the law on insurance activities in the run-up to the Icelandic candidature for EU membership. Before deletion, the provisions of the Act on Co-operative Societies shall apply to mutual insurance companies, which are established and operated in cooperative form (article 2).1

There are consequently no licensed Icelandic mutual insurance companies in Iceland. Ac- cording to the law on insurance activity no. 56/2010 (lög um vátryggingastarfsemi, No. 56/2010) it is not permitted to establish a mutual insurance company in Iceland. All domestic insurance companies are limited liability companies.

According to article 2 of the Law on Insurance activity 56/2010, the following entities may carry on insurance activities in Iceland: 1 public limited-liability companies which have received an operating licence in Iceland pursuant to Article 26; 2 insurance undertakings headquartered in another Member State which have received an operating licence in their home State, cf. Articles 66 and 67; 3 European undertakings, as provided for in Act No. 26/2004, which have received an operating licence in a Member State, cf. Articles 66 and 67; 4 insurance undertakings headquartered in a non-Member State which obtain a licence to operate branches in Iceland, cf. Article 73.

Insurance undertakings according to article 2(1) shall be governed by the provisions of the Act regarding Public Limited Liability Companies, and European undertakings according to article 2(3) shall be governed by the provisions of the Act on European Companies, unless otherwise provided by the provisions of the present Act. Captive direct insurance or reinsurance undertakings must be public limited liability companies.

Undertakings established by special legislation for the purpose of carrying on insurance activities may carry on such activities in legally mandated forms of enterprise, provided they are subject to the same operating environment as other undertakings, and comply with the provisions of Chapter II. The same shall apply to foreign insurance undertakings which obtain a licence to operate insurance activities in Iceland.

Additional information concerning mutuals on the Icelandic market: “There has been a dramatic change in the last 20 years in the structure of the domestic insurance market in Iceland. Since 1987 the number of insurance companies has decreased from 29 to 12. Many companies operated by special laws (local mutual ship/boat insurance companies and a local compulsory household fire insurance company in Reykjavík) which may have been uncompetitive towards larger insurance companies. In the last 12 years, competition on the market has increased considerably. This situation led to transfers of portfolios and mergers of companies. Fortunately, no insurance companies went bankrupt,

1 Old legislation: http://www.vidraedur.is/media/esb_svor/17_- _Economic_and_Monetary_Policy/Annex_17-13_J_Insurance_Activities.pdf

159 Iceland

but some experienced financial difficulties due to their smallness. Those companies transferred their portfolio and/or merged with other companies as stated before.”2

B) Legal types (if more types exist)

N/A

C) Methods of creation (required capital or assets)

N/A

D) Management and corporate governance

N/A

2 Rúnar Guðmundsson, Ólöf Aðalsteinsdóttir and Sigurður Freyr Jónatansson (2007), Icelandic insurance market from the perspective of the Financial Supervisory Authority: http://www.fme.is/media/frettir/14.06.2007.no-Island.pdf

160 15 Ireland

161

162

Country study on the current situation and prospects of mutuals

Ireland

The Solvency II Directive applies to the following company forms:  non-life insurance: incorporated companies limited by shares or by guarantee or unlimited  life insurance: ‘incorporated companies limited by shares or by guarantee or unlimited’, ‘societies registered under the Industrial and Provident Societies Acts’, ‘societies registered under the Friendly Societies Acts’;  Reinsurance: incorporated companies limited by shares or by guarantee or unlimited

A) Definitions of mutuals

In general, in the Anglo-Saxon world mutual is defined broader and includes all types of organisations having member-owned structures. It includes also cooperatives (Industrial and provident societies) and employee-owned organisations.

There is not a general definition in some law. Only in specific laws, there are descriptions of different types of mutual organisations (e.g. Friendly societies and building societies).

In insurance: The situation in Ireland is rather complex as mutual insurance companies can take the form of unlimited company or a private (plc) incorporated company limited by shares or guarantee, or may be founded by private statute or can be established under the Friendly Societies Acts.1

There is only one mutual insurance company, Irish Public Bodies Mutual Insurances, formed in 1926 under the Public Bodies Mutual Insurance Act,2 (following the example of the British Municipal Assurance Company) to serve Irish local authorities and later national government bodies as well as private commercial businesses, expert representative bodies and associations. Upon the creation of what is now known to be IPM Insurance, the key element of the mutual definition was3: “that they simply joined themselves together by association for the

1 See: AMICE (2012), Facts and Figures: Mutual and cooperative insurancein Europe; and the Friendly Societies Acts 1896 to1977

2 http://historical-debates.oireachtas.ie/S/0010/S.0010.192807180003.html; http://www.ipb.ie

3 http://historical-debates.oireachtas.ie/D/0025/D.0025.192807110020.html: [260] : Mr. FAHY: Will the Minister tell us if that Municipal Assurance Company in Great Britain was not set up prior to the legislation which defines the word “mutual”? General MULCAHY: It was set up before the Act of 1909. It was set up before the Act of 1906—the Marine Act —but if you take the Acts subsequent to the Act of 1906 you must realise that the term “mutual insurance” is used for covering people who do not accept inter se liability. The particular case quoted by ex-Deputy Magennis was mentioned here as a precedent that made the local bodies that are members of this company liable inter se for any losses. That is not a fact, because what was established in the particular case referred to by him was the principle that what gave liability to the people involved in any company were the contracts that they entered into with one another through the medium of their Memorandum of Agreement. The company dealt with in that particular case had inserted in their Memorandum of Agreement that they accepted inter se liabilities. It is quite clear that the only liability that the local bodies who were members of this company accept is the ten pounds liability in case of the winding-up of the company. Every section of the 1909 Act shows that by relieving them of the necessity for depositing £20,000 under certain circumstances, these particular types of companies did not accept inter se liabilities; that they simply joined themselves together by association for the purpose of mutual insurance in respect of certain matters. There was no suggestion that there was anything like inter se responsibility involved in the term “mutual insurance.” What we are doing here in respect of this company or any company formed under the Principal Act is that we are giving “mutual insurance” a definition which the British Board of Trade has consistently given to it in dealing with companies of this particular kind; the interpretation which it has given in dealing with the Municipal Mutual Insurance Company.

163 Ireland

purpose of mutual insurance in respect of certain matters. There was no suggestion that there was anything like inter se responsibility involved in the term “mutual insurance”.

In banking: The term ‘mutual’ is used for predominantly for the banking activities of building societies and credit unions in Ireland.4 The Credit unions fall under the Credit Union Act 1997 and the Building Societies fall under the Building Societies Act, 1989.

B) Legal types (if more types exist)

In general, the Irish legal framework allows different variations of company forms which can have mutualistic characteristics.

In insurance, mutual insurance companies can take the form of - unlimited company - private incorporated company (plc) limited by shares or - private incorporated company (plc) limited by guarantee, - company founded by private statute or - society registered under the Friendly Societies Acts.

Beyond insurance, one of the forms is the building society. Building societies are regulated by the Building Societies Act, 1989. These societies can conduct various activities and shall have as one of its objects the raising of funds for making housing loans.5 Mid-20th century in Ireland there were around 40 small building societies. When the commercial banks started to sell mortgages, the building societies ceased to be competitive. They either dissolved or were converted into banks. In 2011, the last remaining building societies EBS Building Soci- ety and Irish Nationwide Building Society, demutualised and were transferred or acquired into bank subsidiaries. As main reason for this, the Irish financial crisis is mentioned.6 ,

The focus in this factsheet will be on the Friendly societies. Friendly societies (Cara- Chumainn) are societies registered under the Friendly Societies Acts 1896 to 1977. They are established for various purposes, mostly to provide small life assurance benefits, sick benefits and death benefits to members, to provide benefits to non-members or to promote particular activities or interests. The Friendly societies Acts create also other societies for other purposes which are not called friendly societies although they are established under those Acts.

When focussing on friendly societies the following legislation needs to be taken into account.

The principal legislation relating to societies registered under the Friendly Societies Acts is as follows:  Friendly Societies Acts, 1896-1977  Insurance Act, 1989  Electoral Act 1997 (as amended)7

But see also other legislation, such as  Friendly Societies Regulations, 1897-1903.  Registrar of Friendly Societies (Adaptation) Order, 1926.  European Communities (Non-Life Insurance) Regulations, 1976.

4 Commission of Inquiry into the Future of Civil Society in the UK and Ireland (2010), Mutuals and alternative banking A solution to the financial and credit crisis in Ireland?

5 Building Societies act 1989, article 9.

6 Credit Unions are usually regarded as cooperative banks, however, according they do not fall under the European Banking Directive: http://eur- lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32006L0048:EN:NOT, zie article 2.

7 Register of Friendly Societies Annual Report, 2009

164 Ireland

 European Communities (Life Assurance) Regulations, 1984.  Friendly Societies Regulations, 1988.  Friendly Societies Regulations, 1992.  Friendly Societies (Fees) Regulations, 1995.  Friendly Societies Regulations, 2002.  European Communities (Consumer Credit Agreements) Regulations 2010 - SI. No. 281 of 2010  European Insurance Directives (and Solvency II Directive)

The following societies may be registered under the Friendly society Act 1896 (article 8)8:  (1) Societies (in this Act called friendly societies) for the purposes of providing by voluntary subscriptions of the members thereof, with or without the aid of donations, for –  (a) the relief or maintenance of the members, their husbands, wives, children, fathers, mothers, brothers, or sisters, nephews or nieces, or wards being orphans, during sickness or other infirmity, whether bodily or mental, in old age (which shall mean any age after fifty) or in widowhood, or for the relief or maintenance of the orphan children of members during minority; or  (b) insuring money to be paid on the birth of a member’s child, or on the death of a member, or for the funeral expenses of the husband, wife, or child of a member, or of the widow of a deceased member, or, as respects persons of the Jewish persuasion, for the payment of a sum of money during the period of confined mourning; or  (c) the relief or maintenance of the members when on travel in search of employment, or when in distressed circumstances, or in case of shipwreck, or loss or damage of or to boats or nets; or  (d) the endowment of members or nominees of members at any age; or  (e) the insurance against fire, to any amount not exceeding fifteen pounds, of the tools or implements of the trade or calling of the members; or  (f) guaranteeing the performance of their duties by officers and servants of the society or any branch thereof; Provided that a friendly society which contracts with any person for the assurance of an annuity exceeding fifty pounds per annum, or of a gross sum exceeding two hundred pounds, shall not be registered under this Act.  (2) Societies (in this Act called cattle insurance societies) for the purpose of insurance to any amount against loss of neat cattle, sheep, lambs, swine, horses, and other animals by death from disease or otherwise:  (3) Societies (in this Act called benevolent societies) for any benevolent or charitable purpose:  (4) Societies (in this Act called working men’s clubs) for purposes of social intercourse, mutual helpfulness, mental and moral improvement, and rational recreation:  (5) Societies (in this Act called specially authorised societies) for any purpose which the Treasury may authorise as a purpose to which the provisions of this Act, or such of them as are specified in the authority, ought to be extended.

As Directive insurers, friendly societies can only offer life insurance (see Solvency II). Ac- cording to the Friendly Society Act, they however are active in (small scale) non-life risk coverage. For non-life insurance, they are not subject to the Directive.

8 The British FS Act 1896 was valid in Ireland.

165 Ireland

C) Methods of creation (required capital or assets)

According to the Friendly Society Act9,  (1) A society shall not be registered under this Act unless it consists of seven persons at least.  (2) For the purpose of registry there shall be sent to the registrar an application to register the society, signed by seven members and the secretary, and copies of the rules, together with a list of the names of the secretary and of every trustee or other officer intended to be authorised to sue and be sued on behalf of the society.  (3) The rules of the society so sent shall, according to the class in which the society is to be registered, contain provisions in respect of the several matters mentioned in the First Schedule to this Act.  (4) If this list is signed by the secretary and every trustee and other officer named there- in, it shall on the registry of the society be evidence that the persons so named have been duly appointed.

Registration of a Friendly Society In order to register a friendly society, the grouping involved, which must consist of at least seven people, must draw up a set of rules governing the operation of the society. A society may be registered as a friendly society, benevolent society, a working-men's club or a specially authorised society. The rules must, according to the class in which the society is to be registered, as a minimum contain the matters required to be provided for by the First Schedule of the Friendly Societies Act 1896. The rules, together with the prescribed application form and fee are submitted to the Registrar for examination and, once the rules are found to be in accordance with statute, the society is registered.

Concerning the fee paid for registration, the amount is approximately 200 Euro.10

To obtain an insurance licence the following amounts are needed:  it is required to possess a minimum guarantee fund (equal to one third of the solvency margin, subject to a minimum of €3.5 million);  it must have a paid-up share capital of at least €635,000.11

De minimis regime Under certain conditions, friendly societies will not be registred under the insurance act. No society shall be registered under the insurance Act unless the registrar of friendly societies is satisfied that:  the society is a society to which Article 2.2 (b), Article 2.2 (c) or Article 3 of Council Di- rective 73/239/EEC (non-life) refers (concerning supplementary calls);  the society is a society to which Article 2.2, Article 2.3 or Article 3 of Council Directive 79/267/EEC (life) refers (supplementary calls), or is a society in respect of which the Minister for Industry and Commerce has indicated that he will issue an authorisation under the European Communities (Life Assurance) Regulations, 1984. Furthermore, no society registered under this Act shall be authorised to carry on any insurance business falling under the description of insurance of Class III, IV or VII of Schedule 1 to the European Communities (Life Assurance) Regulations, 1984, unless it has obtained an authorisation under those Regulations for that purpose”.

9 See: 1896 act and the 1977 amendment: http://www.irishstatutebook.ie/1977/en/act/pub/0017/print.html#sec2

10 See: http://www.cro.ie/ena/rfs--friendly-society-fees.aspx

11 Dillon Eustace (2010), Insurance Regulation in Ireland July 2010

166 Ireland

D) Management and corporate governance

Most of the issues concerning management and corporate governance are explained in the statutes of the friendly society. The Friendly Society Act refers to the Statutes at this point.

In the case of termination of the society, after all payments have been made the funds and property will be divided, unless it is decided otherwise. According to article 15 of the friendly Society Act: “A society (other than a benevolent society or working men’s club) shall not be disentitled to registry by reason of any rule for or practice of dividing any part of the funds thereof if the rules of the society contain distinct provision for meeting all claims upon the society existing at the time of division before any such division takes place.”

Publication/ auditing: The Registrar of Friendly Societies is responsible for the assessment and registration of applications and any subsequent amendment of rules which societies are obliged to render to the Registrar, and to ensure that registered societies meet their statutory obligations with regard to filing returns, which once registered are made available for inspection by the public. In this regard the following three classes of body come under the remit of the Registrar of Friendly Societies:  Industrial and Provident Societies  Friendly Societies  Trade Unions

The Friendly Societies have an obligation to file annual returns to the Registry, failure of which results in cancellation or suspending.12

E) Additional information

During 2010 the Registry undertook a review of Friendly Societies which had annual return filings outstanding for a period. As a result of this review a number of societies were either cancelled or suspended for failure to send annual returns to the Registrar.

In advance of cancellation for failing to meet their statutory filing obligations, each society was afforded time to file all outstanding annual returns and given an opportunity to show cause as to why they should not be cancelled.

On foot of the cancellation exercise some forty-three societies were cancelled and a further two societies were suspended for failure to send annual returns to the Registrar

12 For its importance see for example: http://debates.oireachtas.ie/dail/2011/11/30/00091.asp

167 Ireland

168 16 Italy

169

170

Country study on the current situation and prospects of mutuals

Italy

For non-life and life insurance the Solvency II Directive applies to the following company forms: "società per azioni" (Joint-stock companies), "società cooperativa" (Cooperative societies), "mutua di assicurazione" (Mutual insurance companies). Reinsurance can only be offered by “società per azioni" (Joint-stock companies).

A) Definitions of mutuals

There is no strict overall legal definition of mutuals.

 In the law of mutual benefit societies (società di mutuo soccorso), which dates back to over 100 years (Legge 15 Aprile 1886 n° 3818, Costituzione legale delle Società di mutuo soccorso /Law n° 3818 of 15 April 1886)(hereafter referred to as Law 3818/1886)1 there is no definition either, but the law does stipulate the characteristics of their identity (not- for-profit and mutuality) and the activity/services they can offer. These mutual benefit societies can be defined as a legal not-for-profit entity that carries out activities for members to guaranty the necessary cover for personal and economic needs in health care, assistance, culture and in other services.  The legal status of mutual insurance companies (società di mutua assicurazione) is mentioned in the Civil Code, making a reference to mutual insurance companies (so- cietà di mutua assicurazione) (Civil Code, article articles 2546-2548)2

B) Legal types (if more types exist)

There are two types of mutuals:

 mutual benefit societies (società di mutuo soccorso): Mutual benefit societies are still covered by Law 3818/18863. This law sets precise limits on the specific fields within which they may operate, especially with regard to the total value of reimbursements paid to members. The mutual benefit societies (società di Mutuo Soccorso) operate in the areas of health, social, recreational and cultural activities benefiting their members, based on the principles of mutuality (membership is free and voluntary; the mutual benefit society cannot select its members; mutual benefit societies carry out their activities exclusively for and among members), democratic participation (those belonging to mutual benefit societies are members and not clients; the member is an active part of an association and participates in all of the mutual’s decisions through participation in the society assemblies) and solidarity (solidarity is consolidated in meeting changing social and health needs; mutuality is an alternative to state and private sectors)4. As mentioned before, this special law does not define what a mutual must be: it simply states the fact that a mutual which covers its members against disease, inability to work and death (and also culture activity), can apply for legal recognition. In this regard, more recently, other laws – Law 502 of 1992 (on complementary health funds)5 and Law 460 of 1997 (not-for-

1 Legge 15 Aprile 1886 n° 3818, Costituzione legale delle Società di mutuo soccorso: http://www.fimiv.it/default.asp?modulo=pages&idpage=15

2 Codice Civil: http://www.altalex.com/index.php?idnot=36502

3 Legge 15 Aprile 1886 n° 3818, Costituzione legale delle Società di mutuo soccorso: http://www.fimiv.it/default.asp?modulo=pages&idpage=15

4 www.fimiv.it/default.asp?modulo=pages&idpage=26

5 Decreto Legislativo 30 dicembre 1992, n. 502, "Riordino della disciplina in materia sanitaria, a norma dell'articolo 1 della legge 23 ottobre 1992, n. 421": http://www.handylex.org/stato/d301292.shtml

171 Italy

profit)6 have given mutual benefit societies competences especially for complementary health care and social assistance. These activities are not considered insurance, but by being member, all kind of health care facilities and services become available. In addition, it is possible for a mutual benefit society to exist even if it is not legally recognized by Law 3818/1886. In the latter case its members can not profit from state advantages.

 mutual insurance companies (società di mutua assicurazione): Mutual insurance companies are covered by articles 2546-2548 of the Civil Code (Codice Civile)7, which states that certain rules established for cooperatives (in that same Code) also apply to them. In addition, they are subject to authorization, supervision and other controls established by special laws concerning insurance. According to the Civil Code (Codice Civile), members of a mutual insurance society (società di mutua assicurazione) are also policy holders, and vice versa. Specifically with regard to the mutual insurance companies, two currently existing mutual insurance companies, Reale Mutua8 and ITAS Mutua9 have been founded in the 19th century. Reale Mutua was established by Royal decree in 1828, ITAS Mutua was established in 1821 by the Austrian Emperor. In the insurance legislation there are 2 types of mutuals: the very small ones and the normal ones, see further).

The origin of both types of mutuals existing today lies in the 19th century. In the 19th century and the beginning of the 20th century, social protection was very fragmented in Italy. Partially the national welfare state provided services, but on the other hand also the Catho- lic Church, municipalities and employers provided social protection schemes to some extent. In 1878 there were around 2,000 mutuals with approximately 330,000 members. In the 20th century the mutual benefit societies further developed into large institutions, having their own facilities and reimbursing patients for costs for healthcare. In the 70s the mutual benefit societies covered almost the entire population.

C) Methods of creation (required capital or assets)

The Law 3818/1886 indicates that an Italian mutual benefit society is set up based on notary statutory constitution of a legal entity. The statute must indicate (article 3)10:  The registered office;  Mutual objectives (purpose);  Conditions for members: admission and withdrawal or exclusion and corresponding rights and duties;  Regulation concerning the mutual equity;  Governance;  Statute amendments, winding up, etc.

The application for the registration of the Company will be submitted to the Civil Court along with certified copies of the memorandum and articles of association (article 4).11

There is no indication of the required capital or assets.

In recent year (5-6 years) about 100 new mutual benefit societies have been established, being active in supplementary health services (sanitaria integrativa).

6 Decreto Legislativo 4 dicembre 1997, n. 460, "Riordino della disciplina tributaria degli enti non com- merciali e delle organizzazioni non lucrative di utilita' sociale": http://www.parlamento.it/parlam/leggi/deleghe/97460dl.htm

7 Codice Civil: http://www.altalex.com/index.php?idnot=36502

8 http://www.realemutua.it/RMA/rmaweb/reale-mutua.html

9 http://www.gruppoitas.it/

10 Legge 15 Aprile 1886 n° 3818, Costituzione legale delle Società di mutuo soccorso: http://www.fimiv.it/default.asp?modulo=pages&idpage=15

11 Legge 15 Aprile 1886 n° 3818, Costituzione legale delle Società di mutuo soccorso: http://www.fimiv.it/default.asp?modulo=pages&idpage=15

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With regard to the mutual insurance companies, the Civil Code mentions that they are subject to authorization, supervision and other controls established by special laws concerning insurance, and are governed by rules established for cooperative societies (article 2547)12. Furthermore, the bylaws may provide for the establishment of guarantee funds for the payment of allowances, through special contributions from policyholders or third parties, which then also become members (article 2548)13. These policyholders or third parties are called socio sovventore (see further).

The Private insurance law: legislative decreen. 209 of 7 September 2005 – Code of Private Insurance14 (hereafter referred to as Decree 209/2005) introduces two regimes: a de minimis regime, called in article 55, 2 altre mutue assicuratrice, and an ‘ordinary’ regime. Whereas in many countries the ordinary regime is the norm and the de minimis regime the ‘exception’, in Italy, the Decree 209/2005 inverses the order.

De minimis regime: This regime is to be found in art 52-56, or Titel IV of Decree 209/2005 which contains the following provisions, in particular relating to mutual insurance undertakings (Titolo IV – Disposizioni relative a particulari mutue assicuratrice:

Article 52: Concept 1. The rules on the taking up of insurance business under title II (chapter II) shall not apply in case of mutual insurance undertakings set up in accordance with article 2546 of the Civil Code, which may pursue life or non-life insurance only in the territory of the Italian Republic when the conditions established respectively by paragraph 2 and 3 are fulfilled. The units of such undertakings must be represented by shares. 2. To carry on life business the articles of association of mutual assurance undertakings shall contain provisions for calling up additional contributions, or reducing their benefits and collecting annual contributions not exceeding five hundred thousand euro. 3. To carry on non-life business the articles of association of mutual insurance undertakings shall contain provisions for calling up additional contributions and collecting annual contributions not exceeding one million euro, at least one half of which from members. 4. If the amounts under paragraphs 2 and 3 are exceeded for three consecutive years the mutual insurance undertaking shall no longer be subject to the provisions under this title with effect from the fourth year, and shall apply for the authorisation under article 13 within 30 days from the approval of the financial statements for the third financial year in which the amounts were exceeded. (this paragraph refers to the ordinary regime)

12 Codice Civile: http://www.altalex.com/index.php?idnot=36502

13 Codice Civile: http://www.altalex.com/index.php?idnot=36502

14 Codice delle assicurazioni private (Law 7 settembre 2005, n. 209): http://www.isvap.it/isvap_cms/docs/F9461/CAP_annotato.pdf

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Article 53: Business which may be carried on15

1. The undertaking under article 52 (2) may only carry on the insurance classes I and II under article 2 (1). 2. The undertaking under article 52 (3) may not pursue the insurance classes 10, 11, 12, 13, 14, 15, 17 and 18 under article 2 (3). 3. The mutual insurance undertaking shall limit its objects to the pursuit of solely life assurance or solely non-life insurance and the related or instrumental operations.

Article 54: Requirements applying to significant owners and key functionaries

1. The Minister of Production Activities shall lay down, by the regulation provided for under article 76, the good repute and independence requirements of significant owners and key functionaries as well as their professional requirements, which take account of the size and limits of the business pursued by mutual insurance undertakings as per article 52.

Article 55: Authorisation

1. ISVAP or, in case of special statute regions, the relevant regional body, shall authorise - without prejudice to the provisions of article 347 (3) – the mutual insurance undertakings under article 52. 2. The authorised mutual undertakings shall be entered in a special section headed (altre mutue assicuratrici) of the register of insurance undertakings under article 14 (4).

15 1. The classes of assurance for life assurance business are the following: I. assurance on the length of human life; II. marriage assurance, birth assurance; III. assurance referred to in classes I and II, whose main benefits are directly linked to the value of units of a UCITS (undertakings for collective investment in transferable securities) or the value of the assets in an internal fund or else to an index or other reference values; IV. health insurance and insurance against the risk of dependency that are covered by permanent health insurance contracts not subject to cancellation, against the risk of serious disability resulting from accident or sickness or longevity; V. capital redemption operations; VI. management of group pension funds that effect payments on death or survival or in the event of discon- tinuance or curtailment of activity. 2. An undertaking that has obtained the authorisation to pursue life assurance classes under I, II or III of paragraph 1, or that under class V of paragraph 1 if it has obtained the authorisation to pursue also another life class exposing it to a demographic risk, can - in addition to these classes - underwrite contracts covering personal injury including incapacity for employment, death resulting from an accident, and disability resulting from an accident or sickness. The undertaking that has been authorised to pursue the operations under class VI of paragraph 1, in addition to the relevant contracts may provide benefits in the event of disability and premature death according to the provisions regulating supplementary pension schemes. 3. The classes of risks for non-life insurance business are the following: 1. Accident (including industrial injury and occupational diseases); fixed pecuniary benefits; benefits in the nature of indemnity; combinations of the two; injury to passengers; 2. Sickness: fixed pecuniary benefits; benefits in the nature of indemnity; combinations of the two; 3. Land vehicles (other than railway rolling stock): all damage to or loss of: land motor vehicles; land vehicles other than motor vehicles; 4. Railway rolling stock: all damage to or loss of railway rolling stock; 5. Aircraft: all damage to or loss of aircraft; 6. Ships (sea, lake and river and canal vessels): all damage to or loss of: river and canal vessels; lake vessels; sea vessels; 7. Goods in transit (including merchandise, baggage, and all other goods): all damage to or loss of goods in transit or baggage, irrespective of the form of transport; 8. Fire and natural forces: all damage to or loss of property (other than property included in classes 3, 4, 5, 6 and 7) due to: fire; explosion; storm; natural forces other than storm; nuclear energy; land subsidence; 9. Other damage to property: all damage to or loss of property (other than property included in classes 3, 4, 5, 6 and 7) due to hail or frost, and any event such as theft, other than those mentioned under 8; 10. Motor vehicle liability: all liability arising out of the use of motor vehicles operating on the land (including carrier's liability); 11. Aircraft liability: all liability arising out of the use of aircraft (including carrier's liability); 12. Liability for ships (sea, lake and river and canal vessels): all liability arising out of the use of ships, vessels or boats on the sea, lakes, rivers or canals (including carrier's liability); 13. General liability: all liability other than those forms mentioned under numbers 10, 11 and 12; 14. Credit: insolvency (general); export credit; instalment credit; mortgages; agricultural credit; 15. Suretyship: suretyship (direct); suretyship (indirect); 16. Miscellaneous financial loss: employment risks; insufficiency of income (general); bad weather; loss of benefits; continuing general expenses; unforeseen trading expenses; loss of market value; loss of rent or revenue; indirect trading losses other than those mentioned above; other financial loss (non- trading); other forms of financial loss; 17. Legal expenses: legal expenses; 18. Assistance: assistance to persons who get into difficulties.

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3. ISVAP shall set out, by its own regulation and without prejudice to the powers of the special statute regions, the procedure for granting, extending and refusing authorisation. Arti- cle 14 (3) shall apply.

Article 56: Other applicable rules 1. By its own regulation ISVAP shall establish the undertaking’s financial and organisational adequacy, the obligation to keep the accounting registers as well as to inform the supervisory Authority, taking account of the size and limits of the business carried on by the mutual insurance undertakings under article 52. 2. When pursuing business the mutual insurance undertakings referred to in article 52 shall be subject to the provisions of titles VIII, XIII, XIV, XVI and XVIII in so far as they are compatible. 3. Articles 2346 (6), 2349 (2), 2519 (2), 2526, 2541, 2543, 2544 (2, 1st sentence), 2545- quater, 2545-quinquies, 2545-octies (2), 2545-undecies (3), 2545-terdecies, 2545- quinquiesdecies, 2545-sexiesdecies, 2545-septiesdecies and 2545-octiesdecies of the Civil Code shall not apply to the mutual insurance undertakings under this title.

The ordinary regime Based on art 52,4, mutual insurance companies active in other lines of business and/or with premium income above 0.5 million Eur (life ) and 1 million euro (non-life) during 3 years in a row and/or wanting to do business outside Italy, are not subject to the provisions of title IV. In such case they have to ask for a licence under article 13, which requires them to meet the criteria for all insurance companies:

Article 13: Authorisation 1. Under the conditions envisaged in article 14 ISVAP shall authorise, by order to be published in its bulletin, the undertaking proposing to pursue life assurance business or non-life insurance business or pursue simultaneously both life assurance and accident and sickness insurance in accordance with article 2 (3). 2. Authorisation shall be granted for one or more life or non-life classes. It shall cover all the activities falling within those classes, unless the undertaking requests that it be limited only to some of these activities. 3. Authorisation shall be valid within the territory of the Italian Republic, of the other member States - in compliance with the provisions relating to the conditions for the taking up of insurance business under the right of establishment or the freedom to provide services - as well as of the third countries, in compliance with the legislation of these States.

Article 14: Requirements and procedure 1. ISVAP shall grant authorisation as per article 13 when the following conditions are met: a) the undertaking has adopted the form of: società per azioni, società cooperativa or so- cietà di mutua assicurazione whose units are represented by shares, set up respectively in accordance with articles 2325, 2511 and 2546 of the civil code, or the form of European company according to Regulation (EC) No 2157/2001 on the statute for a European company; b) the applicant undertaking has its general direction and administrative offices in the territory of the Italian Republic; c) the capital or initial fund, fully paid up, may not be less than the minimum amount established as a general rule by ISVAP regulation, varying between five million euro and one million and five hundred thousand euro, according to the single classes pursued, and is made up exclusively of cash; d) the undertaking submits a scheme of operations, together with the memorandum and articles of association, describing the initial activity and the organisational and management structure, accompanied by a technical report signed by a certified actuary, setting out the criteria for drawing up the scheme of operations and for making the estimates of costs and revenues; e) the holders of qualifying holdings meet the good repute requirements established in article 77 and there are sufficient grounds for granting the authorisation envisaged in article 68;

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f) the persons charged with the administration, management and control functions meet the professional, good repute and independence requirements indicated in article 76; g) there are no close links between the undertaking or other group entities and other natural or legal persons, which may prevent the effective exercise of supervisory functions; h) the undertaking communicates the name and address of the claims representative appointed in each of the other Member States, if the risks to be covered fall within classes 10 and 12 of article 2 (3), other than carrier's liability. 2. ISVAP shall deny authorisation when from a check of the conditions indicated in paragraph 1 the sound and prudent management does not seem guaranteed, and no account may be taken of the structure and trend of the markets concerned. Any decision to refuse the authorisation shall be accompanied by precise and adequate grounds for doing so and notified to the undertaking in question within ninety days of submission of the application for authorisation along with the documents required. 3. The procedure for entering the undertaking in the registrar of companies cannot be started in the absence of the authorisation envisaged in article 13. 4. ISVAP, after ascertaining the registration in the registrar of companies, shall enter insurance undertakings authorised in Italy in a special section of the register and promptly inform the undertaking concerned. Undertakings shall show proof of their registration in their acts and correspondence. 5. ISVAP shall establish, by regulation, the procedure for authorisation and the forms of publicity of the register.

D) Management and corporate governance

Mutual benefit societies With regard to the mutual benefit societies:  Corporate governance: monistic. There is the general assembly and the board.  Rights of members: Participate in elections (the board can only be composed of members) (Obviously, relations between members and the mutual imply the possibility for the members to enjoy the services the mutual offers).  Voting and representation of members in general meetings: Members have the right to vote under the principle: one person-one vote.  Types of shares if any: Italian mutual benefit societies have no company capital but, instead, each member has the duty to give a contribution in relation to the quality and quantity of services offered.  Reserves: The mutual reserves increase in relation to how much the members use the services offered. Obviously, these reserves are indivisible and must be devoted to the mutual’s institutional aims.  Possibility for non members investors: Non-member investors are not permitted.  Transparency and publicity requirements: At the moment, the updating of the rules governing these items is being carried out.  Related auditing issues: Mutual benefit societies must have an internal auditing body.  Protection of assets: the reserves are indivisible during the mutual’s life and also when it is wound up. For mutual benefit societies, if the Company is liquidated, as well as if it lost its legal personality, the existing rules on charitable organizations will apply to those bequests and donations (Law of 1886, article 8)16.

The mutual benefit societies are in terms of legislation and supervision closely related to the cooperatives and hence they fall under the responsibility of (or are controlled by) the Minis- try of Economy and Finance (Ministero dell'Economia e delle Finanze).

Mutual insurance companies The mutual insurance companies, despite the fact of being governed by rules established for cooperative societies (article 2547)17, as being financial institutions, are controlled by ISVAP (Istituto per la Vigilanza sulle Assicurazioni Private e di Interesse Collettivo)18.

16 Legge 15 Aprile 1886 n° 3818, Costituzione legale delle Società di mutuo soccorso: http://www.fimiv.it/default.asp?modulo=pages&idpage=15

17 Codice Civile: http://www.altalex.com/index.php?idnot=36502

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Concerning mutual insurance companies:  general provision concerning the management and corporate governance: this is dealt with in company law and is hence similar to other company models. The corporate governance is monistic. Mutual specific provisions are specified in the individual bylaws of the mutual insurance companies (which date back a long time).  Rights of members: there are 2 types of members according to the Codice Civile: member policyholders and member-investors (socio sovventore). Investor-members may be appointed as directors however, the majority of directors must consist of insured members (article 2548)  Voting and representation of members in general meetings: In principle, each policyholder/owner has one vote. The Codice Civile, however, does mention the issue of voting rights: it states that the bylaws may allocate to each of the investor-members more votes than one, but not more than five, in relation to the amount of the contribution. The votes allocated to investor-members, must in any case be less than the number of voting rights of the insured members.  Types of shares if any: Concerning mutual insurance companies, general provision concerning the management and corporate governance is dealt with in company law and is hence similar to other company models. Mutual specific provision is specified in the individual bylaws of the companies (which date back a long time). Hence, whether shares are possible, depends on the Bylaws.  Reserves: As other insurance providers and dealt with in the Bylaws of the mutual insurance company.  Possibility for non-members investors: see art 2548 in the Codice Civile: the bylaws may provide for the establishment of guarantee funds for the payment of allowances, through special contributions from policyholders or third parties, which then also become mem- bers19. These policyholders or third parties are called socio sovventore. The votes allocated to investor-members, must in any case be less than the number of voting rights of the insured members  Transparency and publicity requirements/related auditing issues: The mutual insurance companies are supervised by the ISVAP (Istituto per la Vigilanza sulle Assicurazioni Pri- vate e di Interesse Collettivo) and need to report to the ISVAP.  Protection of assets: There is no legal system for assets protection in case of demutualisation.

E) Additional information

The Federazione Italiana della Mutualità Integrativa Volontaria (FIMIV) (The Italian Federation of Complementary Voluntary Mutuality (FIMIV) is the Italian organization representing the mutual benefit societies that operate in the areas of health, social, recreational and cultural activities.20

As most mutual benefit societies are small and local organisations, nine societies formed a consortium to establish national coverage. The Consorzio Mu.Sa21 is active in providing social assistance and health activities; meeting the social/health needs of members and their families involving illness, accidents or unforeseen incidents that affect the members life or ability to work, reimbursing a wide range of expenses, hospitalization in Italy and abroad, analyses and diagnostic tests, specialist visits, state prescription charges, assistance in the case of illness.

18 www.isvap.it/

19 Codice Civile: http://www.altalex.com/index.php?idnot=36502

20 http://www.fimiv.it/default.asp?modulo=pages&idpage=7

21 http://www.consorziomusa.it/

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1 Legislation impacting the functioning of mutuals:

1 Is there legislation on taxation issues (preferential treatment)?

For mutual insurance companies no specific tax legislation is provided for, they are subject to corporate tax income (IRES and IRAP)22. However, mutual benefit societies, given the non-commercial nature of mutual benefit societies, are not subject to the fiscal treatment of conventional companies. In fact, the eventual profit is not taxable (article 9)23.

2 Is there legislation concerning employee involvement systems?

For both types of mutuals there is no specific legislation on this issue.

3 What are the possibilities and regulations in a situation of demutualization (e.g. transforming a mutual to a traditional capital company) protection of assets in case of demutualization?

There is no indication within the law on how to deal with demutualisation of mutual insurance companies. This is described in bylaws.

For mutual benefit societies, if the Company is liquidated, as well as if it lost its legal personality, the existing rules on charitable organizations will apply to those bequests and donations (Law of 1886, article 8)24.

2 Concerning internal barriers (barriers mutuals face within their own country):

4 Issues concerning the legal entity:

 The obstacles operators may have when they want to create a mutual in a country;

Concerning both mutual insurance companies and mutual benefit societies, there are no specific obstacles in the case of setting up a mutual or in case of mergers or acquisitions. - There are however, practical barriers related to the legal framework. The legal framework is largely outdated (from the 19th century), therefore there is not a clear idea what should be done to create a new mutual.

In addition and regarding mutual insurance companies, in recent years (last decades) there are no experiences with newly established mutual insurance companies. In addition, there is a decrease of the number of mutual insurance companies in Italy Currently, there are two mutuals left: Reale Mutua and Gruppo ITAS. Only Reale Mutua has a nation-wide coverage. ITAS is regionally oriented to the province of Trentino.

With regard to the mutual benefit societies: In 2009 in Italy 1,428 mutual benefit societies could be found. Many mutual benefit societies can be found in the Northern part of Italy, Piemonte and Liguria (see figure below). There

22 PWC (2011), International comparison of insurance taxation. IRES: Imposta sul reddito delle società; IRAP: Imposta regionale sulle attività produttive.

23 Legge 15 Aprile 1886 n° 3818, Costituzione legale delle Società di mutuo soccorso: http://www.fimiv.it/default.asp?modulo=pages&idpage=15

24 Legge 15 Aprile 1886 n° 3818, Costituzione legale delle Società di mutuo soccorso: http://www.fimiv.it/default.asp?modulo=pages&idpage=15

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are around 600,000 individuals member of a mutual benefit society. The number of mutual benefit societies was highest around 1900. At that time there were 6,700 mutual benefit societies in Italy.25

Distribution of mutual benefit societies in Italy in 200926

450 409 400

350

300 252 250

200

150 96 100 84 74 73 67 65 54 54 52 50 34 27 21 21 16 15 554 0

e ia o ia a i a a ia a a eto iul n zo ino ise ont ardi agna che bria gna br z l gur en Lazi Fr ar e la licat o Li Sicilia Pugl m bru ent M iem V mb M Um ard si d'Aost o Tosca ampani Ca a A e Tr P L C S B l Val Emilia-Ro

In recent years (5-6 years), due to increased demand for supplementary coverage besides the SSN (National Social Security), around 100 new mutual benefit societies have been established.

 The obstacles operators may have when they want to proceed to a merger of mutuals/division/acquisition of a mutual;

There are no legal obstacles for merging any type of mutual in the sense that the former members of the previous entity become new members of the new one, or of the absorbing company. The rules for merger are stated in the By- laws.

 The obstacles operators may have when they want to convert to another type of legal entity

Concerning mutual benefit societies, in some cases, mutual benefit societies have been converted into cooperatives or non-profit organizations, but this procedure has not met any problems because there is an identity of aims and objectives of the company forms.

With regard to the mutual insurance companies, there are no legal obstacles and they are bound to the respect of Company Law requirements. In principle the law does not impede the transformation of a mutual insurance company into another type of company (and vice versa).

25 Ugolini, Cristina, Bruni, Matteo Lippi, Rago, Sara (2012), IL RUOLO DELLE MUTUE SANITARIE INTE- GRATIVE

26 Ugolini, Cristina, Bruni, Matteo Lippi, Rago, Sara (2012), IL RUOLO DELLE MUTUE SANITARIE INTE- GRATIVE (Based on information from FIMIV).

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5 Issues concerning the activity:

 Specific rules/obligation related to the nature of the business in which mutuals operate (e.g. insurance activities, providence services, management of hospitals, creation of subsidiaries etc.)

Mutual insurance companies are placed under the obligations binding insurance companies in general.

As can be seen in Article 53 of the law on private insurance, the mutual insurance undertaking falling under the regime of title IV shall limit its objects to the pursuit of solely life assurance or solely non-life insurance and the related or instrumental operations (prohibition to create composite insurers) as is the case for all insurance operators.27

Mutual benefit societies are not allowed to sell corporate collective services.

6 Issues concerning the neglect of mutuals in policy making:

 National rules which by not taking into account the mutual specificities hinder the mutuals’ development (e.g. public procurement, specific tax rules, etc.).

Formally there is no discrimination against mutuals as they are not specifically dealt with by the law. In practice, the fact that no legislation takes into account the specificities of mutuals does not help their development.

The rules regarding complementary healthcare service do not exclude mutual benefit societies. However, in practice the other types of companies (especially insurance companies) are favoured in public procurement due to their financial and equity capability. The services mutual benefit societies offer their members can also be provide through the coverage of insurance policies.

Historical developments related to mutual benefit societies28 In the 19th century and the beginning of the 20th century, social protection was very fragmented in Italy. Partially the national welfare state provided services, but on the other hand also the Catholic Church, municipalities and employers provided social protection schemes to some extent. In the 20th century the mutual benefit societies further developed into large institutions, having their own facilities and reimbursing patients for costs for healthcare. In the 70s the compulsory sector mutuals covered almost the entire population differing in contribution rates and coverage. With law n. 833/1978 the National Health Service was set up and health coverage was supplied at universal, equal and uniform standard for all citizens.

In the 70s it became clear that the healthcare system was affected by serious structural problems, such as organizational fragmentation, compartmen- talization across levels of care, unnecessary duplication of services, bureauc- ratization and rapid growth of expenditure. In addition mutual benefit societies’ large deficits led to a financial crisis, which prompted the government to intervene. In 1974 and 1975, Laws Nos. 386/1974 and 382/1975 transferred the responsibility for managing hospitals to the regions. Soon after, mutual

27 Codice delle assicurazioni private (Law 7 settembre 2005, n. 209): http://www.isvap.it/isvap_cms/docs/F9461/CAP_annotato.pdf

28 Information gathered in the framework of the study on the role of mutual societies in the 21st century conducted for the European Parliament.

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benefit societies were abolished and the National Health Service (Servizio Sanitario Nazionale: SSN) was established.29

The SSN established universal coverage for all Italian citizens and was based on the principles of human dignity, healthcare needs and solidarity. The aim was to guarantee equal access for everyone to uniform levels of healthcare, irrespective of income or geographical location, to develop disease prevention schemes, to reduce inequality in the geographical distribution of healthcare, to control health expenditure growth and to guarantee public democratic control (exerted by political parties) over the management of the whole system.30

Decentralisation The fiscal federalism, which started in 1997 with the abolition of social insurance contributions and the introduction of a regionally collected system of tax financing, caused major differences between the regions with regard to coverage and the level of social protection. To equalise this regional differences, a National Health Fund was developed. This fund was used by the central government to disperse healthcare financing to the regions, and was abolished in 2000 and replaced by various regional taxes.31 Already at the implementation of the SSN in the 70s decentralisation of the healthcare system has been a key issue. This increased during the last decade.32

Complementary health coverage The coverage of the SSN is generally high-quality and free for all Italian citizens. There are on the other hand, major regional differences and a recur- rent issue is the waiting time for healthcare services. Italians have the possibility to purchase complementary health insurance to avoid waiting lists and to cover out-of-pocket costs. In total, 76 per cent of the health expenditure is provided through taxes, 19 per cent is covered by out-of-pocket payments and only 2 per cent is accounted for by voluntary health insurance in 2006.33 This is changing in recent years since more and more co-payments are introduced, for instance for pharmaceuticals. This trend will continue in the future, making it more and more interesting for complementary insurances to cover co-payments. Currently, less than 20 per cent of the Italian population is covered by complementary health insurance.34

The complementary health coverage market is divided in three groups35:  corporate insurance (companies offer coverage to their employees and often also to their families with a collective insurance scheme), supplied by for-profit companies;

29 See: Lo Scalzo A, Donatini A, Orzella L, Cicchetti A, Profi li S, Maresso A. Italy: Health system review. Health Systems in Transition, 2009; 11(6)1-216

30 See: Lo Scalzo A, Donatini A, Orzella L, Cicchetti A, Profi li S, Maresso A. Italy: Health system review. Health Systems in Transition, 2009; 11(6)1-216

31 Legislative Decree No. 56/2000

32 Lo Scalzo A, Donatini A, Orzella L, Cicchetti A, Profi li S, Maresso A. Italy: Health system review. Health Systems in Transition, 2009; 11(6)1-216

33 Data from OECD, 2008, taken from: Lo Scalzo A, Donatini A, Orzella L, Cicchetti A, Profi li S, Maresso A. Italy: Health system review. Health Systems in Transition, 2009; 11(6)1-216 34 Archambault, Edith, Mutual organizations, mutual societies, in: International Encyclopedia of Ci- vil Society, Anheier H. and Toepler S. (Ed.), 2009.

35 See: Thomson, Sarah, Elias Mossialos, Private health insurance in the European Union, Final report prepared for the Commission of the European Communities, Directorate General for Em- ployment, Social Affairs and Equal Opportunities, 2009.

36 Lo Scalzo A, Donatini A, Orzella L, Cicchetti A, Profi li S, Maresso A. Italy: Health system review. Health Systems in Transition, 2009; 11(6)1-216

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 supplementary health insurance funds (based on employer’s contributions and including some tax benefits) can be set up and managed as well by not-for-profit entities such as mutual benefit societies or professional groups (casse) according to laws 917/1986 art. 51, 502/1992 and the following decrees Decreto Turco 03.31.08 and Decreto Sacconi 10.27.09: for-profit companies can also manage these funds, if requested;  non-corporate insurance (individuals buy insurance for themselves and for their family). This can be supplied by for-profit insurance companies and not-for-profit mutual benefit societies (Società di Mutuo Soccorso).

In general, premiums of individual policies sold by for-profit insurers are higher than those provided by mutual benefit societies and members of mutual benefit societies tend to have lower incomes than policyholders related to commercial insurers.36 The mutual benefit societies do not practically insure their members, but against the premiums paid, allow them to make use of complementary services. Hence, it is better to say that mutual benefit societies provide health care related services.

3 Concerning cross border barriers (barriers mutuals face when operating across barriers):

The Code of private insurance companies applies in full. Therefore a company – both an S.p.A. (plc) and a mutual insurance company – can fully provide services across the border. They work essentially across borders by means of subsidiaries.

8 Issues concerning cross-border cooperation with other European partners for the creation of groups of mutuals, or to create a local subsidiary.

There are no rules encouraging cross border cooperation of mutuals (both mutual insurance companies and mutual benefit societies) while maintaining their mutualistic form and values.

9 Examples of existing cross-border co-operations and their legal form

An example of a cross-border cooperation is “Fondo Salute SCE”37 set up by the Italian mutual benefit society Cesare Pozzo and the French “Harmonie Mutuelles”. The two mutual-type organisations use the European Cooperative Statute (SCE) to cooperate across borders.

10 Examples of autonomous expansion across the frontiers of mutuals.

Reale Mutua as a group controls a number of subsidiaries in Spain. In Spain, RM has been operating since 1988. Since that date, it has grown steadily and has acquired several insurance companies. Today, Reale Mutua owns, indirectly, a 100% participation in Reale Seguros (RS) Generales SA, active in property & casualty insurance, and in Reale Vida SA, a life insurer. The two companies operate through a network of agents and intermediaries. In 2010, RS had a premium income of more than 765 Million Euro. Thanks to the success of the bancassurance distribution channel in Spain, Reale Mutua, through Reale Seguros, has acquired 50% of UN- NIM PROTECCIO and CAI SEGUROS GENERALES, belonging to savings banks of the same name and has thus entered the banking distribution channel and has seen

37 http://www.fondosalute.it/

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growing market shares. At the moment, Reale Seguros is among the top ten companies of the Spanish insurance market for car and ‘multi risks’ insurance.38

4 Concerning national measures, for promoting mutuals and measures aiming at access to finance for mutuals:

Nothing specific is provided for mutuals.

With regard to the mutual benefit societies, in some cases, the regional governments promote measures in favour of mutual benefit societies which have different aspects (financial contributions to promote mutualistic initiatives or for training or preserving historical heritage sites).

Nothing specific is provided for mutuals.

Mutual benefit societies are exempted from corporate tax (IRES and IRAP) as a consequence of their civil nature39.

13 The existence, if any, of national, regional or local policies aiming at the promotion of mutuals, such as tailored business support services, specialised agencies, creation of federations etc.

There are no national, regional or local policies aiming at promoting mutuals. Peo- ple do not know the difference between being a policy holder and being a member- policyholder-.. Also within policy making the difference between the two legal forms is not known which makes it difficult to modernise the existing 19th century legal framework for mutuals.

Mutuals in insurance are not really “visible”. Being ITAS (Trento) a relatively small and regional company, only Reale Mutua has some visibility. But RM is the only one left with nationwide coverage.

38 AMICE (2011), Cross-border business and cooperation in the mutual and cooperative insurance sector.

39 Legge 15 Aprile 1886 n° 3818, Costituzione legale delle Società di mutuo soccorso: http://www.fimiv.it/default.asp?modulo=pages&idpage=15

183 Italy

184 17 Liechtenstein

185

186

Country study on the current situation and prospects of mutuals

Liechtenstein

A) Definitions of mutuals

According to the Liechtenstein Companies Act a mutual insurance company (Versicherungs- verein auf Gegenseitigkeit) is a legal entity whose purpose is primarily to meet the needs of their members and possibly other persons according to the principles of mutuality (Article 496 of the Liechtenstein Companies Act (Personen- und Gesellschaftsrecht) (hereafter called PGR))1. It must be licensed by the insurance authority and registered to acquire legal personality.

The PGR in its Abschnitt 7 regulates Versicherungsvereine und Hilfskassen extensively in 38 articles (art 496-533) including special prescriptions for non-required to be registered small mutual insurance associations and mutual aid funds (Hilfskassen). However, these provisions of the PGR have been abolished2. Private insurance companies can only be organised in the legal form of a company limited by shares, a European Company (SE), a cooperative society, or a European Cooperative Society (SCE) (according to Article 13a Insurance Su- pervision Act (Versicherungsaufsichtsgesetz; VersAG). A private insurance company can therefore not anymore have the legal form of a mutual insurance company as was foreseen in Article 496 of the Liechtenstein Companies Act (see art 13a of the Insurance Supervision Act (Versicherungsaufsichtsact, hereafter called VersAG)).

In addition, according to article 2.2 of the VersAG, the supervisory authority is allowed to exempt organisations from supervision, when the interests of the insured are not harmed by it. This is however not mutual specific.

In the current Insurance Supervision Act (Versicherungsaufsichtsact, hereafter called Ver- sAG) there is no reference to mutual insurance associations at all anymore, also not a reference which says they are excluded from supervision.

In 2010 there were no VVaG in Liechtenstein.3

B) Legal types (if more types exist)

Although the provision of the PGR has been abolished, in the following sections, the legal framework is presented.

One legal type, but two additional similar organisational types:  Kleine Versicherungsvereine (small mutual insurance associations) (Personen- und Gesell- schaftsrecht (PGR), Art. 528): Associations which have according to their objectives a narrowly defined sphere of activity (with regard to either locality or persons), such as health funds (Krankenkassen), occupational pension funds (Pensionskassen), local fu-

1 http://www.gesetze.li/Seite2.jsp?LGBl=1926004.xml&Searchstring=null&showLGBl=true&suchart=lgbla ktuell

2 Introduction to transposition proposal of SII in LI insurance law: Weitere Gesellschaftsformen sind für Unternehmen mit Sitz in Liechtenstein nicht zulässig. Dies bedeutet auch, dass die. in der Praxis nicht gelebten. Bestimmungen von Art. 496 ff. PGR (Die Versicherungsvereine auf Gegenseitigkeit und die Hilfskassen) entsprechend aufzuheben sind.

3 OECD (2011), Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Re- views: Liechtenstein 2011: Phase 1: Legal and regulatory framework.

187 Liechtenstein

neral insurance associations (Sterbevereinen) and livestock insurance (Viehversi- cherungsvereinen).  Hilfskassen (PGR, Art. 531): for the mutual aid funds, such as health, nursing, widows- and orphans- work and support, fire and alike funds (Hilfskassen, wie Kranken-, Krank- enpflege-, Witwen- und Waisen-, Werk- und Unterstützungs-, Brand- und dergleichen Kassen) the same rules apply as for the small mutual insurance associations.

C) Methods of creation (required capital or assets)

Articles 528-533 PGR specific to small mutual insurance associations and mutual aid funds have specific provisions, but refer to the other articles of section 7 for all other provisions on mutual insurance associations.

The founding statutes of the small mutual insurance associations and mutual aid funds have to include information on name and domicile, insurance branch and regional field of activity of the entity, about the structure of its organs, the terms of the insurance coverage and membership, and about the insurance funds. In addition to a notarized copy of the statutes, the registry needs to be provided with names and domiciles of directors and auditors as well as records documenting the establishment of the insurance fund. All registered information is accessible by the public. Documents and statutes provided to the register may be accessed upon proof of a legitimate interest in the information of authorization by the company concerned. Based on Article 508 PGR4, the Versicherungsverein auf Gegenseitigkeit may issue certificates of participation or securities on name or bearer.5

According to the PGR, the following applies for establishing a small mutual insurance association:

Article. 497 1) For the establishment of a mutual insurance company it is required to have the Statutes be notarized and has to contain the following statements: 1. the name and registered office, if the head office; 2. the classes and the local business areas in which the association will operate; 3. statements on the commencement of membership and on its completion; 4. statements on the management, auditors and the governing body (such as General Members, Delegates, and the like); 5. statements on the formation of a foundation fund (initial fund) and a reserve fund (general security reserve); 6. statements concerning the coverage of expenses and the conditions under which to place supplementary calls and confiscation of any further contributions or allocations; 7. statements whether and under what conditions the insurance against fixed premiums are operated in the way that these policyholders will not be members of the association and are not subject to the mutual liability of its members; 8. Provisions concerning the form of notices and what papers are used to do so. 2) With the exception of point eight, these point count as essential also concerning the regulations regarding winding-up. 3) A fixed or variable capital is not required but allowed. 4) The statutes may also regulated - the general insurance conditions.

4 Personen- und Gesellschaftsrecht: http://www.gesetze.li/get_pdf.jsp?PDF=1926004.pdf

5 IMF (2008), Liechtenstein: Detailed Assessment Report on Anti-Money Laundering and Combating the Financing of Terrorism (EPub)

188 Liechtenstein

III. Foundation fund (initial fund) Article. 506 Statutory provisions 1) In the Articles of Association is the establishment of the foundation fund (initial fund) described to cover the costs of establishing the association. As well as the warranty and operating funds, the foundation fund (initial fund) is included in the balance sheet at the liabilities side. 2) The statutes will describe the conditions under which the funds are available to the association. In particular, it will elaborate on the way in which a repayment of the foundation fund (initial fund) is arranged and whether and to what extent the persons who have provided the foundation funds, have a right to participate in the management of the association, even if they are not members of the association. 3) the supervisory authority may, by the formation refrain from the requirement to establish a foundation fund (initial fund), if the nature of the operations allows it or if through the way the mutual is established other types of guarantee is provided, such as through reinsurance, aid or support of third parties, waiting time for claims or possibility of reduction of the latter and the like.

D) Management and corporate governance

Articles 516 and 517 deal with the organisation of the association. The general meeting has the task to further specify the provision foreseen in the statutes. The Statutes will provide how the association is organised in more detail.

According to PGR, article 504, besides the policyholders/members, the association can allow other members who can be given specific rights, also with regard to the control of the association (‘Unechte Mitglieder’). According to article 528,2, this is however not allowed for small insurance associations.

In case of winding-up, a majority of three quarter of all votes need to favour the winding- up. It will also need to agreement from the Insurance supervisory authority (PGR, article 518).

189 Liechtenstein

190 18 Lithuania

191

192

Country study on the current situation and prospects of mutuals

Lithuania

The Solvency II Directive applies to the following company forms for life, non-life and reinsurance: ‘akcinė bendrovė’ (public limited liability company), ‘uždaroji akcinė bendrovė’ (private limited liability company).

A) Definitions of mutuals

In the Lithuanian Civil Code, article 6.1017, on Mutual insurance states that “Natural and legal persons may insure the property interests on a mutual basis, joining the funds necessary for such insurance in self-insurance societies. The activities of self-insurance societies shall be regulated by laws. The rules of this Chapter [Chapter LIII Insurance] shall apply to mutual insurance unless other laws provide otherwise.”1 The Lithuanian Civil Code has extensive insurance provisions (Chapter LIII, articles 6.987 till 6.1018)

The insurance legislation does not explicitly recognise mutual insurance companies (see Law on Insurance, 18 September 2003, No.IX-1737), art 2: “… which a public company, a private company or a European company (Societas Europaea) engaged in insurance or independent insurance mediation activity must conform to.”

B) Legal types (if more types exist)

N/A

C) Methods of creation (required capital or assets)

N/A

D) Management and corporate governance

N/A

1 Civil Code 2000: : http://www3.lrs.lt/pls/inter3/dokpaieska.showdoc_l?p_id=245495

193 Lithuania

194 19 Latvia

195

196

Country study on the current situation and prospects of mutuals

Latvia

The Solvency II Directive applies to the following company forms in life and non-life insurance: ‘apdrošināšanas akciju sabiedrība’ (insurance company), ‘savstarpējās apdrošināšanas kooperatīvā biedrība’ (mutual insurance cooperative society). Reinsurance can be offered by "akciju sabiedrība" (Joint-Stock Company), "sabiedrība ar ierobežotu atbildību" (limited liability company).

A) Definitions of mutuals

There is no general definition of a mutual in Latvian law. There is no definition in the insurance legislation either but the insurance legislation, the Law On Insurance Companies and Supervision, refers to mutual cooperative insurance societies1.

Mutual insurance cooperative societies have members, whereas insurance companies have shareholders. Several articles in the insurance legislation refer to the rights/duties of members but the legislation falls short of providing a definition.

The mutual insurance cooperative seem to be cooperatives and falls, as legal entity, under the cooperative society law2

B) Legal types (if more types exist)

The Law On Insurance Companies and Supervision Thereof (hereafter referred to as ‘the Law’), provides the following statement (Article 1): An insurer that which is registered in the Republic of Latvia is firstly, a company in the form of a joint stock company or a mutual cooperative insurance society that in accordance with this Law has the right to provide insurance. Secondly, an insurer that has the right to provide insurance can be a branch of a foreign insurer.

According to article 2 of the Law, the Law shall not apply to: 1) mutual insurance cooperative societies that provide non-life insurance (the classes of insurance referred to in Article 12, Paragraph one, Clauses 1, 2, 3, 4, 5, 6, 7, 8, 9, 16, 17 and 18 of this Law) if their operation fully complies with the following conditions:  a) the articles of association contain provisions for requesting members of the mutual insurance cooperative society to make additional contributions or for reducing insurance indemnities payable to them under insurance contracts,  b) the amount of insurance premiums and additional contributions made by members of the mutual insurance cooperative society per year shall not exceed EUR five million equivalent in lats, recalculated according to the exchange rate set by the Bank of Latvia,  c) civil liability insurance risk is not subject to the additional risk referred to in Article 12 1 of this Law; 2) mutual insurance cooperative societies that provide life insurance (the class of insurance referred to in Article 12, Paragraph one, Clause 19 of this Law) if their operation fully complies with the following conditions:

1 see http://www.fktk.lv/texts_files/Apdrosin_sab_un_to_uzraudz_lik_ar_groz_A.pdf

2 See: http://www.vvc.gov.lv/advantagecms/LV/meklet/meklet_dokumentus.html?query=Co- operative%20Societies%20Law&resultsPerPage=10

197 Latvia

 a) the articles of association contain provisions for requesting members of the mutual insurance cooperative society to make additional contributions or for reducing benefits provided to them or assistance from other persons who undertake commitments on behalf of members of this mutual insurance cooperative society,  b) the amount of insurance premiums and additional contributions made by members of the mutual insurance cooperative society for three successive financial years shall not exceed EUR five million equivalent in lats per year, recalculated according to the exchange rate set by the Bank of Latvia.

For these small mutual insurance cooperative societies there is no insurance supervision (non-directive insurers).

C) Methods of creation (required capital or assets)

According to article 9 of the Insurance law, an insurer may only launch its operations after it has been entered in the Commercial Register and after the requirements of this Law have been met. Licences to provide insurance shall be issued for an unlimited duration in accordance with this Law, other regulatory enactments and procedures prescribed by the Finan- cial and Capital Market Commission. A licence to provide insurance issued to an insurance company is valid in a Member State by exercising the right of establishing a branch or, under the freedom to provide services, by providing insurance services without opening a branch.

For establishing a mutual insurance cooperative society, one first needs an accepted the memorandum of association and the articles of association, secondly entry into the Com- mercial register and thirdly the insurance licence.

According to article 13 of the Law, in order to obtain a licence to provide insurance, a newly-established insurance company shall submit to the Financial and Capital Market Commission the following documents: 1) an application for the issue of a licence for one or several classes of insurance; 2) copies of the memoranda of association and the articles of association; 3) a copy of the registration certificate of the insurance company; 4) a list of shareholders (members). 5) a bank document certifying the payment of money for setting up the guarantee fund; 6) a receipt certifying the payment of the State fee for the licence; 7) the information concerning officials in accordance with the requirements of Articles 20 (competencies of people), 21 (people have no criminal record) and 23 (chief actuary is qualified) of this Law; 8) an estimate of the expenses required for the launch of business and the information concerning the sources of funds to cover such expenses; 9) a scheme of operations for the first three years including: a) characteristics of the planned insurance, b) methods for tariff calculation, c) methods for the calculation of technical provisions, d) the reinsurance scheme, e) the size of the guarantee fund as necessary for operations. The guarantee fund may not be used to cover expenses required for the launch of business, f) a forecast profit and loss account and balance sheet;

198 Latvia

10) a description of the basic elements of the internal control system and a description of the fundamental principles of policies and procedures of the internal control system including: a) the organisational structure of the insurance company, indicating clearly the division of authorities and responsibilities of its managers, tasks of units and responsibilities of their managers, b) the main principles of accountancy policies and accounting organisation, c) the financial risk management policy, d) a description of the management information system, e) rules for the information system protection, f) a description of the internal audit (control) system, g) procedures for identifying unusual and suspicious financial transactions, h) the procedure specified in Article 29 1 of this Law. (2) In order to obtain a licence for other classes of insurance, an insurance company shall submit to the Financial and Capital Market Commission the following documents: 1) the documents referred to in Paragraph one, Clauses 1 and 6 of this Article; 2) an estimate of expenses necessary for the introduction of the new class of insurance and information concerning the sources of funds to cover such expenses; 3) a scheme of operations for one year in respect of the class of insurance for which a licence is requested, including the information referred to in Paragraph one, Clause 9, Sub- clauses a), b), c), d) and e) of this Article, as well as a draft profit and loss calculation and the planned amount of technical provisions.

According to the Article 32 Paragraph 1.1, Clause 2 of the Law On Insurance Companies and Supervision Thereof, the minimum size of a guarantee fund shall be EUR 2.7 million equivalent in lats, recalculated according to the exchange rate set by the Bank of Latvia, for mutual insurance cooperative societies which provide insurance for the classes referred to in Article 12, Paragraph one, Clauses 10, 11, 12, 13, 14, 15 and 19 of this Law while for other mutual insurance cooperative societies, EUR 1.8 million equivalent in lats, recalculated according to the exchange rate set by the Bank of Latvia.

D) Management and corporate governance

There is no specific information in the Law on mutual insurance cooperative societies. In general, mutual insurance cooperative societies are for the Law similar organisations as a joint stock company. Specific information on management and corporate governance can be found in the Cooperative Societies law3 and more specifically in the Bylaws of the cooperative.

E) Market structure

By the third quarter of 2011, there were 12 insurance companies operating in Latvia whereof 3 companies were engaged in life insurance and nine companies in non-life insurance business. This included one mutual non-life insurance cooperative society (Lauto Klubs, a transport related insurance scheme organised by Latvijas Auto association, a non- governmental organization, which unites Latvian freight and passenger road transportation companies4. In addition, 10 branches of foreign insurance companies were active on the Latvian insurance market.5

3 http://www.vvc.gov.lv/advantagecms/LV/meklet/meklet_dokumentus.html?query=Co- operative%20Societies%20Law&resultsPerPage=10

4 http://www.lauto.lv/index.php/item/175

5 See: http://www.fktk.lv/en/statistics/insurance/quarterly_reports/2012-01- 18_20110930_operation_of_in/

199 Latvia

200 20 Luxembourg

201

202

Country study on the current situation and prospects of mutuals

Luxembourg

For non-life, life and re-insurance the Solvency II Directive applies to the following company forms: ‘société anonyme’ (public limited company), ‘société en commandite par actions’ (company limited by shares), ‘association d’assurances mutuelles’ (mutual insurance association), ‘société coopérative’ (cooperative society).

A) Definitions of mutuals

There is no general definition of mutual in Luxembourg law.

There are two specific definitions as there are two types of mutuals:  mutual insurance association (association d’assurances mutuelles), which is defined as an association of natural or legal persons, formed to insure its members against risks on a non-profit basis.1  mutual benefit society (société de secours mutuel), which is a non-profit grouping of natural persons, which carries out actions of foresight, solidarity and mutual assistance in the social domain, which consists in repairing the social consequences of the risks facing their members.2

Luxembourg mutual insurance associations are active in the non-life insurance sector and not in the life insurance sector. Foreign mutual branches are only active in the non-life sector (e.g. Vereinigte Hagel3). There are a number of foreign mutual type of insurers active in Luxembourg4.

B) Legal types (if more types exist)

There are two types of mutual societies in Luxembourg:  A mutual insurance association (association d’assurances mutuelles): Mutual insurance societies are covered by the law on the insurance sector of 6 December 1991 (Loi modifiée du 6 décembre 1991 sur le secteur des assurances) (hereafter called Law 1991), which includes special provisions for mutual insurance associations, regarding establishment and organisation. There is no de minimis regime for very small mutual insurance associations in Luxembourg, however, smaller companies in general are exempted from complying with the regulations concerning minimum guarantee capital.  A mutual benefit society (société de secours mutuel): Mutual benefit societies are covered by the law of 7 July 1961 concerning the mutual benefit societies (loi du 7 juillet 1961 concernant les sociétés de secours mutuels) (hereafter called Law 1961) and its implementing regulation, the Grand Ducal Regulation of 31 July 1961 governing the operation of mutual benefit societies (règlement grand-ducal du 31 juillet 1961 déterminant le fonctionnement des sociétés de secours mutuels) (hereafter called Regulation 1961). They have no capital. These societies are placed under the guardianship of the Minister of Social Security and work together with social security institutions in providing social protection.

1 Registre de Commerce et des Sociétés, Brochure relative aux associations d'assurances mutuelles FORMALISME DE DÉPÔT: https://www.rcsl.lu/mjrcs/jsp/webapp/static/mjrcs/fr/mjrcs/pdf/forms/note_pmor_ASSMUT.pdf

2 Loi du 7 juillet 1961 concernant les sociétés de secours mutuels (Mémorial A no 28 du 21 juillet 1961); modifiée par: Loi du 18 août 1995 concernant l'assistance judiciaire et portant modification.

3 http://www.vereinigte-hagel.net/unternehmen.0.html?&L=5

4 See: http://www.commassu.lu/default.asp

203 Luxembourg

Today, the main benefit offered by these latter category of mutuals consists in the payment of funeral grants, which is why they are commonly defined as “funeral funds”. However, these benefits are far from being some kind of a life insurance for the 228.000 members, as they total annually some 2.000.000 € for 4.100 beneficiaries. In search for new benefits to offer, these mutual benefit societies decided in 1956 to create a new common mutual benefit society called Caisse medico-chirurgicale mutualiste (CMCM) which totals today 139.000 households with 280.000 individual members.

These benefits cover to some extent hospitalisation expenses, extra fees for first class hos- pitalisations, doctors’ fees, etc. Nevertheless, the annual expenses for benefits represent less than 2 % of the medical costs reimbursed by the mandatory health insurance, the average statutory participation not covered by the health fund being 4.2%.

Art 26, 4, A) of Law 1991 (amended in 1994) explicitly states that the insurance legislation is not applicable to the mutual benefit societies.

C) Methods of creation (required capital or assets)

Mutual insurance association A mutual insurance association has at least three members.

The act of constituting a mutual insurance association shall state (article 87):  The identity of persons or entities that have signed the act or on whose behalf it was signed;  The name of the association;  The location of the headquarters to be set in the Grand Duchy of Luxembourg;  The social purpose;  If applicable, the amount of the capital subscribed;  the amount initially paid of the capital subscribed;  The conditions for entry and exit of members;  The requirement for members to pay their contributions when they are due and claimed by the association;  The date of closing of accounts and the date of holding of the ordinary annual general meeting;  The responsibilities and the manner of calling the general meeting;  To the extent that they are not the result of the law, the rules that determine the number and method of appointment of members of bodies of representation in respect of the tiers, the administration, management, supervision or control of the association, and the division of responsibilities between these bodies;  The duration of the association;  The rules to amend the articles;  Procedures for liquidation of the association.

Article 87 of the Law 1991 provides that a mutual insurance association is to be formed by a special notarial deed under the penalty of nullity. The mutual insurance association is governed by its memorandum of association, as well as the laws and regulations governing the insurance sector in Luxembourg. According to the Loi modifiée du 6 décembre 1991 sur le secteur des assurances (version coordonnée du 27 octobre 2010), article 31, mutual insurance associations must provide the following documents:

 The statutes;  Arrangements related to the foundation (initial) capital, the extension of the rights and obligations of members of the mutual;  the full names, domicile, residence, occupation and nationality of the persons responsible for the management of the social affairs and the extent of their power and the duration of their mandate;  the manner of appointment and name of the independent auditor of business;  The program of activities;

204 Luxembourg

 Proof that the guarantee fund referred to in Article 34 is formed and that the guarantee, when required under that section, was introduced.

There are no explicit legal requirements regarding the minimum subscribed initial (foundation) fund of a mutual insurance association at creation. However, from a prudential supervisory perspective, the Commissariat aux Assurances requires a minimum capital of EUR 5.500.000. Afterwards, a mutual insurance association is required to have, on a permanent basis, a minimum guarantee fund ranging from EUR 2,300,000 to EUR 3,500,000, the exact amount depending on the business plan and the classes of insurance it covers. If appropriate, the Commissariat aux Assurances has the power to grant the mutual insurance association a 25% discharge of that amount.

Those companies are exempt from the requirement to have a minimum guarantee fund ranging 2.3 to 3.5 million Euro, whose income from premiums or contributions for the credit class is less than 4% of their total premiums or total contributions are below 2.5 million Euro (article 81).

The mutual insurance association needs to be registered in the trade and company register.

For mutual benefit societies different legislation is applicable:

The Act of July 7, 1961 lists exhaustively the obligations of the mutual benefit societies to its members. Regulation 1961 provides in Article 1 that the statutes of mutual benefit societies that need to be recognized must specify:  the name adopted by the society and the location of its head;  the object or objects for which it is formed;  conditions and modes of admission and exclusion of members;  duties and the manner of calling the general meeting;  the composition of the board or committee, the method of election of their members, the nature and duration of their powers;  the rate of contributions to be paid by members;  the benefits provided by the society;  the kind of social fund and the formation of a reserve fund  the mode of settlement of accounts;  the rules to amend the articles;  forms and conditions of dissolution, liquidation and merger of the society.

In practice, the text of the statutes adopted by the society is sent to the Supreme Council for Mutuals (Conseil Supérieur de la Mutualité, or CSM) within the Ministry of Social Security for review and advice. Hearing the opinion of the Supreme Council, the Minister shall then, if necessary, approve the statutes in the form of ministerial decree, which states "the conformity of statutes with the laws and regulations" and that "the receipts provided are sufficient to meet the statutory expenditure of the society." The amount of the social and reserve funds is not specified in the law.

The ministerial decree of approval and the statutes of the mutual benefit association attached to the order by part are published in the Memorial (Memorial B).

D) Management and corporate governance

Mutual insurance associations:  Corporate governance: One-tier model: The Association of Mutual Insurance is administered by a board consisting of at least three directors. The Board has the authority to perform all necessary or appropriate actions to achieve the corporate purpose, except those that as stipulated in the memorandum of association are reserved for the General Assembly of the members of the association (article 89).  rights of members: to be determined by the memorandum of association.  voting and representation of members in general meetings: to be determined by the memorandum of association.

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 types of shares if any: to be determined by the memorandum of association  reserves: depending on the business plan and the classes of insurance it covers, a mutual insurance association is required to have a permanent minimum guarantee fund (EUR 2,300,000 - EUR 3,500,000). Those companies are exempt from the requirement to have a minimum guarantee fund ranging 2.3 to 3.5 million Euro, whose income from premiums or contributions for the credit class is less than 4% of their total premiums or total contributions are below 2.5 million Euro (article 81).  possibility for non members investors: to be determined by the memorandum of association.  transparency and publicity requirements: according to article 87 point 3 of the Law, the memorandum of association has to be filed at the Luxembourg Trade and Companies Register and is then published in the Official Journal of the Grand Duchy of Luxembourg.  related auditing issues: being under the prudential supervision of Commissariat aux As- surances, the annual accounts of mutual insurance associations have to be audited by an external auditor accepted by Commissariat aux Assurances.  protection of assets: the same requirements as for any other insurance undertaking are applicable. There are set out by the Law. Mutual insurance associations have to establish sufficient technical provisions to cover their entire business. The technical provisions must be covered at all times by equivalent and matching assets (“the matching assets of underlying technical provisions”). Movable matching assets must be deposited with a financial institution approved by Commissariat aux Assurances. All the matching assets of underlying technical provisions constitute a segregated group of assets allocated prefer- entially to guaranteeing payment of the insurance claims. The way the organisation han- dles assets in case of liquidation is included in the memorandum of association (Stat- utes).

Although, this is not subject to the law and is described in statutes, with regard to the mutual benefit societies the following is applicable:  governance organs: see statutes  rights of members: all major decisions (elections, fixing contribution rates and benefits) are taken by the members at the general meeting  voting and representation of members in general meetings: every member may assist and vote at the general meeting  types of shares if any: none  reserves: As non profit making entity, excess of income over expenditure remains within the society. Although not legally defined, they are annually monitored by the “Conseil Supérieur de la Mutualité”  possibility for non members investors: none  transparency and publicity requirements: mutual benefit societies are required to present the financial report to the “Conseil supérieur de la Mutualité”  related auditing issues: none  protection of assets: In case of dissolution, the reserves are not distributed to members, but they are spread to other mutual benefit societies.

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1 Legislation impacting the functioning of mutuals:

1 Is there legislation on taxation issues (preferential treatment)?

For mutual benefit societies there are no specific tax rules. The contributions of employees to mutual societies can be subject to fiscal deductions up to 672 Euro per person per annum.5

Mutual insurance undertakings fall under the scope of the general legislation on income tax for businesses. The legislation provides for exemption from income tax for mutual insurance associations and pension funds only if they are exclusively and directly pursuing a charitable or cultural object or if they are acting in the general interest.

2 Is there legislation concerning employee involvement systems?

3 What are the possibilities and regulations in a situation of demutualization (e.g. transforming a mutual to a traditional capital company) protection of assets in case of demutualization?

Does not apply to mutual benefit societies. In case of dissolution, the reserves are not distributed to members, but they are spread to other mutual benefit societies (see 1961 regulation, article 8). Mutual benefit societies cannot transform into another company form.

A change in the legal status of a mutual insurance association towards a cooperative or a limited company is possible and needs to be approved by the Commissar- iat aux Assurances. All relevant aspects regarding the protection of assets need to be addressed by the mutual insurance association and the CAA will assess compliance of the changes envisaged with prudential requirements as well as with the general rules of protection of policyholders’ interests.

2 Concerning internal barriers (barriers mutuals face within their own country):

4 Issues concerning the legal entity:

 The obstacles operators may have when they want to create a mutual in a country;

None for mutual benefit societies, there are no specific capital requirements.

Any new mutual insurance association must be able to come up with a start- up capital of EUR 5.500.000 in order to get a licence from the Commissariat aux Assurances. This start-up capital is higher than the minimum guarantee fund for solvency purposes. There is no mentioning in the law whether the payment has to be in cash or whether it is possible to use subordinated loans.

5 http://www.easynext.lu/fr/fiscalite-luxembourg

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 The obstacles operators may have when they want to proceed to a merger of mutuals/division/acquisition of a mutual;

There are no obstacles for mergers of mutual benefit societies; however, they cannot regroup without merging. The division or acquisition of a mutual benefit society is on the other hand not possible.

Concerning the mutual insurance associations, there are no obstacles, apart from the fact that mergers and acquisitions have to be approved by the Commissariat aux Assurances, as mutual insurance associations are regulated entities falling under the scope of its supervision. The procedures for liquidation, which de facto is included in a conversion, must be included in the Statutes of the association. They cannot regroup.

 The obstacles operators may have when they want to convert to another type of legal entity

Mutuals benefit societies cannot convert to any other type of legal entity.

Concerning the mutual insurance associations, apart from the fact that changes in the legal status need to be approved by the Commissariat aux As- surances and that the new legal status must be one accepted by the Law, there are no obstacles. The procedures for liquidation, which de facto is included in a conversion, must be included in the Statutes of the association.

5 Issues concerning the activity:

 Specific rules/obligation related to the nature of the business in which mutuals operate (e.g. insurance activities, providence services, management of hospitals, creation of subsidiaries etc.)

Mutual insurance associations are regulated entities falling under the prudential supervision of the Commissariat aux Assurances which at national level has exclusive competence for the supervision of the insurance sector. The rules governing the supervision of the insurance sector are laid down in the Law, as well as in a set of grand-ducal regulations and circular letters edited by Commissariat aux Assurances.

Mutual benefit societies are not allowed to be active in insurance business and provide medical assistance to their members. Also, they are active in the payment of funeral grants.

6 Issues concerning the neglect of mutuals in policy making:

 National rules which by not taking into account the mutual specificities hinder the mutuals’ development (e.g. public procurement, specific tax rules, etc.).

No hindrances as far as mutual insurance associations are concerned. For smaller mutual insurance associations, there is a de minimis regime with lowered capital requirements.

There are no hindrances for mutual benefit societies in Luxembourg.

208 Luxembourg

3 Concerning cross border barriers (barriers mutuals face when operating across barriers):

Cross border expansion is not provided for in the Luxembourg legislation regarding mutual benefit societies. But anyway, mutual benefit societies said to be not interested in expanding across the borders.

The mutual insurance associations fall under the scope of the provisions of freedom to provide services and of freedom of establishment provided for by EU directives. There are no provisions to regroup with foreign mutual insurance associations.

8 Issues concerning cross-border cooperation with other European partners for the creation of groups of mutuals, or to create a local subsidiary.

Does not apply for mutual benefit societies and mutual insurance associations

9 Examples of existing cross-border co-operations and their legal form

There are no examples of mutual benefit societies operating across borders.

Currently, there is one mutual insurance association having its headquarters in France which has registered a branch in Luxembourg under the freedom of establishment provisions.

10 Examples of autonomous expansion across the frontiers of mutuals.

Three out of four mutual insurance associations currently licensed by Commissariat aux Assurances have cross-border activities in other Member States.

4 Concerning national measures, for promoting mutuals and measures aiming at access to finance for mutuals:

Contribution rates are fixed by the members at the general meeting. Mutual benefit societies are allowed to invest in bonds and to some extend apply for a loan.

Concerning mutual insurance associations, it is up to the memorandum of association to set the rules regarding contributions to be paid by members, or an increase thereof. As far as external financing is concerned, mutual insurance associations, like all other insurance undertakings, must comply with Commissariat aux Assur- ances regulation regarding the form of investment acceptable in terms of prudential supervision.

A subsidy is granted to the mutual benefit societies which totals 47.000 € in 2010.

For mutual insurance associations and pension funds the legislation provides for exemption from income tax, only if they are exclusively and directly pursuing a charitable or cultural object or if they are acting in the general interest.

209 Luxembourg

13 The existence, if any, of national, regional or local policies aiming at the promotion of mutuals, such as tailored business support services, specialised agencies, creation of federations etc.

None

210 21 Malta

211

212

Country study on the current situation and prospects of mutuals

Malta

The Solvency II Directive applies to the following company form in both life and non-life insurance: limited liability company/kumpannija b’ responsabbilta’ limitata’. The same company forms can provide reinsurance.

A) Definitions of mutuals

There is no general definition of a mutual in Maltese law, however, there is a specific definition in Maltese insurance law:

According to the Insurance Business (Assets and Liabilities) Regulations1 “mutual” “means an insurance company which is a body corporate having no share capital (except a wholly owned subsidiary with no share capital but limited by guarantee)”.

The Malta Financial Services Authority defines a mutual company on its website as “a company owned by its policyholders”2.

B) Legal types (if more types exist)

Whether mutual insurers are allowed in Malta is unclear: the Insurance Business Act does not specify the legal forms an insurer must have and only refers to mutual associations and a de minimis regime as explicitly excluded from supervision (see hereunder). In the Insur- ance Business Regulations, there are no provisions either as to the legal form an insurer can take. But it defines a mutual (as mentioned sub A) above) while falling short of identifying a mutual with a non-directive insurer. A contrario, one could argue that thus mutual insurers are allowed. A further argument is that the Regulations refers to “marine mutual” at several occasions. Lastly, the Regulations also has provisions for a mutual regarding minimum own funds which for mutuals are different from non-directive insurers: the minimum own funds (minimum guarantee fund) requirements of 2 mio euro for general (= non-life) business are explicitly reduced with 25% for mutual insurers in regulation 16, 4 and are explicitly mentioned for long term (=life) business in Regulation 16, 1 b) to be 2.25 mio euro for mutuals versus 3 mio in other cases. Regulation 16,6 and 10 thereafter states the required minimum own funds for non-directive insurers separately, and in case of life business mentions mutual non-directive separately. At the same time in the European insurance directives, a mutual association or a mutual is not taken up in the list of authorized companies (list provided by Member States to the EU Commission).

A number of different types of mutuals are mentioned in the Insurance Business Act:

De minimis regime: Malta introduced in its insurance legislation a de minimis regime: The Insurance Business Act and Insurance Business Regulations include special provisions for mutual associations. According to the Insurance Business Regulation, art 2, mutual associations are excluded from supervision as being a "non-directive insurer". This means:3  “(a) a mutual (carrying on long term business) whose -

1 Subsidiary legislation 403.16 insurance business (assets and liabilities) regulations Legal notice 286 of 2007, as amended by Legal Notices 426 of 2007 and 260 of 2009.

2 See: http://mymoneybox.mfsa.com.mt/pages/glossary.aspx?l=M

3 Insurance Business (Assets and Liabilities) Regulations. This part of article 2 is transposed from Article 3 of the EU Consolidated Life Directive and the similar article found in the EU Third Non-life Directive.

213 Malta

 (i) articles of association contain provisions for calling up additional contributions from members or reducing their benefits or claiming assistance from other persons who have undertaken to provide it; and  (ii) annual gross premium income (other than from contracts of reinsurance) has not exceeded 5 million euro for each of the financial year in question and the two previous financial years;  (b) a mutual (carrying on general business) whose -  (i) articles of association contain provisions for calling up additional contributions from members or reducing their benefits;  (ii) business does not cover liability risks, other than ancillary risks, or credit or surety ship risks;  (iii) gross premium income (other than from contracts of reinsurance) for the financial year in question did not exceed 5 million Euro; and  (iv) members provide at least half of that gross premium income;”4 Regulation 16, 6 details the minimum own funds needed to set up a non-directive insurer.

Ordinary mutual regime: That there is an ordinary mutual regime can be deduced from regulation 16 which refers explicitly to the minimum own funds of a mutual for life business and to a 25% reduction of minimum guarantee fund for non-life business. These regulatory requirements are different from the non-directive mutual minimum guarantee fund requirements.

Mutuals are also allowed to call for a supplementary contribution: this is indirectly laid down in article 15 of the Insurance Business Regulations which state that ‘In the case of general business, any claim which a mutual with variable contributions has against its members by way of a call for supplementary contributions for a financial year, an amount up to one half of the difference between the maximum contributions and the contributions actually called in, and subject to a limit of 50 per centum of the lesser of the margin of solvency and the required margin of solvency may be taken into account as an asset, upon application, with supporting evidence, by the mutual.’ This article is not applicable to non-directive insurers (which are exempt from supervision).

Marine mutuals: Marine mutuals are mentioned also in the Insurance Business regulations as being subject to some specific requirements: e.g. “relevant insurer” means an insurer whose business is restricted to reinsurance of the marine mutual on terms that provide that the marine mutual can cancel the reinsurance arrangements at any time and can require the insurer immediately to transfer its assets and liabilities to the marine mutual (art 2)

Foreign (non-EEA) mutual associations and P&I clubs According to the Insurance Rule 5 of 20085, under certain conditions, mutual associations which have their head office in a non-EEA country are allowed to carry on business of insurance.6 According to article 2 (2), the Insurance Rule 5 applies also to P&I clubs “issued with a permit in terms of Insurance Directive 5 of 1999 persuant to article 6 of the Act to carry on business as a Protection and Indemnity Club”

4 Malta considers also some assistance insurers as non-directive

5 See: Insurance Rule 5 of 2008: Mutual Associations: http://www.mfsa.com.mt/files/LegislationRegulation/regulation/insurance/insurers/Insurance%20Rule %205%20of%202008.pdf

6 These conditions are: (a) the articles of association of the Association contain provisions for calling up additional contributions or reducing their benefits or, in the case of long term business, claiming assistance from other persons who have undertaken to provide it; (b) the business of the Association does not cover liability risks, unless such risks constitute ancillary cover within the meaning of subarticles (2), (4) and (5) of article 5 of the Act, or credit and suretyship risks; (c) the annual contribution income for business carried on by the Association in or from Malta does not exceed Euro 5 million or an equivalent amount in any other currency; and (d) at least half of the contribution income from business carried on by the Association comes from persons who are members of the Mutual Association.

214 Malta

C) Methods of creation (required capital or assets)

Ordinary mutuals The minimum guarantee fund for a mutual active in a long term business is 2,250,000 Euro. For general business it is 2,300,000 Euro, however, for mutuals this is decreased by 25 per cent.

De minimis regime For non-directive insurers (mutual and other), the guarantee fund depends for non-life insurance on the class of risk covered (ranges from 400,000 to 200,000 euro). For non- directive mutuals this is reduced by 25 per cent. For non-directive mutuals in long term (=life) business the guarantee fund is 600,000 euro.

Foreign non-EEA mutual associations and P&I clubs Granting of permits to Mutual Associations to carry on business of insurance Article 5 of the Insurance Rule 5, 20087:  (1) Notwithstanding that a Mutual Association may fulfil the requirements of article 4 of this Rule, the Authority shall not grant permit to the Mutual Association to carry on business of insurance, nor shall the Authority allow the Association to hold permit granted, unless it is satisfied that the Association -  (a) is permitted in the country where its head office is situated to carry on the business which formed the object of the application;  (b) is a Mutual Association of good repute; and  (c) has complied with the provisions of article 12 of the Act with respect to the appointment of a general representative.  (2) In its application for permit to carry on business of insurance, a Mutual Association shall notify the Authority in writing of its financial year; and where the Association alters its financial year it shall forthwith notify the Authority in writing of such change.  (3) A Mutual Association may submit an application for permit to carry on business of insurance under the Act through a person enrolled in the Managers List or Brokers List under the Insurance Intermediaries Act, 2006; and, during the continuance of the permit, the person enrolled in the Managers List or Brokers List shall ensure that the Mutual As- sociation satisfies at all times the provisions of the Act required to be satisfied by such Associations, the requirements of this Rule and the conditions (if any) of the permit.

According to the Subsidiary Legislation 403.04, Insurance business (fee) regulation, Legal notice 139 of 1999, article 6, any Mutual Association applying for a permit to carry on business of insurance in Malta shall pay to the Authority - (a) upon submission of the application, irrespective of whether the application is eventually accepted or not, the sum of three hundred and seventy-five euro (€375) as application for permit fee; (b) upon acceptance of the application, the sum of five hundred euro (€500) as granting of permit fee; and (c) thereafter, during the month of January of each year, the sum of one thousand euro (€1,000) as continuance of permit fee due on the first day of that month.

7 Insurance Rule 5 of 2008: Mutual Associations: http://www.mfsa.com.mt/files/LegislationRegulation/regulation/insurance/insurers/Insurance%20Rule %205%20of%202008.pdf

215 Malta

D) Management and corporate governance

De minimis regime As these mutual associations are not subject to supervision, this is for the larger part not subject to the Insurance Business Act and hence left to be arranged in the bylaws of the mutual.

Foreign mutual associations and P&I clubs The insurance Rule 5 of 2008 mentioned submission of annual statements and payment of continuance of permit fee. Article 6 states:8  6. Every Mutual Association holding permit under the Act to carry on business of insurance shall –  (a) not later than six months from the closing of its financial year, or at any other time as may exceptionally be authorised in writing by the Authority, forward to the Authority –  (i) a copy of its audited financial statements drawn up in accordance with the provisions of the law of the country where the head office of the Association is situated governing the financial statements of such associations;  (ii) a certificate signed by the overseas regulatory authority of the country of its head office stating that the Mutual Association concerned has, in respect of the preceding financial year, complied with the provisions of the law applicable to it;  (b) pay to the Authority the continuance of permit fee in accordance with regulations governing fees made under the Act.

8 Insurance Rule 5 of 2008: Mutual Associations: http://www.mfsa.com.mt/files/LegislationRegulation/regulation/insurance/insurers/Insurance%20Rule %205%20of%202008.pdf

216 22 Norway

217

218

Country study on the current situation and prospects of mutuals

Norway

A) Definitions of mutuals

There is no general definition of mutual in Norwegian law. According to the Law on insurance companies, pension companies and their business activity (hereafter called Insurance Act; Lov om forsikringsselskaper, pensjonsforetak og deres virksomhet mv. (forsikringsvirk- somhetsloven)), insurance activity may only be engaged in by insurance companies and pension funds.1 Insurance companies must be organized as limited companies, public limited companies or mutual companies (gjensidige forsikringsselskaper).2 In the Insurance Act no definition of mutual insurance companies is provided.

B) Legal types (if more types exist)

The only legal type of mutuals in Norway is the mutual insurance company, which is regulated by the Insurance Act.

According to § 15-4 of the Insurance Act, with regard to small mutual insurance companies, The King can do full or partial exemption from the Insurance Act for small mutual insurance companies (de minimis regime).

There are marine insurers, applying mutualistic principles which exist as P&I clubs or otherwise. They have not been established as mutual insurance companies.3

C) Methods of creation (required capital or assets)

The Insurance Law provides specific rules for mutual insurance companies (gjensidige forsikringsselskaper). Section 4-1 states that a mutual insurance company may be formed by one or more founders. The founders shall establish, date and sign a document containing the draft statutes and regulations as stated in § 4-4. At least half of the founders shall be resident in the Kingdom and have lived here in the past two years, if not the King can make exceptions in individual cases.4 The company can only collect premiums after being authorised and registered by the Supervisory Authority (§ 4-5).

Statutes (section 4-3) shall provide amongst others the following:  The rules for membership, the composition of the general meeting and voting at a general meeting.  The number of insurance and the total sum insured that will be the sign for the company to start operations.  The rules for the members' mutual responsibility.  The rules for the dissolution of the company.  The rules for the application of net income and payment of any deficit.

1 Law on insurance companies, pension companies and their business activity. (Insurance Act): http://www.lovdata.no/all/nl-20050610-044.html, section 1-1.

2 Law on insurance companies, pension companies and their business activity. (Insurance Act): http://www.lovdata.no/all/nl-20050610-044.html, section 3-1.

3 See for instance: http://www.norclub.no/one-for-all-and-all-for-one/

4 Law on insurance companies, pension companies and their business activity. (Insurance Act): http://www.lovdata.no/all/nl-20050610-044.html, section 4-1.

219 Norway

 The rules for when the general meeting is to be held.  The rules for who shall convene a general meeting, and how the notice should be made.

According to the Insurance Act, act on insurance activity5, any application for authorisation for a new insurance company (mutual or other) shall include a plan of operations for the company’s first three years of operation. The plan of operations shall contain:

(1) an overview of the kind of insurance products the company will offer, (2) information on the company’s capital base, (3) budget for establishment and administrative expenses (4) information on what principles the company will employ for calculating premiums, (5) information on how the company intends to arrange the reinsurance cover, and (6) a forecast for the financial position after three years’ operation.

There are no specific rules for required capital for mutual insurance companies to be established. The Regulation in accordance with § 5 of the "Regulations on minimum equity in Norwegian insurance companies" provides an overview of the minimum amount of capital for different operators6. To start up a new insurance company (including a mutual one), in 2012 one needs 40 million NOK (5.5 million Euro). Specifically for a mutual life insurance company the start up amount is 16 million NOK (2.2 million Euro).

The application for an insurance license shall be accompanied by:

(1) the company’s articles of association, (2) a certified copy of the memorandum of association, and (3) a certified copy of the minutes of the statutory meeting.

The Financial Supervisory Authority (Finanstilsynet)7 may request further information, and make further rules concerning the content of applications for licences.

According to section 4-48, the founding document shall specify:  The nature of insurance.  that the statutory general meeting must maintain that the insurance shall be binding on members.  Size of a guarantee fund.  What proportion of the guarantee fund, if any, shall be paid immediately and the rules for guaranteeing the company's obligation to make further payment to the guarantee fund.  The rules for payment of interest and repayment of a guarantee fund.  Any rules that the guaranteeing company should be able to influence or supervise the insurance company.  Who will pay the costs of incorporation, and any compensation to any of the work in connection with the foundation.

5 Law on insurance companies, pension companies and their business activity. (Insurance Act): http://www.lovdata.no/all/nl-20050610-044.html, section 2-3.

6 http://www.finanstilsynet.no/Global/Venstremeny/Rundskriv_vedlegg/2012/1_kvartal/Rundskriv_3_201 2.pdf

7 http://www.finanstilsynet.no/no/

8 Law on insurance companies, pension companies and their business activity. (Insurance Act): http://www.lovdata.no/all/nl-20050610-044.html, section 4-4.

220 Norway

D) Management and corporate governance

According to the Insurance Act, section 5-3, the legal framework contained in the Compa- nies Act shall in general apply to mutual insurance companies. The provisions of the Com- panies Act § § 6-1 to 6-3 and § § 6-6 to 6-34 (this concerns Management tasks and procedures, etc.; the company's external relationships) apply correspondingly to mutual insurance companies, unless otherwise provided by this Act. For mutual insurance companies with more than 1,000 members at the time of election of directors cooperative law § 69 is applicable9.

Hence, there are no big differences between the management and corporate governance of ordinary and mutual insurance companies in Norway. Here below a number of specific issues included in the Insurance Act are presented.

According to the Insurance Act10: § 4–2 guarantee fund: The guarantee fund (guarantee capital) may consist of subordinated loan capital. The loan may be granted by a private limited company or a public limited company that is founded for this purpose, by another company or by other parties. Loan capital as referred to in the first paragraph may also be raised by issuing negotiable primary capital certificates conferring the right of representation at the general meeting, cf. section 4–3 no. 2. The King may provide that certain rules of the Act relating to Private Limited Com- panies shall apply to primary capital certificates. Resolutions regarding repayment of primary capital certificates issued under this paragraph are not valid unless authorised by the King. The King may make further rules restricting the right to own primary capital certificates, including rules restricting foreigners’ right (for the purpose of the present Act) to own primary capital certificates.

According to the Insurance Act11: § 5-1. Board : Insurance company should have a board of at least three members. The company's employees should be represented on the board. The King may issue further rules concerning this. The Board shall have a majority of people who are not employed by the company or companies within the same group. The chairman shall be elected from among this majority. The constitution should provide for alternate members.

The Directors are elected by the supervisory board, or if not established, by the General meeting.

According to the Insurance Act12: § 13-2. Duty to liquidate mutual company: When the insurance portfolio of a mutual insurance company sinks below that stated in the articles of

9 Cooperative society Act: Section 69. Requirement that both sexes be represented on the board (1) Both sexes must be represented as follows on the board of a cooperative society that has more than 1 000 members on the date when directors are elected: 1. if the board has two or three directors, both sexes must be represented, 2. if the board has four or five directors, each sex shall be represented by at least two directors, 3. if the board has six to eight directors, each sex shall be represented by at least three directors, 4. if the board has nine directors, each sex shall be represented by at least four directors, and if the board has more than nine directors, each sex shall be represented by at least 40 per cent of the directors. 5. The rules stipulated in nos. 1 to 4 apply correspondingly to the election of alternate directors. The rules stated in numbers 1 to 5 of the first sentence do not apply if one of the sexes comprises less than five per cent of the total number of natural persons who are members of the enterprise on the date of the election. (2) Numbers 1 to 5 of subsection one do not apply to directors that are to be elected from among the employees pursuant to section 67. When two or more directors are to be elected as stated in the first sentence, both sexes must be represented. The same applies to alternate directors. The second and third sentences do not apply if one of the sexes comprises less than 20 per cent of the total number of employees in the enterprise on the date of the election.

10 http://www.lovdata.no/all/nl-20050610-044.html

11 http://www.lovdata.no/all/nl-20050610-044.html

12 http://www.lovdata.no/all/nl-20050610-044.html

221 Norway

association, the board is required immediately and with no more than 14 days notice to convene the company, having the authority to approve the liquidation of the company.

If the liquidation is not adopted, and the portfolio is still too low, three months after the company held its meeting; the Board is obliged to initiate liquidation. Subscription of new and renewal of old insurance policies must not take place after the liquidation is adopted or implemented.

According to the Insurance Act13: § 13-3. Transfer of insurance portfolio: The liquidation committee may enter into an agreement with another insurance company for the transfer of the entire insurance portfolio. The agreement must be approved by the Financial Supervi- sory Authority.

According to the Insurance Act14: § 13-4. Conversion to another form of organization: Con- tracts initiated with the insurance company prior to conversion to another company form is also after the conversion binding for the insurance company and its contractors.

According to the Insurance Act15: § 13-5. Mergers and demergers: A mutual insurance company may transfer assets, rights and obligations in its entirety to another mutual insurance company provided that the members will be members of the acquiring company.

According to the Insurance Act16: § 4-10. Cooperation: Mutual companies can, through cooperative agreements form a consolidated entity based on common statutory corporate bodies. In that case, the statutes may differ from the provisions of Insurance Act and the Act on Financing Activity and Financial Institutions17.

According to the Insurance Act18: § 14-1. Branch of foreign company: Foreign insurance companies can engage in insurance activities in Norway through a branch. Permission is only for a foreign insurance company that is licensed in their home countries to conduct insurance and that is subject to adequate supervision there. Before the insurance company starts its activities in Norway through a branch, it shall establish a satisfactory cooperation between the supervisory authorities in the insurance company's home country and the Fi- nancial Supervisory Authority in Norway.

With regard to the issues such as rights of members, the following applies:  rights of members: This is subject to the statutes.  voting and representation of members in general meetings: The rules for membership, the composition of the General Assembly and to vote at a general meeting is subject to the Statutes of the organisation. Holders of the loan capital (negotiable primary capital) can have a right of representation at the general meeting.  types of shares if any: not possible, but the guarantee fund (guarantee capital) may consist of subordinated loan capital. The loan may be granted by a private limited company or a public limited company that is founded for this purpose, by another company or by other parties. Loan capital may also be raised by issuing negotiable primary capital certificates conferring the right of representation at the general meeting.

13 http://www.lovdata.no/all/nl-20050610-044.html

14 http://www.lovdata.no/all/nl-20050610-044.html

15 http://www.lovdata.no/all/nl-20050610-044.html

16 http://www.lovdata.no/all/nl-20050610-044.html

17 http://www.lovdata.no/all/hl-19880610-040.html

18 http://www.lovdata.no/all/nl-20050610-044.html

222 Norway

 reserves: as other organisations. Article 4-8 of the Insurance Act states: unless otherwise provided in the articles of association, profits and deficits shall be apportioned on persons who were members in one and the same accounting period, in proportion to an estimated prepaid premium.  possibility for non-members investors: Yes, by means of a guarantee fund. : The guarantee fund (guarantee capital) may consist of subordinated loan capital. The loan may be granted by a private limited company or a public limited company that is founded for this purpose, by another company or by other parties. Loan capital may also be raised by issuing negotiable primary capital certificates conferring the right of representation at the general meeting.  transparency and publicity requirements: as other organisations  related auditing issues: as other organisations.  protection of assets: as other organisations19, the law does not provide a specific asset protection scheme for mutuals.

19 See chapter 16 of the Companies Act 13th June 1997: http://www.regjeringen.no/nb/dep/jd/dok/lover_regler/reglement/1997/lov-om-aksjeselskaper--- informasjonsbros.html?id=106662

223 Norway

224 23 Netherlands

225

226

Country study on the current situation and prospects of mutuals

The Netherlands

According to Annex III of the Solvency II directive, the following undertakings may provide life, non-life insurance and/or reinsurance in the Netherlands: naamloze vennootschap" (Joint-stock company), "onderlinge waarborgmaatschappij" (Mutual insurance societies).

A) Definitions of mutuals

There is no general definition of a mutual in Dutch law. In addition, there is no specific definition of an insurance mutual in Dutch law.

The mutual insurance society (onderlinge waarborgmaatschappij) is a specific variety of the legal entity “society” (‘vereniging’). The mutual insurance society is established by notarial deed as an “as mutual insurance society established society”1. The mutual insurance society concludes insurance policies with its members, who together bear the risks. The economic benefit for the members is risk-sharing.

The laws and regulations applicable to this legal form are fairly similar to those applicable to cooperatives2. According to the legal definition, however, a cooperative has to benefit the economic interests of its members by engaging in transactions with them other than insurance contracts. For insurance purposes, the mutual society or joint-stock company is the mandatory legal business form3. The cooperative form is not allowed for insurance.

Mutual insurance societies in the Netherlands operate in the non-life (healthcare, property and casualty), life and funeral insurance sectors. Life and non-life insurance may not be accommodated within one entity (no composites).

B) Legal types (if more types exist)

The legal forms recognised for the provision of insurance in the Netherlands are the joint-stock company (Naamloze Vennootschap) and the mutual insurance society (Onderlinge Waarborgmaatschappij)4 and since recently the Societas Europaea (European Company).

A mutual insurance society may opt for one of the following forms of legal liability: full legal liability (W.A.)5, limited liability (B.A.)6 or liability excluded (U.A.)7.  The majority of mutual insurance societies in the Netherlands operate under excluded liability (U.A.), implying that members or ex-members are excluded from liability for any shortfalls.  With limited liability (B.A.), the members are required to contribute to the deficit to a level specified in the statutes.  Under full legal liability (W.A.), the members are liable for the deficit in equal shares (unless the statutes provide otherwise)8.

1 Burgerlijk Wetboek, Boek 2, Chapter 3, art. 53

2 Kamer van Koophandel (2010). De coöperatie en de onderlinge waarborgmaatschappij.

3 BW. hfst. 2, Titel 3 art. and Solvency II directives, Annex III

4 Interview DNB, see also Annex III of Solvency II Directives

5 W.A = wettelijke aansprakelijkheid

6 B.A.= beperkte aansprakelijkheid

7 U.A. = uitgesloten aansprakelijkheid

8 MKB Coöperatie Advies

227 The Netherlands

Limited or excluded liability must always be indicated explicitly with the name of the mutual insurance society. Specific requirements apply regarding the start and termination of membership, in the case of limited and full legal liability.

Lastly, there is the legal type of “joint-stock mutual” (Onderlinge op aandelen) which is legally permitted to issue shares to non-members. In practice, however, no mutual insurance society of this type currently exist

Since recently, the Societas Europaea (European Company / Europese NV)1 has been added as a suitable legal entity for conducting insurance business. This legal entity can only exist alongside the entity of a joint-stock company. Its purpose is to facilitate international activities. The SE offers possibilities for cross-border mergers and relocation of main offices without requiring the dissolution and re-establishment of an entity. Prerequisites are:  Start-up capital of €120,000; and  At least two of the participating legal entities must be NV’s (joint-stock companies) falling under different EU-member state’s legal systems2.

There is also a de minimis regime in the Netherlands, applicable to all 3 legal types of mutual insurance societies (sometimes called “declaration regime”). Under current Dutch law, certain smaller low risk mutual insurance societies with premium turnover up to €5 million are not falling under the financial supervision regime. These non-directive or exempted mutual insurance societies cannot write accident, health, liability, credit and suretyship, and assistance insurance. 3 None of these 3 categories of mutual insurers have a licence. Three categories can be identified:  Category 1 mutual insurers (very small, 200 members and €91,000 in GPW) may only write one non-life class but may not write accident, health, liability, credit, surety and assistance insurance.  Category 2 (max 3,000 members or max €455,000 in GPW) and  category 3 mutual insurers (more than 3,000 members and max €5 million GPW) may write more than one non-life class of insurance but the excluded classes for category 1 are also excluded for categories 2 and 3.4

In addition to the mutual insurance societies, which are explicitly mentioned as mutual insurance society (onderlinge waarborgmaatschappij), there are about 500 Uitvaartverenigingen (funeral societies) in the Netherlands. These funeral societies are originally based on the principle of neighbours assisting each other in the case of decease. These mutual societies mostly provide basic coverage or in-kind funeral services (natura-uitvaartverzekering) to their members in case of a funeral. The law regarding legal persons (Burgerlijk Wetboek, book 2) does, however, not provide a specific definition for in-kind insurers. The 1996 Law on Supervision of in-kind insurance companies5 therefore provided that all funeral societies must have (be converted into) the legal form of mutual insurance society or joint-stock company as the only permitted legal forms for insurance providers in the Netherlands. Legally, an in-kind insurer may not be a provider of life insurance6. The number of funeral societies has been decreasing and is expected to further decrease in future, as funeral societies merge or are taken over by joint-stock insurance companies, while no new societies are formed.

1 Through registration as a SE, international mergers are possible, which used to not be possible for Dutch joint-stock companies.

2 Kamer van koophandel: http://www.kvk.nl/ondernemen/rechtsvormen/buitenlandse-vennootschappen/de- europese-naamloze-vennootschap-se/

3 Besluit vrijgestelde onderlinge waarborgmaatschappijen 1994

4 See: AISAM/AMICE (2007), Mutual Insurance Companies in the Netherlands. The regulatory, financial and - fiscal arrangements.

5 Wet toezicht natura-uitvaartverzekeringsbedrijf (Wtn), art. 17 and 95

6 Wet Financieel Toezicht

228 The Netherlands

Pension funds in the Netherlands generally take the legal form of a foundation. Alternative legal forms, such as mutual societies, have never been realised for pension funds in the Netherlands. A major difference is that a foundation does not by its nature have built-in participant control and “right of say” mechanisms.

C) Methods of creation (required capital or assets)

Ordinary regime The creation of a mutual insurance society in the Netherlands is arranged by notarial deed. The statutes must provide that the goal of the mutual insurance society is to conclude insurance contracts with its members, in an insurance business which it conducts on behalf of its members. The law (Burgerlijk Wetboek, chapter 3) does not prescribe any other elements that the statutes of mutual insurance societies must contain upon creation. The various articles in the law only indicate that the statutes may provide for certain specification. No minimum number of members is specified and no there is no minimum capital requirement. The law on Financial Supervision does not contain any exemptions or specific requirements regarding the mutal insurance society as a particular legal entity.

Board members may not be persons employed by a) the mutual insurance society, b) a dependent company, or c) a employees organisation which is concerned with the employment conditions of persons mentioned under a) or b). The board may exist for upto a maximum of two-thirds of persons belonging to the circle to which the members of the mutual insurance society belong1. The maximum term for board members is four years. The trading chamber of the legal court of Amsterdam may be asked to dismiss a board member in case of neglect of his duties, other critical reasons, or radical changes in circumstances due to which the mutual insurance society can no longer be reasonably expected to maintain the board member2.

The daily management, internal supervision and policy of the mutual insurance company must be determined and carried out by persons who are fit for these tasks and whose reliability and trustworthyness are beyond doubt. The entity must determine rules regarding the ways in which the realiability is established. After the financial supervisor has assessed the fitness and reliability of these persons, they are deemed to be fit and reliable until events or circumstances require re-assessment3. Criteria against which fitness and reliability is assessed are not specified in the law.

Mutual insurance societies must be registered with the Dutch Trade register of the Chamber of Commerce. The annual contribution to the Dutch Chamber of Commerce varies as follows4:  0-49 employees: € 127.19  50-249 employees: € 332.34  250+ employees: € 839.05  For the creation and registration of the mutual insurance society with the Chamber of Commerce, no minimum capital requirement applies. In comparison, the minimal required start-up capital for a joint-stock company is €45,0005. Presently, a new bill is prepared which cancels the start-up capital requirement and the notarial deed for all types of companies 6.

Mutual insurance societies are trading companies7. Providers of insurance products in the Netherlands need to register and apply for a license with the Dutch financial supervisors, DNB, De Nederlandsche Bank, (prudential supervision) and AFM, Autoriteit Financiële Markten,

1 Burgerlijk Wetboek, Chapter 3, art. 63h

2 Burgerlijk Wetboek, Chapter 3, art. 63i

3 Wet op het Financieel Toezicht, art. 3.8 and 3.9

4 Kamer van Koophandel Nederland

5 Interview KvK

6 Interview KvK

7 AISAM/AMICE (2007), Mutual Insurance Companies in the Netherlands. The regulatory, financial and fiscal arrangements.

229 The Netherlands

(market conduct supervision). AFM only assesses products and services, without any reference to the legal form the insurance provider. DNB checks whether the legal form is appropriate (mutual or joint-stock company). DNB also verifies whether the characteristics of a society with members are laid down in the statutes of the mutual society and whether the entity fulfils the asset and solvency requirements1.

The costs of licensing may be problematic and disproportional for smaller insurers, which includes relatively many mutual insurance societies2.

The once-off costs involved with the DNB-license application are3:  Life, non-life, or reinsurer: € 26,000  Life or non-life branch: €0 – 22,400  Reinsurer branch: €22,400  In-kind funeral: €1,600  In-kind funeral branch: €1,500  Change of license: € 9,600

To compensate DNB and AFM for the costs of continuous supervision, all licensed insurers pay an annual amount to each supervisor, determined as follows:

For DNB:  DNB - Health insurers: €0.224 per policy holder  DNB - Other insurers: 0.0451 % of the gross premium income  The minimum annual contribution to DNB was established at €681 for 20104.

For AFM the tariffs for continuous supervision are5:  Non-life or in-kind funeral:  a fixed amount of €900 plus €14.50 per every €1 million Gross Premium Income in the Netherlands (GPIN)  Life:  A) A fixed amount of €1,500 plus €426 per €1 million GPIN or part thereof (over the GPIN up to €0.5 bln.)  B) The amounts under A plus an additional €15 per €1 milllion GPIN if the total GPIN is above €0.5 bln.

As insurance providers, mutual insurance societies must also comply with the capital and solvency requirements as set by the Dutch law on financial supervision (Wft). The latter are in line with European Solvency II principles, or derived from these (Solvency II-Basic).

One of the requirements is the maintenance of a guarantee fund. The guarantee fund must be a third of the solvability margin, with an absolute set minimum. The minimum net asset amounts for the guarantee fund, which the insurer, so also the mutual insurance society needs to have when applying for an insurance license, are as follows6:  For non-life insurers in all classes except liability and credit and suretyship insurance: €2.3 million  For non-life insurers operating in : liability (motor liability, MAT (Marine, Transport and Aviation) liability), and credit and suretyship insurance). For these, the minimum amount is € 3.2 million.

1 Interview DNB

2 Interview FOV

3 Regeling van de Minister van Financiën van 14 januari 2011, nr. FM/2011/59 M, tot vaststelling voor 2011 van de bedragen voor eenmalige toezichtshandelingen, bedoeld in de artikelen 2 en 3 van het Besluit bekostiging financieel toezicht

4 Regeling tot vaststelling voor 2010 van de maatstaven bedragen bandbreedtes verdeelsleutels en tarieven besluit bekostiging financieel toezicht

5 AFM Tarieven doorlopend toezicht 2011

6 Besluit Prudentiële regels Wft. Hfst. 9, art.

230 The Netherlands

 For life insurers, the amount is € 3.5 million.  For funeral insurers: € 45,378.02 (Bpr1 article 49)  For a reinsurer, this is € 3 million  For reinsurance captives: € 1.1 million

The guarantee fund is primarily composed of2: a. The share capital in the case of joint-stock companies and in the case of mutual insurance societies, the insurance contributions supplied by any member accounts ( conditions apply). b. Free legal, statutory and other reserves c. Unshared profits (minus dividents) or loss d. Subordinated member accounts and debt instruments e. Other capital as permitted by DNB

The minimum solvency margin is calculated according to the provisions of Bpr articles 65-68 and should at least equal the minimum guarantee fund as described in the preceding pragraph.

A lower minimum solvency margin amounting to €205,000 and a minimum net asset amount of €0 applies to a specific category of non-life insurers, namely3: those already in operation before January 1st 1986, having a license, with a premium income below 6 times the minimum amount of the guarantee fund as stipulated on July 1st, 1994 (this amounts to €329,000 - € 657,000). Provided that they do not: 1) Expand with a branch for which a license is required and 2) Open an office or expand in another EU-member state.

For health insurers, the minimum solvency requirement is about 9% (1/1/2010) of the average gross claims in the past 3 years for the Basic health insurance package. For the supplementary care packages, the requirement is 24%4. Furthermore, health insurers must be registered at the Dutch Health Care Authority (Nederlandse Zorgautoriteit, NZa). NZa is financed by the Ministry of Health, not by direct contributions from the health insurers5. The insurance policies provided by health insurers must furthermore comply with the Health Insurance Law (Zorgverzekeringswet 2006, ZVW).

Regarding the de minimis regime, these mutual insurance societies currently do not need to apply for a license and are not licensed by the DNB; a “declaration” is sufficient. Similar to a license, the declaration involves a check of legal requirements, but the regime and regulations are lighter. When the requirements are met, DNB provides the declaration to the insurer. The costs involved are €1,800. Depending on the type of declaration (which varies in terms of strictness), the insurer either does or does not have to pay for continuous supervision6.

This regime will be replaced as it is about to change with the intended implementation of “Solvency II Basic”. At present it is envisaged that all mutual insurance societies in the Netherlands will then need to apply for a license.

Only small in-kind funeral societies and very small property and casualty insurers with premium income < € 1 million. , technical provisions < € 5 million and insuring individual assets worth up to €10,000, may be excluded from the Solvency II Basic Regime7.

1 Besluit Prudentiële regels Wft

2 Besluit financiële markten BES, Art. 4:27

3 http://www.toezicht.dnb.nl/2/50-201880.jsp

4 http://www.toezicht.dnb.nl/2/50-201892.jsp

5 Interview NZa

6 Interview DNB -Markttoegang

7 Interview DNB

231 The Netherlands

The number of mutual insurance societies in the Netherlands is expected to further decline with the implementation of the new national Solvency II Basic regime, as the requirements will become stricter1.

D) Management and corporate governance

The organs are:  The general meeting: The general meeting or the council of members is the highest decision-making body of the mutual society. Hybrid forms are possible, with BOTH a council of members as well as general meetings for critical decisions.

 a Supervisory Board (Raad van Commissarissen / Raad van Toezicht)  For smaller mutual insurance societies, a Supervisory Board (Raad van Commissarissen / Raad van Toezicht) is not compulsory.

 The Board of Directors:  For larger joint-stock companies and mutual insurance societies with equity/share capital over € 16 million and over 100 employees, a Board of Directors consisting of at least three directors is compulsory2.  Members elect the (compulsory) Board of Directors of the mutual insurance society3, with a maximum of two thirds of board members from among the members  Board members are individually liable.  A limited number of external directors, who need not necessarily member-policyholders are allowed.

Rights of members:  A mutual insurance society must provide in its articles of association that its purpose is to conclude insurance policies, in an insurance company which it manages on behalf of its members.  The council of members (or the general meeting) is the highest decision-making body of the mutual insurance society.  Restrictions apply regarding the entrance and withdrawal of members from mutual insurance societies. Unless the statutes provide differently, membership can only be ended at the end of a accounting year for the year in advance, with four weeks notice. However, when a member is informed of a decision which involves the infringement of his rights or an increase of burdens, he may withdraw instantly within a month’s time. The decision does then not apply to the member. This also applies when a decision is taken regarding a merger, conversion or division (split-up)4.

Voting and representation of members in general meetings  The general meeting may be composed of all member-policyholders or of delegates representing the member-policyholders5. The regulations thus offer a choice between direct and indirect democracy.  Hybrid forms are possible, with a council of members as well as general meetings for critical decisions.  There are no regulations concerning voting rights. This is up to the mutual insurance societies to provide in their statutes as desired. Electronic voting is allowed.  There are no limitations regarding the maximum number of powers of representation which can be entrusted to a member-policyholder1.

1 Interviews (all)

2 BW 2, Structuurregeling, source: FNV (http://www.fnvformaat.nl). Artikel 2:158 en 2:268 BW.

3 BW 2, Title 3

4 BW 2, Title 3, art.36

5 AISAM (2006). The governance of mutual insurance companies: the current state of legislation.

232 The Netherlands

 The statutes may provide - (only) for a mutual insurance society with liability excluded (U.A.)- that the mutual provides similar services to non-members, provided that the members’ interests never become subordinate2.

Types of shares if any Legally, the mutual capital may be divided into shares. Shares may be issued to members and in the case of the “Joint-stock mutual” (Onderlinge op aandelen), also to non-members,)3. For solvency reasons, the joint-stock mutual is sometimes used when capital is needed4. In such case both the members and shareholders may access and vote in the general meeting. The ratio between votes of the two groups must be recorded in the statutes. For example: one vote per insurance policy and one vote per share to the amount of € x. Also, the member votes must be in majority compared to the shareholder votes, for example 51% to 49%. In practice, mutual insurance societies with shareholders are not common. Mostly, it concerns a mutual insurance society where other mutual insurance societies are the shareholders. For example, when a “central” mutual insurance society insures the miscellaneous products of the shareholding mutual insurance societies.

Reserves: As stated above, mutual insurance societies must opt for either full, limited or excluded liability, which affects liability. With regard to any surpluses, each mutual insurance society can determine the division in its statutes. Commonly, however, statutes prescribe the following: Members are entitled to a proportion of the surplus within a specific accounting year, which is related to their share in the premium over that accounting year. The board or general meeting may, however, also decide to add the surplus to the general reserves. The surpluses to which the members are entitled are to be paid into the members’ account which the mutual insurance society holds on behalf of its members, unless the directors decide on another settlement. The general meeting decides on the interest rate which the mutual insurance society pays the members on the amount in the members’ account. Unless the general meeting decides differently, any premium shortages in a accounting year may also be settled with the members’ account. Within a year after withdrawal, the mutual insurance society should pay out the share in the members’ account to the participant. In the case of liquidation of a mutual insurance society, all other debts to third parties must be settled before any remaining amount in the members’ account can be divided amongst members5.

Possibility for non members investors There are no specific restrictions regarding the attraction of external capital. However, different from a joint-stock company, mutual insurance societies have a members’ account. This is a subordinated debt to the members, which under specific conditions is fed by premium restitutions, and over which the mutual insurance society pays an interest. The members’ account is also included in the solvency margin calculations and therefore often cannot be drawn upon as expansion capital6.

Transparency and publicity requirements The annual report (with financial results) must be accessible for the members before the annual report is approved in the general meeting. Within six months after the end of the accounting year, the annual report and accounts must be deposited with DNB, as well as the Chamber of Commerce. Annual reports deposited with the Chamber of Commerce can be publicly accessed against a fee.7

1 AISAM (2006). The governance of mutual insurance companies: the current state of legislation.

2 BW 2, Title 3, art. 53

3 BW 2 Title 3, art. 62

4 AISAM (2006). The governance of mutual insurance companies: the current state of legislation.

5 Modelstatuten onderlinge verzekeringsmaatschappijen gewijzigd zonder wijziging aftrekbaarheid van het recht op winstaandelen welke aan verzekerden toekomen

6 Banking Review 01-01-1996. Als het onderlinge jasje gaat knellen.

7 BW 2, art 101

233 The Netherlands

Related auditing issues There are no other specific auditing issues or requirements.

Protection of assets Protection of assets, for example in the case of demutualisation is not specifically provided for by law.

E) Overview: insurance industry in the Netherlands

Over the past 20 years, there has been a consolidation trend across the sectors in the Dutch insurance industry1. As illustrated in the table below, this trend accelerated after the turn of the century and continues presently at a steadier pace. Consolidation has been strong both in the non-life (P&C, health care) and life insurance sectors.

Number of companies 2001 2006 2010 % change % change 2001-2006 2006-2010 Life insurance 261 75 53 -71% -29% In-kind benefit & funeral expenses insurance 47 38 32 -19% -16% P&C insurance (inc. health care) 981 247 209 -75% -15% Source: Verbond van Verzekeraars, Verzekerd van Cijfers 2006, 2011. Calculations by Panteia

Consolidation through mergers and acquisitions and access to external financing and simplification of management are reasons why mutual insurance societies in the Netherlands have been converted into joint-stock companies. Often, mutual insurance societies and joint- stock insurance companies collaborate in a broader financial or insurance group (“concern”) by means of a cooperative or holding company.

Historically, all health insurance providers in the Netherlands used to be mutual insurance societies. The health insurance sector is still dominated by mutual insurance societies and nowadays increasingly by cooperatives as holding companies (with members’ accounts). Little demutualisation has occurred, despite many mergers.

The table below shows that the four largest insurance groups represent over 50 percent of the market share. The table below illustrates the role of (previous) mutual societies within the top- 10 largest insurance groups in the Netherlands.

1 Vektis Jaarcijfers 2010. Zorgverzekeraars en zorgfinanciering; Verbond van Verzekeraars, verzekerd van cijfers 2006 and 2011.

234 The Netherlands

Name of insurance group Market Market Legal forms share share 2007 2009 Eureko (Centraal Beheer Achmea, 23.9% 25.5% Mutual insurance societies and Zilveren Kruis Achmea, Avero Achmea, joint-stock companies Agis, Hagelunie, AZVZ, Eurocross and collaborating through a private FBTO) limited company (AZVZ is a mutual insurance society, Zilveren Kruis and Avero previously consisted of a cooperative, joint-stock companies and a mutual insurance society, FBTO used to be a mutual insurance society, CB and Achmea are joint-stock companies) Uvit1 (Univé, Onderlingen Unive, VGZ, 12.5% 12.3% Previous and present mutual IZA-IZZ en Trias), market leader insurance societies and joint- health care insurance stock companies collaborating through non-insurance cooperative Uvit. IZZ consists of a foundation, joint-stock and limited companies CZ Groep (since 2008 includes OHRA 9.7% 6.6% 2 Health care mutual insurance & Delta Lloyd health care insurance) societies and subsidiaries Delta Lloyd and OHRA health care (joint stock companies) ING Groep (incl. Nationale 8.3% 9.5% Joint-Stock (holding) Nederlanden), also represented in over 50 other countries ASR (Previously Fortis), parent 6.5% 8.2% Joint-Stock (joint-stock and company of De Amersfoortse, limited companies) Europeesche Verzekeringen and Ditzo Menzis (Menzis, Avizo, Anderzorg) 6.3% 5.3% Mutual insurance society with 2 joint-Stock subsidiary companies, collaborating with Avizo limited company (intermediary) and joint-stock insurance company Anderzorg. Menzis is a previous health mutual SNS Reaal (REAAL, Zwitserleven, 5.6% 5.1% Joint-Stock (a previous DBV, Proteq) cooperative and joint-stock companies) Delta Lloyd Groep (Delta Lloyd, 5.2% 7.9% Stock (joint-stock companies) OHRA, ABN-AMRO, Erasmus, Nationale Borg, NOWM) Aegon (AEGON, Spaarbeleg, Optas) 5.0% 5.3% Stock (AEGON limited – international & holdings – and joint-stock companies, Optas: pension fund foundation and joint-stock companies Allianz, also international (Allianz, 1.7% 2.0% Stock (limited and joint-stock London, Universal Leven, Euler companies) Hermes) Source: Verbond van Verzekeraars: Verzekerd van Cijfers 2011. Dutch insurance industry in figures http://financieel.infonu.nl/verzekering/ terminology streamlined with the terms of this study

1 This company was formerly known as Uvit but demerged 31 Dec 2011 into Cooperatie VGZ (which is predominantly health) and Cooperatie Univé (which is predominantly other non life excluding health).

235 The Netherlands

Mutuality as factor contributing to solvency A DNB investigation (de Haan and Kakes, 2007)1 of 350 Dutch insurance company structures over the period 1995-2005, found that a large company size2, a mutual organisation, high profitability, large equity investments and being a fire insurer, all contribute to higher solvency margins. Minimum solvency requirements from the supervisor would therefore not be easy to explain by firm characteristics. More than half of the insurers had surplus capital more than thrice the solvency requirement, which together with high profitability and a large company size, reduces the risk of insolvency.

Another DNB study (de Haan and Kakes, 20093) regarding insolvency restated that being a mutual insurer is one of the factors reducing the risk of insolvency. Other contributing factors are surplus capital, large company size, high profitability and long-tailed business (with innovative niche insurance products).

1 Legislation impacting the functioning of mutuals:

1 Is there legislation on taxation issues (preferential treatment)?

No.

Similar to joint-stock companies, mutual insurance societies do pay corporate income tax over their profits. If members receive profit distribution, they pay income tax on that amount. In that case, dividend tax is not required.

2 Is there legislation concerning employee involvement systems?

Not specifically.

For mutual insurance societies (as well as any other business) with more than 50 employees, an employees’ council is compulsory4.

3 What are the possibilities and regulations in a situation of demutualization (e.g. transforming a mutual to a traditional capital company) protection of assets in case of demutualization?

A mutual (insurance) society may be demutualised on the following grounds:  By decision of the general meeting  There a no more members  In case of an event as stipulated in the statutes  By the Chamber of Commerce in case the mutual (insurance) society has not fulfilled certain legal obligations.

There are no restrictions for mutual insurance societies with respect to the scope of the legal business forms to be transformed in, provided the legal person after transformation is either an association, a mutual company, a private company limited by shares or a foundation5.

After demutualisation, a liquidator (mostly the manager) is appointed to divide the assets. After any debts have been settled, the surplus must be paid to the

1 De Haan, L. and J. Kakes (2007). Are non-risk based capital requirements for insurance companies binding? DNB Working Paper 145

2 As large insurers have more scope for diversification, than small insurers, their total losses are more pre- dictable. Hence, their lower risk of insolvency.

3 De Haan, L and J. Kakes (2009). A probit model for insolvency risk among insurers.

4 Wet op de ondernemingsraden (WOR) 1971

5 BW Boek 2, articles 19-24

236 The Netherlands

members and (if applicable) the shareholders – unless the statutes provide differently. The division of the surplus occurs in accordance with the division plan, which the liquidator(s) draws up1. If the statutes do not provide for the division, the surplus (or liability) is divided among the current members according to equal shares.

Increasingly, mutual insurance societies have been and are converted into one or more joint-stock companies (with sometimes a health mutual insurance society), which are regrouped by means of a cooperative holding company. This may involve the mutuals to be demutualised.

Insurance advice, sales or high risk activities are then often accommodated in one of the (separate) joint-stock non-insurance companies. When the advice activities make a loss, the assets of the insuring companies are not affected. Only each joint-stock company or mutual society with insurance activities is currently being supervised by DNB (the prudential supervisor), not the cooperative as a whole. The reasons to do this are: 1) Asset protection. Within a mutual insurance society, no such asset protection arrangement is possible; 2) The cooperative ensures continuity and looks after the interests of the members (which may be both natural and legal persons) whilst profits do not flow to external shareholders; 3) The cooperative has more power to act quicker and more decisively, since the requirement of always consulting the members in the general assembly does not apply; 4) The members are in essence not affected: they do not become richer or poorer (the members’ account may be transferred to the cooperative). They may, for example, have an insurance policy with the joint-stock company and be a member of the cooperative.

Consolidation in the health insurance sector is starting to reach its upper limits in terms of competition law, particularly the larger groups. There are a few smaller health mutual insurance societiess left, which might not survive without merging, particularly in terms of risk, information provision and the buying-in of care from the health service providers. This, however, has more to do with size and scale of the organisation, than the form of legal entity.

2 Concerning internal barriers (barriers mutuals face within their own country):

4 Issues concerning the legal entity:

 The obstacles operators may have when they want to create a mutual in a country;

Very few new mutual insurance societies are nowadays established in the Netherlands. Newly established mutual insurance societies mostly focus on objects that are difficult or very expensive to insure, where prevention – managed within the group of members - can make a significant difference. Examples are (agricultural)insurance, fire-insurance and, more recently, jewellers.

The main obstacles mutual insurance societies face are related to financial supervision regulation. The financial supervision regulation and requirements apply to insurers in all branches (health, P&C, funeral, life etc.).

1 BW Boek 2, articles 19-24

237 The Netherlands

Therefore and as mentioned before, a lighter national regime, and a Solvency II Basic regime have recently been developed, as explained hereunder. As a result there may be 3 regimes:

 The ‘ordinary’ SII regime: For the ca. 260 medium-sized and large insurers in the Netherlands (gross premium income above €5 million and technical provisions above €25 million.), the same regulations of the Solvency II directive will apply as in any other EU country. DNB has provided that larger in-kind funeral insurers (who otherwise would fall under Basic), will in the Netherlands also be included in the Solvency II directive1.  The SII Basic regime: Insurers with a premium income below €5 million and technical provisions below €25 million are exempt from Solvency II2. These insurers will fall under national regulations. In the Netherlands, this means that Solvency II Basic applies to about 100 insurers, which remain above the threshold value of €1 million premium income and technical provisions above €5 million. The national Solvency Basic regime is derived from Solvency II, with specific adaptations. The regulations are currently being developed. When Solvency Basic will be implemented, it is expected that particularly these smaller mutual insurance societies will face major difficulties in complying with the requirements regarding governance, management of the business, compliance, risk management, solvency and auditing. In particular, the regulations regarding capability of the directors (fit and proper requirements) and transparency are perceived as problematic. At present, only the daily managing directors of the mutual insurance society must be assessed on fit and proper requirements. When Solvency Basic will be implemented, these assessments will also be required for each of the Board of directors. Mutual insurance societies often have members on their board of directors, while the managing director is hired externally for his capabilities and skills. Although the members on the board of directors often do have experience in finance or accountancy, they have not been specifically assessed for these purposes. A 40-member mutual insurance society generally also does not have a risk-management, compliance and audit function. And the requirements regarding accountability are experienced to be disproportionally high as well, particularly because mutual insurance societies are by nature transparent organisations, with openly accessible general meetings3.  The national regime4: DNB has proposed that (very small) insurers (very small in-kind funeral societies and very small property and casualty insurers) with annual gross premium income below €1 million, less than 200 persons insured and technical provisions below €5 million. and policy cover to the maximum value of €10,000 will be exempt from regular supervision5. This makes sense, as supervising these entities will cost a disproportional amount of time. It has been proposed by the insurance

1 Interview Verbond van Verzekeraars

2 If either limit is exceeded during three consecutive years, they will be included in Solvency II the following year.

3 Interview FOV

4 Interview DNB

5 http://www.toezicht.dnb.nl/2/50-224691.jsp

6 DNB, Antwoordbrief consultatie Solvency II Basic, 15 juli 2010

7 Interview Verbond van Verzekeraars

238 The Netherlands

trade organisations that these (about 75) insurers exempt from supervision must explicitly indicate that they are not supervised, as supervision has benefits as well6. Transparency on whether a company is supervised is considered important for the reputation of the industry and for clients to be clear with regard to their choice for a certain insurer and DNB-guarantees7.

 The obstacles operators may have when they want to proceed to a merger of mutuals/division/acquisition of a mutual;

Mergers of entities are legally restricted as follows: entities may only merge with entities of the same legal form. The exception is, that a joint-stock company of which all shares are held by a mutual insurance society or by a cooperative, may merge as a disappearing entity. Similarly, a mutual insurance society which has a NV as its only member, may merge and disappear into the NV1.

The Dutch competition authority (NMa) only assesses mergers and acquisitions over the gross income limit of €30 million. (earned within the Netherlands)2. In the assessment of mergers and acquisitions in the insurance market, the legal form of businesses is not taken into account. Only economic activities, size and market share do matter3.

Legally, mergers between mutual insurance societies are as such unproblematic. The assets are for example averaged through a distribution to its members by the wealthiest mutual insurance society, before the merger takes place.

As far as mergers between mutual insurance societies are concerned, other issues than legal issues are generally more critical and problematic, such as: ‘what to do with two directors, where will the head office be and what to do about the pensions of the employees?’4.

Nothing is mentioned in the law regarding the possibility of forming a mutual group. Although this is probably possible, mutuals often regroup as a cooperative because it facilitates management. For example, another cooperative can then also become a member with a stake in the newly formed cooperative.

The accommodation of mutual insurance societies within a larger firm is often accompanied by demutualisation. Although the creation of a joint-stock mutual is possible, this is not yet very common5.

1 BW. Artikel 2:310

2 Mededingingswet

3 Interview NMa

4 Interview FOV

5 Banking Review 01-01-1996. Als het onderlinge jasje gaat knellen.

239 The Netherlands

 The obstacles operators may have when they want to convert to another type of legal entity

There are no restrictions for mutual insurance societies with respect to the scope of the legal business forms to be transformed into, provided the legal person after transformation is either an association, mutual insurance society, or a foundation1.

The conversion of a mutual into a joint-stock company (and vice versa) is considered a liquidation followed by re-establishment of the legal entity2.

5 Issues concerning the activity:

 Specific rules/obligation related to the nature of the business in which mutuals operate (e.g. insurance activities, providence services, management of hospitals, creation of subsidiaries etc.)

Mutual insurance societies may only provide insurance and insurance related activities (such as advice on and selling of insurance policies or activities related to provision of in-kind benefits).

This notion of insurance related activities is further extended for health insurers. They are executioners of the compulsory health insurance, besides insuring medical costs and guaranteed income. They may also provide cover for supplementary health insurance risks which are not covered by the legally compulsory health insurance. In addition, however, the health insurance law (Zorgverzekeringswet) also allows health insurers to deploy activities in purchasing and providing health care services3.

No other limitations apply specifically in relation to the legal business form. For example, there are no restrictions on a health insurance insurance provider to start offering car insurance , funeral insurance or third party insurance. Insurers may also start providing health insurance cover, if they comply with the conditions stimpulated in the health insurance law. These conditions stipulate, amongst others, that the insurer must:  Notify the health authority (NZA) of its intent, accompanied by the model contracts (and notifies any changes in model contracts)  Provide in its statutes for supervision as well as a certain degree of involvement by its policyholders (the insured) in its policies (further regulated by General governance rule - AMVB)4.

In addition, to some activities of a mutual insurance society, one directive applies, while to other activities, another set of regulations may apply. This may occur when a mutual insurance society offers life as well as non-life insurance products (which must then be accommodated in separate entities belonging to the mutual insurance society), or P&C insurance as well as in- kind funeral assistance. If the premium income for the life insurance exceeds the 5 million., Solvency II applies, while for the non-life insurance portfolio remaining below 5 million, Solvency Basic applies. Possibly, the requirement of proportionality resulting in various regimes being applicable in different circumstances, may actually complicate matters5.

1 BW 2, artikel 18

2 Art. 28a lid 1 Wet VPB 1969

3 Zorgverzekeringswet 2006, DNB, http://www.toezicht.dnb.nl/2/50-202026.jsp.

4 Zorgverzekeringswet 2006, Art 25

5 Interview Verbond van Verzekeraars

240 The Netherlands

6 Issues concerning the neglect of mutuals in policy making:

 National rules which by not taking into account the mutual specificities hinder the mutuals’ development (e.g. public procurement, specific tax rules, etc.).

According to the Dutch prudential supervisor (De Nederlandse Bank - DNB), the Law on financial supervision (Wet op het financieel toezicht) applies to all insurers, regardless of whether the insurer is a joint-stock company or a mutual insurance society. A difference is that a joint-stock company is obliged to have at least 3 commissioners (commissarissen, members of the supervisory board), which is not required for mutual insurance societies. Secondly, a mutual insurance society may – provided the statutes are conform the legal requirements – also include in thje solvency margin the members’ account (achtergestelde ledenrekening) and part of the future supplemetary contributions to be claimed from members (suppletiebijdragen).

A lighter, de minimis supervisory regime applies today only to small mutual non-life P&C insurers with a small premium volume, active in a limited number of classes, and with provisions in their statutes regarding limited financial risk for the insurer (limited liability for compensation or possibility to limit member contributions). These insurers operate by means of declaration.

In the national policy developments around Solvency II Basic, other mutual insurance societies (life, reinsurance and more “complex” P&C insurers) which do not fall under the new proposed lighter Solvency II Basic regime but under the normal EU-Solvency II regulations, perceive that they are treated in the same way as large multinationals. Solvency II Basic is therefore regarded as a threat by a number of mutual insurance societies across sectors in the Netherlands.

Both the prudential supervisor as well as the insurance trade association admit that particularly smaller mutual insurance societies (including those operating today under the declaration regime) and those working with a voluntary board of directors, are facing difficulties complying with the supervisor’s (DNB) requirements regarding governance, management and organisational structure. The compliance standards set for (often voluntary) directors and the separation of functions are considered to be very high1. As it is hard to find suitable and willing people to fulfil these positions, mutual insurance societies fear to be taken over or having to cease to exist. Mutual insurance societies which cannot fulfill these standards are not permitted to provide liability, healthcare, credit and suretyship or assistance insurance cover.

On the positive side, mutual insurance societies that are small, act locally or are associated with a specific professional group, have the advantage that members know each other, reducing the risk of moral hazard (through social control) as well as reducing irresponsible risk-taking by the directors2.

Nevertheless, increasing regulations and more intensive supervision have led to an increase in mergers and liquidations of mutual insurance societies. This

1 The separation of function is under SII only required for the internal audit function but it seems that the DNB is considering the separation as the norm and the cumulation as the exception whereas in SII this was intended to be the inverse.

2 Interview DNB

241 The Netherlands

trend is expected to be reinforced by Solvency II and Solvency Basic. Another factor in this regard is the minimum required scale, which over the years has set the standards higher. A number of larger mutual insurance societies have been converted into joint-stock companies, with a cooperative on top. This is prompted by the aim to professionalise the management of the company.

The trade associations FOV (for mutual insurance societies) and Nardus (for funeral societies) are in contact with the Dutch Ministry concerning possible adjustments to the Solvency Basic proposals.

3 Concerning cross border barriers (barriers mutuals face when operating across barriers):

Offering insurance across borders, either from a local office or directly, is governed by the European insurance directives which are applicable to non-life (including health) and life insurers. No difference is made between a joint-stock company or a mutual insurance society. There are no specific Dutch national requirements for insurers licensed in another EU member state. For small mutual insurance societies operating under the declaration (light supervision) regime, it is not possible to obtain a European passport.

 Insurers operating with their head office and license in another EU member state, may offer insurance in the Netherlands after they have gone through a notification procedure with DNB. This primairly entails a check whether the insurer is under supervision within its country of origin. They are supervised by the financial supervisor in their own country and do not require an additional license for operating in the Netherlands1.

 The EC has determined that very small insurers and those offering only in-kind insurance2, are not included in the Solvency II directive. EU Member States may develop their own national regime regarding these entities. A keyword in the EU-regimes is proportionality. Although all Member States are expected to work in the spirit of the Solvency II-directive, there may be differences across countries in the implementation of the EU- directives and in the national regulations.

The majority of smaller mutual insurance societies operate predominantly at regional level. For funeral societies, the tendency is presently to broaden their scope from local towards regional level. Strategically, their activities are generally not directed at cross-border or international expansion.

Cross-border operation and collaboration between smaller mutual insurance societies currently remains limited to the border regions. This may be hampered by financial supervision regulations, since the Dutch adjusted national regime does no longer apply when the mutual insurance society tries to work across the border. For example, a horse insurer which in the Netherlands would normally operate under the national Solvency II Basic, may need to comply with much more

1 Interview DNB

2 Art 6 and 1à of SII: Excluded are assistance activities and also funeral insurance if the amount of such benefits does not exceed the average funeral costs for a single death or where the benefits are provided in kind

242 The Netherlands

stringent EU-Solvency II requirements in the case of cross-border product offerings. The Dutch insurer will then for example need an actuarial function and a “EU-Passport” as required under Solvency II, which implies structural requirements.

There may also be differences in regulation between countries that are not related to issues of supervision. Some Dutch mutual insurance societies operating across the Belgian border discontinued their cross-border activities after they were faced with very high claims. In the Netherlands, a maximum of 20% on top of the insured value applies for additional costs such as cleaning etc. whilst in Belgium, no such limits apply1.

At present, the Dutch prudential supervisor (DNB) does not have insight into recent information from other EU-member states which are possibly developing a supervisory regime for insurers which do not necessarily fall under the EU- Solvency II Directive. Hence it is not possible for the supervisor to compare how the Dutch national regime (which is still being developed) differs from the national regimes in other Member States2.

Cross-border operations within the health insurance sector are currently very limited. All health insurance providers in the Netherlands are based in the Netherlands. The ex-mutual health insurer Achmea is part of a broader international group, which also has its origins in the Netherlands. There is little interest from mutuals or companies in other Member States to offer health insurance services in the Netherlands. Reasons for this are: 1) The Dutch health insurance system is very different from most other EU-Member States: most Member States have a predominantly public health insurance system, sometimes with very limited room for the private sector (Germany above the income threshold), whilst in the Netherlands the system is private within publicly defined preconditions such as risk equalisation. 2) The Dutch health insurance system is very complicated. 3) It is hardly possible to make profits based on the compulsory Basic Health Insurance package. The voluntary supplementory health insurance provides a bit more scope for profit making. In this regard, health insurance is a very different product from other insurance sectors such as life or P&C insurance, because the chances that payout will occur is much higher in health insurance. It is, however possible that a P&C insurer in another Member State might be interested in providing voluntary supplementary health insurance in the Netherlands, or a Dutch P&C insurer might provide supplementary health cover in another Member State. At present, however, there is more scope in the privately organised Dutch system for providers from other Member States than vice-versa. Any obstacles for cross border operation in the health insurance sector are not related to the legal form3.

8 Issues concerning cross-border cooperation with other European partners for the creation of groups of mutuals, or to create a local subsidiary.

Cross-border collaboration, for example with a German mutual insurance society, is only possible by means of creating a joint-stock company. By law, the creation of a European joint-stock company (Europese NV) has been provided for, but not for a ‘European mutual society’4.

1 Interview FOV

2 Interview DNB

3 Interview ZN

4 Interview DNB and FOV

243 The Netherlands

Although this is a limitation, it is generally not assumed to be problematic for mutual insurance societies. Larger mutual insurance societies do not seem to have a problem with operating cross-border, as they do so by means of creating a joint- stock company, while the ambitions to work cross-border are rather limited in the case of smaller mutual insurance societies1.

9 Examples of existing cross-border co-operations and their legal form

Generally, this mainly involves large joint-stock companies. Mostly they make use of subsidiaries in the countries where they provide services. An example of the former is Achmea, see under 10 below. Achmea is nowadays a joint-stock company, which is owned for 65 percent by Achmea Society (Achmea Vereniging) and about 30% by Rabobank (a cooperative bank). Achmea Society consists of all client members of all mutuals and previous health funds which have become part of Achmea B.V.

10 Examples of autonomous expansion across the frontiers of mutuals.

Presently, competition by smaller mutual insurance societies from other EU- countries in the Netherlands remains limited to agricultural insurance.

Achmea Achmea is an example of a large previously mutual insurer which is now active as a joint-stock company in other European countries. Achmea was established by Dutch farmers in 1811. After a number of mergers and acquisitions, its name changed to Eureko. The insurer’s main products are related to insurance of property and casualty, health and income protection. The majority (65%) of the shares of the group are owned by the customers-members of all the mutual insurance societies and mutual health funds which have become part of the - insurance company Achmea2 . The other large shareholder is the Dutch cooperative bank Rabobank, which owns almost 30 percent of the shares. Nowadays, Achmea comprises six large insurance brands and has 17,000 employees working in the Netherlands and 4,000 employees in seven other European countries. Achmea owns Friends First in Ireland, Interamerican in Greece and Bulgaria, Eureko in Romania, Union in Slovakia ( 97%), Eureko Sigorta in Turkey, Oranta in Russia and Império France in France3. As of January 1st 2012 Eureko has been renamed to Achmea, in order to reemphasise the link with its majority shareholders, the Vereniging Achmea (Achmea Society). Practically it means that for Friends First in Ireland, Interamerican in Greece, Oranta in Russia, Union in Slovakia and Interamerican in Bulgaria, the name Eureko disappears. Eureko remains the retail brand of Eureko Sigorta in Turkey and Eureko in Romania due to their recognised market position.4

Of the smaller Dutch mutual insurance societies, only about five in total might be active internationally. International activities remain limited, because it is not necessarily seen to be in the interest of the members. Only the larger Achmea (originally a mutual, now a joint-stock company) and TVM (a transport insurance cooperative for entrepreneurs) are international players5.

1 Interviews FOV and Nardus

2 http://www.verenigingachmea.nl/

3 Achmea international website:

4 Achmea international website: http://www.achmea.com/about/eureko-renamed-achmea

5 Interview FOV

244 The Netherlands

4 Concerning national measures, for promoting mutuals and measures aiming at access to finance for mutuals:

The law allows only mutual insurance societies with excluded liability (U.A.) to provide services for non-member clients (B.W. art. 2:53 item 3 and 4), provided that this is not arranged in a way that the agreements with and interests of members become subordinate.

Funeral societies often also provide services to non-member clients.

Legally, (B.W.2 Titel 3, art. 62) it is possible for mutual insurance societies in the Netherlands to divide their capital into shares and issue shares to member as well as to non-member shareholders1. In such case both the members and shareholders may access and vote in the general meeting. The ratio between votes of the two groups must be recorded in the statutes. For example: one vote per insurance policy and one vote per share to the amount of € x. Also, the member votes must be in majority compared to the shareholder votes, for example 51% to 49%. In practice, mutual insurance societies with shareholders are not common. Mostly, it concerns a mutual insurance society where other mutual insurance societies are the shareholders. For example, when a “central” mutual insurance society insures the miscellaneous products of the shareholding mutual insurance societies.

An example of a Dutch “joint-stock mutual insurance society” was the MAAV, which was especially established by 8 insurers and enshrined by law2 in 1994 to provide supplementary cover for chronically ill employees against a fixed maximum premium amount. The MAAV was a transitional law to accommodate the negative effects of a new Law to force back claims on settlements regarding the inability to work (1993)3. MAAV was discontinued in 2006. The mutual insurance society ‘MAAV’ has concluded contracts with about 1200 employees. This group decreased over the years (decease and pensions). In june 2003 there were 470 insured persons, of which 308 “in damage” and 162 still paying premiums. The last insurance contract expires in 2037. The risk profile regarding inability to work of the active policy holders increasingly fitted the general risk for inability to work. Due to efficiency considerations the MAAV has transferred its portfolio to a common insurer with full retention of rights for the insured4.

None: No difference is made with respect to the legal form of mutual societies or joint-stock companies.

1 Banking Review, 01-01-1996 “Als het onderlinge jasje gaat knellen”

2 Wet medefinanciering aanvullende arbeidsongeschiktheidsverzekeringen, 1993

3 Wet terugdringing beroep op arbeidsongeschiktheidsregelingen, 1993 4 Ministerie van SZW, Memorie van Toelichting Algemeen in het Strategisch Akkoord bij wetsvoorstel betreffende het Actieplan vereenvoudiging SZW-regelgeving (Kamerstukken II 2005/06, 30 300 XV, nr. 4)

245 The Netherlands

13 The existence, if any, of national, regional or local policies aiming at the promotion of mutuals, such as tailored business support services, specialised agencies, creation of federations etc.

The federation FOV represents the interests of mutual insurance societies in the Netherlands, both large and small. The affiliated mutual insurance societies contribute membership fees to the federation. Foreign mutual insurance societies which establish an office in the Netherlands are statutory not allowed to become FOV members.

The funeral societies are represented by Nardus, which is financed by the affiliated funeral societies (a payment per funeral). They have also developed a management course for the in-kind funeral societies. A problem is that many of the societies are run by volunteers and the costs of the course are often prohibitive.

Various other federations represent the interests of insurers in general or specific branches, such as Verbond van Verzekeraars or ZN (health insurers). These are, however, not specifically focused on mutual insurance societies.

The UN-year of the cooperative 2012 could be an example for the EC (“an EC-year of the mutual societies”), as well as facilitation by means of adjusted or tailored regulation.

Besides the activities of the trade federations, there are presently no activities to improve the visibility and awareness of mutual insurance societies.

More collaboration is required. This could, amongst others, be realised by mergers between mutual insurance societies.

As far as funeral societies are concerned, the membership administration could also be outsourced, in order for the funeral society to focus on the core business of taking care of the funerals.

Mutual insurance societies have the advantages that they more easily comply with the prudential capital requirements and that they could advertise the fact that they do not pay out profits to external shareholders. The latter, however, is hardly emphasised by most mutual insurance societies in the Netherlands.

246 24 Poland

247

248

Country study on the current situation and prospects of mutuals

Poland

The Solvency II Directive (Annex 3) provides the following legal forms for life, non-life and re-insurance undertakings in Poland: Spółka akcyjna (joint-stock company); Towarzystwo ubezpieczeń wzajemnych (mutual insurance company).

A) Definitions of mutuals There is no general definition of mutuals in Polish law.

Mutuals exist in insurance law, but are not defined. The Towarzystwo ubezpieczeń wzajemnych (TUW) by definition always concerns mutual insurance companies.

B) Legal types (if more types exist)

The Towarzystwo ubezpieczeń wzajemnych (TUW) by definition always concern mutual insurance companies. A TUW can be active in life insurance, in non-life insurance and in reinsurance.

An insurance undertaking is not allowed to perform any other activity apart from insurance activity and operations directly related thereto. Yet insurance undertakings may also, directly or through separate insurance intermediaries, act as intermediary for entities performing banking activities (in Article 5 paragraph 1 and 2 of the Banking Law of 29 August 1997) as well as selling and repurchasing units of investment funds and opening investment funds also with registered offices in EU member states1.

The main laws applicable to Polish mutual insurance societies are:  Act of Insurance and Pension Funds Supervision 20032; and  Act of Insurance Activity 20033

Art 43 of the 2003 Act on insurance activity, describes a de minimis regime: A mutual undertaking which possesses a limited scope of activity because of the small number of members and the small number or low amount of insurance contracts concluded or an inconsiderable territorial range of activity may be recognised by the supervision authority as a small mutual insurance undertaking. The supervision authority may recognise a mutual undertaking as a small mutual insurance undertaking if the mutual undertaking fulfils the following conditions:  1) the mutual undertaking only insures its own members;  2) the mutual undertaking’s members belong to the circle of entities defined in the articles of association;  3) the annual premium written does not exceed the PLN equivalent of EUR 5 million. The decision on recognising a mutual undertaking as a small mutual insurance undertaking by the supervision authority is subject to entry in the National Court Register. Some articles do not apply to small mutual insurance companies whose articles of association provide for supplementary contributions by members or a decrease in the mutual undertaking’s benefits

1 Act of 22 May 2003 on Insurance Activity, art. 3: http://www.knf.gov.pl/en/Images/Insurance_Activity_2011_a_tcm81-27882.pdf

2 Act of 22 May 2003 on Insurance and Pension Funds Supervision and on Insurance Ombudsman: http://www.knf.gov.pl/en/Images/o_nadzorze_ubezpieczeniowym_i_emerytalnym_2011_tcm81- 27179.pdf

3 Act of 22 May 2003 on Insurance Activity: http://www.knf.gov.pl/en/Images/Insurance_Activity_2011_a_tcm81-27882.pdf

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to its members (such as Article 13 paragraph 1 (what should be included in insurance contracts), Article 45 paragraph 1 (that the articles of association of a mutual undertaking shall provide for the establishment of supplementary capital), Article 46 (Concerning share capital) and Article 146 paragraph 1 (concerning solvency margins and guarantee funds)). Small mutual insurance societies cannot pursue the activity of inward reinsurance.

There are other organizations than TUW who identify them as “mutuals” and are registered as associations. They are not active in compulsory health insurance but offer complementary services to their members: as a health provider or contracting (private/public) health providers. As these organisations are essentially associations, they will not be included in the analysis of the country factsheet.

C) Methods of creation (required capital or assets)

The pursuit of insurance activity requires authorisation issued by the supervisory authority. In addition, mutual insurance companies are subject to entry in the National Court Register, after which they gain legal personality4.

The mutual term is protected in the sense that insurance undertakings in the form of a mutual insurance company have the obligation and exclusive right to use the words "mutual insurance company" (“towarzystwo ubezpieczeń wzajemnych”) in their name. It is permissible to use the abbreviation "TUW" in trade5.

The articles of association of a mutual insurance company must be drawn up in the form of a notarial deed and require approval by the supervisory authority, prior to registration.

The articles of association of a mutual insurance company must specify: 1) the name and registered office of the mutual insurance company; 2) the territorial range of activity; 3) the number of management board and supervisory board members; 4) the material scope of activity, with the determination of the section, classes and types of insurance and the scope of reinsurance activity; 5) the amount of the share capital (wysokość kapitału zakładowego) i.e. initial capital; 6) rules for using the balance sheet surplus and the manner of covering losses; 7) rules for the redemption of shares; 8) rules for obtaining and losing membership and the types of membership; 9) the manner of dissolving the mutual insurance company; 10) rules for placing the mutual insurance company’s announcements, including designation of the newspaper in which announcements are to be made; 11) the body empowered to approve the general insurance conditions6.

According to art. 46 of the 2003 on insurance activity Act, 2. The share capital shall be entirely covered by a cash contribution within 30 days following the day of a mutual insurance company’s registration. Required capital or assets is not specified in the law. For Directive insurers (not falling under the de minimis regime, the European solvency rules apply.

The following amendments to the articles require approval by the supervisory authority pri- or to registration: 1) a change of registered office or name; 2) a decrease of the share capital; 3) a change of territorial range or material scope of activity; 4) the establishment of funds, technical provisions and other provisions as a costs item; 5) a change of the principles of representation of the mutual undertaking;

4 Act of 22 May 2003 on Insurance Activity, art. 39 5 Act of 22 May 2003 on Insurance Activity, art. 6 6 Act of 22 May 2003 on Insurance Activity, art. 41

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6) changes in the management of the mutual undertaking’s property and assets, including the determination of competences of the mutual undertaking’s bodies and repayments of amounts due to members of the mutual undertaking; 7) changes in the initial fund, subject to Article 92 paragraph 2 (5)7.

Domestic or foreign insurance undertaking pursuing insurance activity with respect to motor third party liability insurance shall become a member of: 1) the Insurance Guarantee Fund (Ubezpieczeniowy Fundusz Gwarancyjny)– as of the day of conclusion of the first contract in this insurance class 2) the Polish Motor Insurers’ Bureau (Polskie Biuro Ubezpieczycieli Komunikacyjnych)8

Domestic or foreign insurance undertaking pursuing insurance activity in the territory of the Republic of Poland with respect to farmers’ third party liability insurance shall become a member of the Insurance Guarantee Fund.

Domestic insurance undertakings and foreign insurance undertakings, which pursue activity in the territory of the Republic of Poland, are obliged to become a member of the Polish chamber of Insurance and pay membership fees (amount determined by Minister competent for financial institutions)9. The Polish Chamber of Insurance (Polska Izba Ubezpieczeń), is an organisation of economic self-government, representing insurance undertakings to solve problems of the insurance market10.

The level of insurance companies’ charges for supervision has been regulated in Art 14 of the 2003 Act of 22 May 2003 on Insurance and Pension Funds Supervision and on Insurance Ombudsman. The costs of supervision are covered by insurance undertakings and reinsurance undertakings (including mutual insurance companies), which may amount up to 0.14% of gross premium paid.

D) Management and corporate governance

Corporate governance: mutual insurance undertakings in Poland follow a two tier governance structure. The bodies of a mutual insurance company are: 1) the management board; 2) the supervisory board; and 3) the general meeting11.

While the management board of a domestic insurance undertaking must consist of at least two members, this requirement does not apply to mutual insurance companies12.

Art 46, 2003 Act on insurance activity: 5. Persons who contributed the share [i.e. initial] capital may be members of the mutual insurance company’s management board or the mutual insurance company’s supervisory board, to the extent specified in the articles of association, until the time of capital repayment.

The general meeting as supreme body The mutual insurance company’s supreme body is the general meeting. In matters not reserved in the Acts of 2003 or in the articles of association for the competences of the mutual insurance company’s other bodies, the adoption of resolutions shall fall to the general meeting13.

7 Act of 22 May 2003 on Insurance Activity, art. 40 8 Act of 22 May 2003 on Insurance Activity, art. 10 9 Act of 22 May 2003 on Insurance Activity, art. 215 10 Act of 22 May 2003 on Insurance Activity, art. 216 11 Act of 22 May 2003 on Insurance Activity, Art. 48 12 Act of 22 May 2003 on Insurance Activity 13 Act of 22 May 2003 on Insurance Activity, art. 64

251 Poland

The general meeting appoints and recalls the management board members, unless the articles stipulate otherwise14. The supervisory board must consist of at least five members appointed and recalled by the general meeting, unless the articles provide otherwise15.

Ordinary general meetings shall be held within 6 months following the end of each financial year. The subject of ordinary general meeting debates, apart from the matters specified in the articles of association, must include: 1) examination and approval of the management board’s report on the mutual insurance company’s activity, the balance sheet and profit and loss account for the previous year; 2) adoption of a resolution on distribution of the balance sheet surplus or the coverage of the balance sheet loss; 3) granting a vote of discharge to the members of the mutual insurance company’s bodies in respect of fulfilment of their duties16.

The general meeting shall be held at the mutual insurance company’s registered office. The articles of association of a mutual insurance company may contain different provisions concerning the place for convening the general meeting, but the general meeting can only be held in the territory of the Republic of Poland17.

If the articles of association of a mutual insurance company do not stipulate otherwise, the general meeting shall be valid irrespective of the number of shares represented thereat18.

Resolutions of the general meeting are to be adopted by an absolute majority of votes, provided that the articles or this law do not stipulate otherwise19.

In the minutes, the correctness of convening the general meeting and its capacity to adopt resolutions must be confirmed. In addition, the minutes must mention the resolutions adopted, the number of votes cast for each resolution, and objections raised. Appropriate documents must be attached to the minutes, including evidence of convening the general meeting and the attendance list with signatures of the meeting’s participants20. The management board shall place a copy of the minutes in the minute book. The mutual insurance company’s members entitled to participate in the general meeting may inspect the minute book and may also request access to copies of resolutions, authenticated by the management board21.

Member’s rights and liabilities Art 46 of the 2003 Act on Insurance activity: Persons who contributed the share [initial] capital may be members of the mutual insurance company’s management board or the mutual insurance company’s supervisory board, to the extent specified in the articles of association, until the time of capital repayment.

Mutual insurance undertakings may also cover persons who are not members, provided that they pay a fixed premium and the total size of their premiums does not exceed 10 percent of the total insurance premiums22.

The benefits due to membership of the mutual insurance company do not exempt him/her from the obligation to pay premiums. The articles of association of a mutual insurance company may provide for a decrease in insurance benefits of the mutual insurance company to members, unless they provide for an unlimited members' participation in covering the loss

14Act of 22 May 2003 on Insurance Activity, art. 49 15 Act of 22 May 2003 on Insurance Activity, art. 58 16 Act of 22 May 2003 on Insurance Activity, art. 65 17 Act of 22 May 2003 on Insurance Activity, art. 66 18 Act of 22 May 2003 on Insurance Activity, art. 70 19 Act of 22 May 2003 on Insurance Activity, art. 75 20 Act of 22 May 2003 on Insurance Activity, art. 75 21 Act of 22 May 2003 on Insurance Activity, art. 75 22 “Towarzystwo ubezpieczeń wzajemnych (TUW)”, http://www.money.pl

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in the technical insurance account. Members of a mutual insurance company shall not be liable for the obligations of that mutual insurance company23.

Voting and representation of members in general meetings The members entitled to participate in the general meeting may exercise the right to vote in person or by proxies24.

The mutual insurance company’s members who are entitled to participate in the general meeting and who represent at least one tenth of the shares or votes at the general meeting may demand that an extraordinary general meeting be convened, and may place specific items on the agenda of the next general meeting25.

Amendments of the articles of association of a mutual insurance company require a resolution of the general meeting adopted by a majority of at least three quarters of the votes cast26.

Voting shall be open. Resolutions of the general meeting shall be recorded by a notary pub- lic27.

A secret ballot shall be ordered in the case of the election of the mutual insurance company’s bodies or liquidators and on motions to recall members of the mutual insurance company’s bodies or liquidators, on prosecuting them, as well as on personal matters. Secret voting shall also be ordered at the request of at least one of those present28.

Type or shares, if any Shares are possible and the rules should be stated in the articles of association. According to Article 46 of the Insurance Activity Act, the articles of association of a mutual undertaking may provide for the repayment of share capital only out of annual surpluses, and within the period of creating supplementary capital, to persons who contributed the share capital, or may provide for not repaying share capital to specific persons.

Reserves Article 45 of the 2003 Act on insurance activity states that the articles of association of mutual insurance companies shall provide for the establishment of reserve capital, provided that the decrease of reserve capital may occur solely through covering the balance sheet loss.

Possibility of non-member investors: Article 46 of the 2003 Act on insurance activity provides the following with respect to the share capital of mutuals: 1. The share capital cannot be lower than the highest amount of the minimum guarantee fund required for the insurance classes referred to in the Annex to the Act, with respect to which the mutual insurance company has authorisation to pursue insurance activity 2. The share capital shall be entirely covered by a cash contribution within 30 days following the day of a mutual insurance company’s registration. 3. The articles of association of a mutual insurance company may provide for the repayment of share capital only out of annual surpluses, and within the period of creating supplementary capital, to persons who contributed the share capital, or may provide for not repaying share capital to specific persons. 4. The share capital may be decreased by reducing the par value of shares or by redeeming part of the shares.

23 Act of 22 May 2003 on Insurance Activity, art. 45 24 Act of 22 May 2003 on Insurance Activity, art. 73 25 Such a demand must be submitted in writing to the management board, 30 days before the proposed date of the general meeting at the latest. Source: Act of 22 May 2003 on Insurance Activity, art. 68 26 Act of 22 May 2003 on Insurance Activity, art. 79 27 Act of 22 May 2003 on Insurance Activity, art. 75 28 Act of 22 May 2003 on Insurance Activity, art. 75

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5. Persons who contributed the share capital may be members of the mutual insurance company’s management board or the mutual insurance company’s supervisory board, to the extent specified in the articles of association, until the time of capital repayment. 6. The repayment of share capital to a person referred to in paragraph 5 shall result in the purchase of own shares by the mutual insurance company concerned. 7. If own shares are not sold within 12 months following the day of their purchase, they must be redeemed by reducing the share capital. 8. Own shares must be recorded in the balance sheet as a separate item called "Own shares for sale". 9. A mutual insurance company cannot itself or through proxies exercise the rights arising from its own shares. 10. The annual surplus may be earmarked to repay share capital, as referred to in paragraph 3, or to increase equity and membership funds in the mutual insurance company29.

Transparency and publicity/ Related auditing issues Insurance undertakings must submit to the supervisory authority the annual financial statements, prepared according to the provisions on accounting, within 6 months following the last day of the financial year. Financial statements of insurance undertakings pursuing activity with respect to insurance referred to Section I and Section II class 10 of the Annex to the Act shall also be signed by actuaries, apart from the persons specified in separate Acts30.

Insurance undertakings should also present quarterly and additional annual financial and statistical statements to the supervisory authority31.

Protection of assets: In the case of demutualization following a transformation, there is no specific asset protection in the case of demutualization. The assets of the mutual insurance company converted shall become the assets of the joint-stock company established. The provisions of the Code of Commercial Partnerships and Companies concerning contributions in kind and the shares delivered to shareholders against those contributions shall apply to the assets of the joint-stock company established and to the shares taken up by its shareholders32.

E) Additional information

In pre-war Poland, a few dozen of mutual insurance societies were active, particularly in fire insurance. After the war, the assets of all these mutuals were transferred to the state owned enterprise “Powszechny Zakład Ubezpieczeń”, PZU in short33.

This general public insurance enterprise “PZU” is currently still the largest insurance company in Poland, in both life and non-life insurance,despite the fact that its position weak- ened from a market share of 56% in 2002 to 38% in 2009. This was mainly due to the integration of Poland in the European Union, which induced a shift towards a group of medium- sized companies with foreign capital covering the majority of the market34.

Mutual insurers represent less than 5 percent market share in the Polish insurance market35. The non-life insurance sector in Poland is dominated by about 27 joint-stock companies covering around 97 percent of the market share. With their relatively small share, the 7 mutual insurance companies in the non-life sector only have a limited impact on the sector’s performance36.

29 Act of 22 May 2003 on Insurance Activity, art. 46 30 Act of 22 May 2003 on Insurance Activity, art. 167 31 Act of 22 May 2003 on Insurance Activity, art. 169 32 Act of 22 May 2003 on Insurance Activity, art. Article 89. 33 http://www.tuw.pl/PL/testowy_2_sub_1.html 34 Kozak, S. (2011). Determinants of profitability of non-life insurance companies in Poland during integration with the European financial system. 35 AMICE (2011). Cross-border business and cooperation in the mutual and cooperative insurance sector. Brussels 2011. 36 Kozak, S. (2011). Determinants of profitability of non-life insurance companies in Poland during integration with the European financial system.

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Also in the life insurance sector, mutual insurance companies are a minority: 2 mutual insurance companies operate alongside some 30 joint-stock companies. In addition, the Polish Insurance Supervision Office notified around 290 foreign insurance companies and at least 7 Polish companies have started to operate outside Poland37.

In total, there are currently about 9 mutual insurance companies in Poland, with in total around 40 regional offices38. They employ around 500 employees39. Some more prominent mutual insurers are TUW, Cuprum, Rejent Life and Macif. Recently, a mutual mortgage in- surer40 has been liquidated. In addition, there are nearly 1000 mutual assistance organisations active in other (non-insurance) domains, such as relief savings unions41.

Health care in Poland is - since the 1999 reform - mainly financed through national insurance contributions, amounting to about 9 per cent of taxable income. The fees are collected by the Social Insurance Institution and then transferred to regional health funds and a ‘branch fund’, which purchase medical services from public and private sector providers. In addition, government budgets continue to finance public health services, the hospital costs of all health services, and specialist tertiary care services and very expensive drugs42. Due to the described health financing structure, mutual insurers are almost non-existent in the Polish health sector.

1 Legislation impacting the functioning of mutuals:

1 Is there legislation on taxation issues (preferential treatment)?

2 Is there legislation concerning employee involvement systems?

3 What are the possibilities and regulations in a situation of demutualization (e.g. transforming a mutual to a traditional capital company) protection of assets in case of demutualization?

In the case of demutualization following a winding-up and liquidation: Insurance undertakings must wound-up in the following cases: 1) When a resolution is adopted by the general shareholders meeting on dissolving the insurance undertaking (voluntary winding-up); 2) If required to do so by the supervising authority (compulsory winding-up)43.

The winding-up of a small mutual insurance company shall proceed in a manner specified in the resolution of the general shareholders meeting.

In the event that the supervisory authority ascertains that the winding-up activities towards a small mutual insurance undertaking have not been foreseen in the Stat- ute, the provisions of the Code of Commercial Partnerships and Companies shall apply for the winding-up of that undertaking44.

37 CEA, Insurers of Europe (2007). Topography of EU25 Description of markets, products and distribution. Brussels, 17 january 2007 38 http://bazy.ngo.pl 39 The data on the number of entities is sourced from the REGON register, data on the number of employees are estimates based on “The Condition of the Social Economy Sector in Poland, 2006”. 40 Insuring private clients'/persons' financial means invested in newly developed flats/buildings/houses 41 Kuba Wygnański with support from Piotr Frączak ( Social Economy in Poland: definitions, application, expectations and uncertainties. Social Economy texts 2007. 42 Health Care Reforms in Poland. Hertie School of Governance, Working Paper, No. 9, March 2008. 43 Act of 22 May 2003 on Insurance Activity, art. 190. 44 Act of 22 May 2003 on Insurance Activity, art. 200

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In the case of demutualization following a transformation: There is no specific asset protection in the case of demutualization. 1. The assets of the mutual insurance company converted shall become the assets of the joint-stock company established. 2. The provisions of the Code of Commercial Partnerships and Companies concerning contributions in kind and the shares delivered to shareholders against those contributions shall apply to the assets of the joint-stock company established and to the shares taken up by its shareholders45.

2 Concerning internal barriers (barriers mutuals face within their own country):

4 Issues concerning the legal entity:

 The obstacles operators may have when they want to create a mutual in a country;

The 2003 Insurance Activity Act specifies the same requirements for both joint-stock and mutual insurance companies.

Requirements with respect to management board members: - In order to be allowed on the management board of a domestic insurance undertaking, management board members must have a higher education qualification46. - At least two members of the management board of a domestic insurance undertaking, including the president of the board, must have a certified knowledge of Polish47 - The above obstacles may be abandoned on request of the insurance undertaking, taking into account the professional experience of that person and the scope of the undertaking - A person being a member of the managing body of the following entities cannot be a member of the managing body of an insurance undertaking: 1) a national investment fund or a company managing the assets of the national investment fund, 2) an investment fund management company; 3) an entity performing brokerage activities within the meaning of the Act on Trading Financial Instruments of 29 July 2005 (Journal of Laws No. 183, item 1538, as amended14)) or any other activities in the scope of trading in financial instruments within the meaning of this Act; 4) a general pension society; 5) a bank; 6) a reinsurance undertaking.

Requirements regarding the application for approval to conduct insurance activity by the supervising authority: 1) specification of the name or business name, registered office and address, and the territorial range and material scope of activity of the domestic insurance undertaking concerned; 2) specification of the amount of share capital; 3) an indication of the founders of that domestic insurance undertaking; 4) an indication of the legal form in which the activity is to be pursued; 5) specification of the amount of the initial fund earmarked for the establishment of that domestic insurance undertaking’s administration and the organisation of its representative office network; this requirement shall not

45 Act of 22 May 2003 on Insurance Activity, art. Article 89. 46 Act of 22 May 2003 on Insurance Activity, art. 27 47 Act of 22 May 2003 on Insurance Activity, art. 27

256 Poland concern a case where acquisition on behalf of the insurance undertaking referred to in Article 38 paragraph 1 will be done by the insurance undertaking’s founders’ own structures; 6) an indication of the names and surnames of the persons assigned as members of the management board and the supervisory board; 7) an indication of the name and surname of the actuary, the person entrusted with keeping the accounting books, and the investment adviser in the case where the obligation to employ such person results from the Act.

Additionally the 2003 Act on insurance activity added the following requirements: The following shall be enclosed with the application (art. 92): 1) draft articles of association of the domestic insurance undertaking; 2) drafts of general insurance conditions against risks, in the scope of which the authorisation is to be issued; 3) the financial statements of the founders, comprising balance sheets, profit and loss accounts, cash flow statements for the last 3 years preceding the date of submitting the application or for the whole period of activity, if the founders concerned have pursued business activity for a period less than 3 years - in a case where the obligation to prepare such founders' financial reports on the business activity pursued by them results from separate provisions of the law; 4) notes on the accounts referred to in point 3; 5) calculation of the required solvency margin and calculation of the value of available solvency margin – in the case where the founder concerned is an insurance undertaking or reinsurance undertaking; 6) bank reports of the cash flow on bank accounts, covering the period of one year until the date of submitting the application, tax returns submitted on the basis of the provisions on personal income tax for the last three fiscal years, a declaration of the origin of cash earmarked for covering the share capital and the initial fund – in the case of founders being natural persons who are not obliged to draw up financial statements; 7) the founders' declarations of share capital, with an indication of the entities acquiring shares, the manner of acquisition of shares, the number of shares acquired and the type of shares; 8) evidence from the founders of possessing funds free from encumbrances in an amount equal to the share capital and the initial fund, together with a declaration that these funds are earmarked to cover the share capital and the initial fund; 9) the scheme of operations covering the period of the first 3 financial years of activity; 10) certificate or declaration on entry in the National Court Register or ex- cerpt from an appropriate register issued outside of the borders of the Re- public of Poland, issued not later than 3 months prior to the filing of the application – if the founder is a legal person; 11) a certificate of the supervisory authority competent for the registered office of a foreign insurance undertaking or a foreign reinsurance undertaking concerning the activity pursued by the applicant and the fulfilment of requirements in the scope of solvency; 12) certified by notary public copies of an identity card containing the identity card series and number, the name and surname, PESEL personal identifi- cation number, indication of the body issuing the identity card and the date of issue of the identity card or a certified by notary public copy of the passport – in the case of founders being natural persons; 13) the curricula vitae of founders being natural persons and persons assigned as members of the management board, members of the supervisory board and the actuary; 14) the approval of persons assigned as management board and supervisory board members to take up positions with the insurance undertaking and a declaration of the actuary on giving approval for the performance of duties

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with a domestic insurance undertaking; 15) attestation of appropriate education and business experience of the persons intended to be members of the management board and the supervisory board, including copies of the certificate of employment and documents confirming the education; 16) a certified copy of the decision entering the actuary in the register of actuaries; 17) data about the education and business experience of the person proposed as an actuary, including copies of the certificate of employment and documents confirming the education; 18) certificate of no criminal record or declaration of the persons proposed as members of the management board and supervisory board and the actuary; 19) a declaration of the founders and persons assigned as management board and supervisory board members about pending court proceedings against them, with respect to a business case; 20) declarations of the founders and persons assigned as management board and supervisory board members about their participation in the managing and supervisory boards of commercial companies; 21) declaration of the investment adviser about giving approval for employment - in the case of an application for issuing authorisation to pursue insurance activity in the scope of Section I class 3 of the Annex to the Act; 22) a list of claims representatives, to be established in every European Un- ion Member State -in the case of an application to issue authorisation to pursue insurance activity in the scope of Section II class 10 of the Annex to the Act, except for the carrier's third party liability insurance; 23) a declaration of the founders on whether a domestic insurance undertaking will be a subsidiary of, or in which participation will be held by: a) the insurance undertaking, reinsurance undertaking, credit institution or investment firm which received adequate authorisation to pursue activity in a European Union Member State, b) the parent entity of an insurance undertaking, reinsurance undertaking, credit institution or investment firm which received adequate authorisation to pursue activity in a European Union Member State, c) a natural or legal person holding a significant participation in an insurance undertaking, reinsurance undertaking, credit institution or investment firm which has received adequate authorisation to pursue activity in a European Union Member State, with an indication of the names and addresses of the entities.

Article 93 of the Polish Act on Insurance Activity provides that the scheme of operations (referred to in Article 92) shall specify the data and conditions which, regarding the type and volume of insurance carried on, are necessary to ensure the capacity of the domestic insurance undertaking concerned to fulfil its obligations. The scheme of operations shall contain in particular: 1) specification of the types of risks against which that domestic insurance undertaking intends to insure; 2) a reinsurance programme, specifying the form and scope of reinsurance and the reinsurers; 3) specification of the sources of financial resources in the amount of a minimum guarantee fund and required solvency margin; 4) an assessment of the expenses of establishing the administration of that domestic insurance undertaking and the organisation of activity, with specification of the sources of financial resources for these expenses; 5) specification of funds in the possession of the domestic insurance undertaking, which are necessary to provide services of assistance if that domestic insurance undertaking intends to insure against the risks specified in Section II class 18 of the Annex to the Act; 6) specification of the organisation of insurance activity, including: a) the organisational structure of the domestic insurance undertaking,

258 Poland b) the manner of insurance contract conclusion, c) rules for risks acceptance, d) the manner of determining insurance premiums, e) the manner of determining technical provisions, f) accepted accounting standards, in particular the standards of expenses settlements, including administrative expenses and the acquisition expenses, g) the system of determination the value of damages/claims or benefits, h) the system of asset management, i) the system of internal control. 2. A simulation account of the first 3 financial years of activity shall be attached to the scheme of operations referred to in Article 92 paragraph 3 (9), comprising the following: 1) estimates of the expenses of insurance activity, including administrative expenses and the acquisition expenses; 2) estimates of the premium and benefits, distinguishing direct activity and reinsurance; 3) estimates of the number of insurance contracts concluded, the rate of contract terminations and the value of sums insured, if the domestic insurance undertaking intends to insure against the risks specified in Section I of the Annex to the Act; 4) estimates and indication of the sources of financial resources necessary to cover technical provisions and available solvency margin in the amount of the required solvency margin; 5) drafts of the following: a) balance sheet, b) general profit and loss account, c) overall technical insurance account, d) technical insurance accounts for classes of insurance, e) calculation of available solvency margin and the required solvency margin and guarantee fund; 6) justification of the estimated values referred to in points (1) to (3).

All in all, these rules seem not to be fully applicable to mutual-type organisations and hence provide unclarity concerning the rules to follow for establishing a TUW.

There is however, a de minimis regime for small mutual insurance companies. Some articles do not apply to small mutual insurance companies whose articles of association provide for supplementary contributions by members or a decrease in the mutual undertaking’s benefits to its members (such as Article 13 paragraph 1 (what should be included in insurance contracts), Arti- cle 45 paragraph 1 (that the articles of association of a mutual undertaking shall provide for the establishment of supplementary capital), Article 46 (Concerning share capital) and Article 146 paragraph 1 (concerning solvency margins and guarantee funds)). The Law does only indicate which articles do not apply, it does not indicate how the small mutual insurance companies should be regulated (for instance concerning the amount of guarantee capital).

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 The obstacles operators may have when they want to proceed to a merger of mutuals/division/acquisition of a mutual;

Mergers between mutual insurance companies are possible provided that the following conditions are met:

- A resolution on the dissolution of a mutual insurance company or a merger with another mutual insurance company shall be adopted by a majority of at least three quarters of the votes cast (similar to other constitutional changes)48 - The merger of insurance undertakings may take place if they pursue activity in the same legal form49. - The provisions of the Code of Commercial Partnerships and Companies on mergers of joint-stock companies shall apply to mergers of insurance undertakings, subject to the provisions of this Chapter. In the case of mutual insurance companies these provisions shall apply accordingly50.

Groupings between mutual insurance companies without merging is not possible.

Acquisition / transfer of insurance portfolio The supervisory authority shall, by way of a decision, approve the transfer of insurance portfolio, if the following conditions are met: 1) A motion (meeting the conditions specified in Article 184) has been submitted; 2) the insurance undertaking transferring and the one taking over the insurance portfolio meet the conditions specified in Article 182; 3) the interests of the policy holders, insured persons, beneficiaries or persons entitled under the insurance contracts are duly secured51.

After the approval of the insurance portfolio transfer, the supervisory authority shall, at the expense of the insurance undertakings concerned, announce, in a Polish daily newspaper of nationwide circulation, the insurance portfolio transfer and call upon the policyholders to lodge objections within 3 months following the day of the announcement. Policyholders that have lodged an objection have the right to terminate the insurance contract being transferred as of the last day of the time-limit following the day of announcing the transfer of insurance portfolio52.

Notification of acquisition of shares to supervisor Any entity which has acquired or taken up the shares or rights of shares of an insurance undertaking in an amount ensuring an excess of 10% of votes at the general shareholders meeting shall be obliged to notify the supervisory authority of this within 7 days following the day of such acquisition or taking up. Any entity which intends to acquire, directly or indirectly, shares or rights of shares or to take up shares or rights of shares of an insurance undertaking, ensuring an excess of 25%, 50% and 75% respectively of votes at the general shareholders meeting shall each time be obliged to obtain the approval of the supervisory authority for that acquisition or taking up, issued by way of a decision53.

48 Act of 22 May 2003 on Insurance Activity, art. 80 49 Act of 22 May 2003 on Insurance Activity, art. 176 50 Act of 22 May 2003 on Insurance Activity, art. 177 51 Act of 22 May 2003 on Insurance Activity, art. 185 52 Act of 22 May 2003 on Insurance Activity, art. 183 53 Act of 22 May 2003 on Insurance Activity, art. 239

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 The obstacles operators may have when they want to convert to another type of legal entity

A mutual insurance company may be converted into a joint-stock company. The provisions of the Code of Commercial Partnerships and Com- panies concerning the establishment of a joint-stock company apply respectively to the conversion of a mutual insurance company.

The conversion requires: 1) drawing up a plan of the mutual insurance company’s conversion together with annexes and the opinion of a chartered accountant; 2) adopting a resolution on converting the mutual insurance company into a joint-stock company and having it approved by the supervisory authority; 3) appointing members of the bodies of the joint-stock company established in consequence of the mutual insurance company’s conversion; 4) signing, by the mutual insurance company’s members, of the articles of association of the joint-stock company established in consequence of the mutual insurance company’s conversion; 5) deleting the mutual insurance company from the register and entering in the register the joint-stock company established as a consequence of the mutual insurance company’s conversion. The provisions of the Code of Commercial Partnerships and Companies shall apply respectively to the development of the plan of the mutual insurance company’s conversion54.

Three quarters majority in general meeting required for conversion The general meeting shall adopt a resolution on the conversion of the mutual insurance company into a joint-stock company by a majority of at least three quarters of the votes cast.

The resolution on the conversion of the mutual insurance company into a joint-stock company shall contain the following: 1) the name and registered office of the mutual insurance company being converted and the business name and registered office of the joint-stock company which will be established in consequence of the mutual insurance company’s conversion; 2) the rules for determining the value of the mutual insurance company’s shares, determined on the basis of the financial statements drawn up for the purposes of the conversion; 3) specification of the amount of the share capital of the joint-stock company which will be established in consequence of the mutual insurance company’s conversion; 4) the manner of taking up shares and the extent of rights conferred on the shareholders participating in the joint-stock company which will be established in consequence of the mutual insurance company’s conversion, if awarding such rights is provided for; 5) the material scope and geographical range of activity of the joint-stock company which will be established in consequence of the mutual insurance company’s conversion; 6) consent to the content of the articles of association of the joint-stock company which will be established in consequence of the mutual insurance company’s conversion; 7) the names and surnames of the members of the management board and the supervisory board of the joint-stock company which will be established in consequence of the mutual insurance company’s conversion55.

54 Act of 22 May 2003 on Insurance Activity, art. 81 55 Act of 22 May 2003 on Insurance Activity, art. 82

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Shares in the newly formed company 30 days before the planned adoption of the resolution on the mutual insurance company’s conversion into a joint-stock company, the mutual insurance company shall call on the members to submit written declarations on participation in the Joint-stock company being established, in the following way: 1) the intention to take up shares of the joint-stock company which will be established in consequence of the mutual insurance company’s conversion; 2) continuing the insurance contract with the insurance undertaking which will be established in consequence of the mutual insurance company’s conversion.

A member who has not submitted the declaration about participation in the joint-stock company being established shall be entitled to claim payment of an amount corresponding to the value of his/her share in the mutual insurance company, according to the financial statements drawn up for the purpose of conversion; he/she will also be entitled to terminate the insurance contract.

The mutual insurance company shall be obliged to pay the amount to be paid not later than within 6 months following the day of converting the mutual insurance company into a joint-stock company56.

Mutual insurance company’s members acceding to the company established as a consequence of conversion shall take up shares in proportion to their shares in the mutual insurance company. If the share capital has not been entirely taken up in the manner referred to above, it must be supplemented to its full amount with new shares. Those shares shall be taken up in whole against contributions in cash57.

The resolution on converting the mutual insurance company into a joint-stock company requires approval by the supervisory authority. The motion for approving the resolution on conversion should contain the following: 1) the plan of conversion; 2) the resolution on converting the mutual insurance company into a joint- stock company; 3) the financial statements of the mutual insurance company being converted; 4) documents confirming the possession of financial resources free from encumbrances in an amount equal to the share capital, together with a declaration that those funds are earmarked to cover the share capital; 5) information on persons acquiring shares who have not been members of the mutual insurance company being converted; 6) the declarations of the mutual insurance company’s members about non- participation in the joint-stock company being established, as a dissenting voice58.

The supervisory authority shall approve, by way of a decision, the resolution on conversion of the mutual insurance company into a joint-stock company, if the following conditions are met: 1) the motion meeting all the conditions specified in Article 86 paragraph 2 has been submitted; 2) conversion of that mutual insurance company into a joint-stock company is compliant with the provisions of law;

56 Act of 22 May 2003 on Insurance Activity, art. 83 57 Act of 22 May 2003 on Insurance Activity, art. 85 58 Act of 22 May 2003 on Insurance Activity, art. 86 59 Act of 22 May 2003 on Insurance Activity, art. 87 60 Act of 22 May 2003 on Insurance Activity, art. 90 61 Act of 22 May 2003 on Insurance Activity, art. 91

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3) interests of the policy holders, insured, beneficiaries or persons entitled under insurance contracts are duly protected59.

After conversion, all rights, liabilities and authority are transferred The joint-stock company established in consequence of the conversion shall be entitled to all rights and obligations to which the mutual insurance company was entitled prior to the conversion. The joint- stock company shall become the holder of the authorisation to pursue insurance activity which was conferred on the mutual insurance company prior to its conversion60.

Publicity around the conversion The joint-stock company established shall announce the conversion three times in a nationwide daily newspaper and shall in writing inform policy holders who were not members of the mutual insurance company being converted of their right to terminate insurance contracts within a period of 3 months following the day of the last announcement. The first announcement referred to in paragraph 1 should be placed within 7 days following the day of conversion, and the other ones at intervals of not less than 7 days and not longer than 14 days61.

5 Issues concerning the activity:

 Specific rules/obligation related to the nature of the business in which mutuals operate (e.g. insurance activities, providence services, management of hospitals, creation of subsidiaries etc.)

The most important law applicable to mutual insurance companies is the Act of 22 May 2003 on Insurance Activity.

Mutual insurers are supervised by the Polish Financial Supervisory authority (Komisja Nadzoru Finansowego; KNF, PFSA)62.

The number of mutual insurance companies in Poland has recently been declining. The decline has occurred despite the fact that mutual insurance companies have shown to incur lower gross losses and to be more resilient in terms of reserves than joint-stock insurance companies, particularly in the current economic crisis. This is amongst others due to lower moral hazard. Yet, on the other hand, the mutual insurers have much higher operating costs. In particular, acquisition costs are relatively high for these relatively young organisations. It should be noted here that the former state owned PZU comes from a monopoly position, which due to its existing large market share hardly has acquisition costs. Administration costs in the mutual insurance companies are also high compared to joint-stock companies, while their returns on investment have been lower. With the advent of the Solvency II directive, it is expected that the situation of the Polish mutual insurers will worsen as they might not be able to comply63.

The TUW are not active in health insurance, also because of the monopoly of the state institutions (the National Health Fund NFZ and its regional branches) in the implementation of the compulsory health insurance. TUW can only be active in other insurance fields and can have no other activities.

62 http://www.knf.gov.pl/en/index.html 63 Article: Zmierzch towarzystw ubezpieczeń wzajemnych? Wyborcza.biz, 22.11.2010. http://wyborcza.biz/biznes/1,101562,8701711,Zmierzch_towarzystw_ubezpieczen_wzajemnych_.html

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6 Issues concerning the neglect of mutuals in policy making:

 National rules which by not taking into account the mutual specificities hinder the mutuals’ development (e.g. public procurement, specific tax rules, etc.). On the contrary, while drafting the Insurance Activity Act 2003, the Polish Financial Supervisory Authority paid specific attention that no guidelines were formulated which could cause difficulties for mutual insurance companies.

The Insurance Activity Act 2003 contains a specific Chapter (3.) on mutual insurance companies, with particular attention to smaller mutual societies (art. 43):

1. A mutual insurance company which possesses a limited scope of activity because of the small number of members and the small number or low amount of insurance contracts concluded or an inconsiderable territorial range of activity may be recognised by the superviory authority as a small mutual insurance undertaking. 2. The supervisory authority supervisory authority may recognise a mutual insurance company as a small mutual insurance undertaking if the mutual insurance company fulfils the following conditions: 1) the mutual insurance company only insures its own members; 2) the mutual insurance company’s members belong to the circle of entities defined in the articles of association; 3) the annual premium written does not exceed the PLN equivalent of EUR 5 million.

On the condition that the articles of association provide for supplementary contributions by members or a decrease in the mutual insurance company’s benefits to its members, these smaller mutual insurance companies are exempted from a number of legal prerequisites in the 2003 Insurance Activity Act (art. 43.4), such as: - Descriptions regarding benefits to be included in the contract and information provision regarding benefits (art. 13) - The provision in the mutual’s articles stating that a decrease of supplementary capital may occur solely through covering the balance sheet loss (art. 45) - The requirement that share capital cannot be lower than the highest amount of the minimum guarantee fund required for the insurance classes referred to in the Annex to the Act, with respect to which mutual insurance company has authorisation to pursue insurance activity (art. 46) - All articles regarding notification about acquisition (art. 35) or disposal (art. 36) of shares - The obligation to possess available solvency margin in an amount not lower than the required solvency margin and not lower than the guarantee fund. Where the guarantee fund must be equal to the bigger value of the following: 1) one third of the required solvency margin; 2) the minimum amount of the guarantee fund (art. 146).

A prerequisite is that these mutual insurance companies should not operate in insurance groups 10 to 15 in Section II (Other personal insurance and property insurance) according to Annex to the 2003 Act on insurance activity.

As regards the on-site inspections carried out by PFSA (KNF) in mutual insurance companies, however the same procedures and legal requirements (provided for in the 2003 Act on insurance activity) apply to determine the rules of examining these entities. No difference is made regarding branches, or type of insurance product. Yet, with regard to on-site inspections, the proc-

264 Poland ess of managing, supervising and flow of communication in these entities is simpler and more transparent than in joint-stock companies. This situation is a consequence in particular of the size of mutual insurance companies, the capital structure, organisational structure and scale of business activity. In practice, it is found by PFSA that in mutual insurance companies, issues such as the capital structure, membership composition, organisational structure, scale of business activity, supervisory and management process are transparent and well-organised. In terms of capital requirements, mutual insurance companies appear to be able to comply more easily with regulations than joint-stock companies.

The Polish Ministry of Finance is currently working on the draft national act to implement the Solvency II Directive. This act will take the form of the new Act on Insurance Activity which will supersede the current 2003 Act. Cur- rently the proposal stipulates that the new Insurance Activity Act would encompass all (re)insurance undertakings with appropriate exclusions and simplifications to Solvency II provisions in case of small mutual insurance companies which would not fall under the Directive based on Article 4 of the Di- rective (thresholds of 5 million euro gross written premium and 25 million euro gross technical provisions), i.e. the so- called “Solvency II Light/Basic” system. The latest draft (January 2012) stipulates that the small mutual insurance companies would not be bound to perform the “Own risk and solvency assessments” (ORSA) and would not be covered by the AMCR (absolute floor of the MCR) requirements/quota’s. However the discussion with the market and the PFSA (KNF) is recently quite vivid in this matter and further exclusions or simplifications seem possible. Once the draft is finalized, it will be submitted to the Polish Parliament for adoption and the President of the Republic of Poland for His signature. All these legislative stages may influence the shape of final provisions.

According to information available to the PFSA, the majority of member states would introduce a Solvency II Light/Basic regime for insurers not falling under Solvency II Directive. The differences will lie in the detail. It is likely that very small mutual insurance companies in Poland (under the thresholds of Article 4 of the Directive) would be prohibited from making use of the single license principle to provide services in other EU member states. Such a proposal was apparently presented by the market itself to the Minis- try of Finance and is supported by the PFSA (KNF). But it will apply to very small mutual insurance companies who – as our experience shows – operate locally and are usually not interested in cross-border operation. They don’t see it as obstacle themselves.

Regarding health insurance, there is currently a debate in parliament about a possible role for mutual insurance in health and social care and for a separate insurance for nursing or long-term care for the elderly. Currently, measures to raise revenue from out-of-pocket payments and from supplementary insurances, such as those provided by mutual societies or long-term care insurance, are being discussed.

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3 Concerning cross border barriers (barriers mutuals face when operating across barriers):

Cross-border activities by mutual insurance companies are subject to the same regulations as cross-border activities by joint-stock companies:

Outgoing (greenfield): Subject to supervision by the PFSA, domestic insurance undertakings may, within the freedom to provide services, pursue insurance activity in the territory of a European Union Member State64.

Domestic insurance undertaking which intends to commence insurance activity in the territory of another European Union Member State shall notify the supervisory authority thereof65.

Incoming (greenfield): A foreign insurance undertaking from a European Union Member State may pursue activity by means of a branch within the territory of the Republic of Poland (obligation to notify the intent to provide services): 1) after the supervisory authority has received the relevant information concerning the foreign insurance undertaking, from the competent authority of the state in which the registered office of that insurance undertaking is located; 2) after having received the information from the supervisory authority about the conditions under which this activity is pursued within the territory of the Republic of Poland66.

Within the freedom to provide services, a foreign insurance undertaking from a Eu- ropean Union Member State may pursue activity in the territory of the Republic of Poland, in another form than a branch, after the supervisory authority has received the following from the competent authorities of the European Union Member State where the registered office of the insurance undertaking concerned is located: 1) The certificate confirming that the insurance undertaking possesses available solvency margin for covering the required solvency margin; 2) Information about the insurance classes for the pursuit of which it possesses authorisation; 3) Information about the types of risks that this insurance undertaking intends to cover within the territory of the Republic of Poland67.

If the supervisory authority finds that a foreign insurance does not comply with the provisions of Polish law while pursuing activity, it obliges that undertaking to rem- edy that irregularity68.

Cross-border portfolio transfers are possible for both mutual insurance companies and joint-stock companies under the following conditions:

Incoming (foreign insurer via acquisition of domestic insurance undertaking): A domestic insurance undertaking may conclude a contract for transfer of its insurance portfolio with an insurance undertaking having its registered office in a European Union Member State, provided that the required solvency margin is met69.

64 Act of 22 May 2003 on Insurance Activity, art. 127. 65 Act of 22 May 2003 on Insurance Activity, art. 134 66 Act of 22 May 2003 on Insurance Activity, art. 131 67 Act of 22 May 2003 on Insurance Activity, art. 132 68 Act of 22 May 2003 on Insurance Activity, art. 139 69 Act of 22 May 2003 on Insurance Activity, art. 143

266 Poland

Outgoing (domestic insurer via acquisition of Polish branch of foreign insurer): The supervisory authority shall authorise, by way of a decision, the transfer of the whole or a part of the foreign insurance portfolio of the main branch held within the territory of the Republic of Poland, to an insurance undertaking having its registered office within the territory of the Republic of Poland.

The decision approving the transfer referred to in paragraph 1 may be issued if the insurance undertaking taking over the insurance portfolio possesses the available solvency margin in the amount of the required solvency margin.

Incoming (foreign insurer via acquisition of Polish branch): The supervisory authority shall approve, by way of a decision, the transfer of the whole or part of the insurance portfolio of the main branch held within the territory of the Republic of Poland, to an insurance undertaking having its registered office in another European Union Member State, after having received, from competent authorities of that state, information regarding the following: 1) the possibility of the portfolio transfer, in accordance with the domestic law of that European Union Member State; 2) authorisation for the portfolio transfer; 3) possession, by the insurance undertaking taking over the insurance portfolio, of the available solvency margin in the amount of the required solvency margin70.

Until the integration of Poland in the EU, the taking-up of insurance activity by any foreign insurance undertaking required authorisation from the Polish supervisory authority, even if the undertaking is authorised by another member state. In addition, a deposit used to be required for the purpose of securing its future liabilities for the insurance contracts concluded by the main branch in the territory of the Republic of Poland71. A foreign insurance undertaking could only act on the Polish insurance market from a main branch in Poland.

With the passing of the Insurance Activity Act in 2003, the same regulations generally apply to main branches of foreign insurance undertakings. After accession of Poland to the European Union, no specific authorisation is needed any longer72. The deposit for foreign branches is no longer required and any outstanding deposits together with interest have been returned to the foreign insurance undertakings.

8 Issues concerning cross-border cooperation with other European partners for the creation of groups of mutuals, or to create a local subsidiary.

None . Polish mutual insurance companies can not create mutual groups with foreign mutual insurance companies, however, joint-ventures are possible (see below).

9 Examples of existing cross-border co-operation and their legal form

An example of cross-border co-operation between mutual insurers in Poland is the joint-venture between the German mutual specialist agricultural insurer Vereinigte Hagelversicherung (VVaG) and Polish mutual insurance company Concordia VVaG (Concordia TUW).73

70 Act of 22 May 2003 on Insurance Activity, art. 118 71 Act of 22 May 2003 on Insurance Activity, art. 113. 72 Act of 22 May 2003 on Insurance Activity, art. 103, 243a 73 AMICE (2011). Cross-border business and cooperation in the mutual and cooperative insurance sector. Brussels 2011.

267 Poland

10 Examples of autonomous expansion across the frontiers of mutuals.

Historically, the government stance on foreign involvement in the Polish commercial insurance market has not necessarily been positive, as can be derived from the PZU-privatisation case as described below. In 1999, Dutch insurance company Eureko (together with local partner Millennium Bank) bought a 30% interest share in PZU. The arrangement with the Polish ministry of Finance was that this share could be increased to 51 percent when PZU would be registered on the stock exchange as planned in 2001. The registration at the stock exchange, however, did not materialise. When Eureko tried to claim its majority stake in PZU in order to register the company on the stock exchange, se- quential Polish governments tried to prevent this. After a 10 year period of conflict, the government reclaimed the 30 percent share by buying out Eureko. This was partly due to pressure from several European arbitration courts, which advised in favour of Eureko. The Polish government regained full control over PZU, and PZU was registered on the stock exchange in 201074.

Nowadays, subsidiaries of some large foreign mutual insurance companies are active in Poland75, indicating that the country is accessible for foreign (mutual) insurers. However, the Supervisory Authority still makes it difficult for foreign groups to buy Polish insurance companies.76

An example of cross-border expansion in the life insurance market in Poland is the Polish subsidiary MACIF Zycie of the French mutual insurance company MACIF. From 2011, the policyholders’ representatives are also invited to attend the Gen- eral Meeting. In addition, MACIF Zycie cooperates with other entities and organisations in the social economy, such as cooperative banks (75 partners)77.

74 Volkskrant article (2009) Einde ruzie Eureko en Polen. 02/12/2009 http://www.volkskrant.nl/vk/nl/2680/Economie/article/detail/368831/2009/10/02/Einde-ruzie-Eureko- en-Polen.dhtml and: Belegger.nl. article “Polen en Eureko tekenen overeenkomst: http://www.belegger.nl/nieuws/74393/polen-en-eureko-tekenen-overeenkomst.html, and FEM Business and Finance, article: Verzekeraars - verzekeren in het wilde oosten. FEM Business , jaargang 6 , nummer 7 , datum 15-2-2003. http://archief.fembusiness.nl/2003/02/15/nummer-7/Verzekeraars- Verzekeren-in-het-Wilde-Oosten.htm and Beurs.nl: http://www.beurs.nl/nieuws/binnenland/3054965/beursgang-pzu-trekt-250000-particuliere-beleggers 75 AMICE The market share of Mutual and Cooperative Insurance in Europe 2008

76 See: http://www.insuranceinsight.eu/insurance-insight/news/2165409/polish-watchdog-talanx-bourse- list- ing?wt.mc_ev=click&WT.tsrc=Email&utm_term=&utm_content=Polish%20watchdog%20wants%20Talan x% 77 AMICE (2011). Cross-border business and cooperation in the mutual and cooperative insurance sector. Brussels 2011.

268 Poland

4 Concerning national measures, for promoting mutuals and measures aiming at access to finance for mutuals:

Although non-members can be policyholder of a mutual insurance company, this is limited to a maximum of 10% of the premium income. Non-members always pay a fixed contribution. Only in small mutual insurance companies with full liability, member’s contributions may be increased.

Access to financing capital has been stated as one of the main reasons for the decline in the number of mutual insurance companies operating as insurers in Poland.

None

13 The existence, if any, of national, regional or local policies aiming at the promotion of mutuals, such as tailored business support services, specialised agencies, creation of federations etc. Within the Polish Chamber of Insurance (PIU), a specific TUW-committee is estab- lished78.

None specific education programmes were identified. Although, there are scholars working on social insurance, there is in general little knowledge about mutuality in the academic field79.

78 http://piu.org.pl/committees-subcommittees-teams-and-working-groups 79 AMICE (2011). Cross-border business and cooperation in the mutual and cooperative insurance sector. Brussels 2011.

269 Poland

270 25 Portugal

271

272 Country study on the current situation and prospects of mutuals

Portugal

The Solvency II Directive applies to the following company forms in life, non-life and reinsurance: ‘sociedade anónima’, ‘mútua de seguros’.

A) Definitions of mutuals

There are the following definitions:

1) Mutual associations (associações mutualistas): Mutual associations are associations of people, regulated by the Mutual Association Code (decreto-lei n° 72/90 of 3 March 1990, codigo das associacões mutualistas). Art 1 of this Code1 states that mutual associations are private entities with an unlimited number of members that are based on social solidarity and aiming activities in the field of complementary social security and health and that operate with undetermined capital focused on the needs of their members and their families. Mutual associations are considered as a specific form of association.

According to José Alberto Pitacas, “mutualism is the institutionalized form, a group of people which advocates, promotes and practices mutual ideas. It is thus a collective form of social organization to get on common objectives (coverage of social risks, satisfaction of social needs) that can not be achieved individually, but through effort and many resources, through a cooperative process help and mutual benefit. Mutuality is a social construction of people who join in their own interest (solidarity interested) and that makes associative participation, its cornerstone.”2

The focus of mutual associations on the needs of its members and their families contrasts with societies or enterprises. In Portugal, ‘societies’ or ‘enterprises’ are regulated by the Trading code. These organisations undertake activities within the realm of commercial, industrial or financial business. Mutual associations are supervised by the Ministry of Social Affairs.

2) Mutua de seguros Besides mutual associations, also ‘ mutua de seguros’ exist, which are mutual insurers supervised by the Ministry of Finance, and whose nature and objectives are not the same as the above of mutual associations. Mutua de seguros are allowed in life insurance, in non-life insurance and in reinsurance.

B) Legal types (if more types exist)

1) Mutual associations Mutual associations may undertake activities other than insurance – but always within the realm of welfare and health care provision. Under the terms of the Mutual Association Code, they may deploy activities within a rather broad spectrum relating to ‘quality of life’ (social security benefits and health support, invalidity benefits, old age and survivors; other cash benefits for sickness, maternity, unemployment, work accidents or occupational diseases; provision of preventive medical care, curative and rehabilitation; assistance with medica- tion, supplementary occupational schemes).

1 Decreto-lei n° 72/90 of 3 March 1990, codigo das associacões mutualistas

2 José Alberto Pitacas: O mutualismo e a sua função social ao longo dos tempos. O caso português.

273 Portugal

Article 8 of the 72/90 Mutual Association Code elaborates on the mutual principles:  1 - The mutual associations observe in its constitution and operation, the following principles:  a) The number of members and capital are unlimited;  b) The duration of the association is undetermined;  c) The admission and dismissal of members are free and based on voluntary acts;  d) The admission or exclusion of members can not be subject to restrictions resulting from discrimination on ancestry, sex, race, nationality, religion, political or ideological belief, educational level, social status or economic status;  e) The board members are elected by democratic methods, the procedure set forth in the statutes;  f) The right to vote is exercised by assigning one vote to each member;  g) The subscription of the types of benefits is optional;  h) The allocation of benefits is a right which is the counterpart of the contributions paid.  2 - The mutual associations and their groups should encourage the training of their members, workers and the general public as well as the spread of mutualism.

2) Mutual insurance company According to Law 94-B/98 of april 17 (Decreto-Lei n.o 94-B/98 de 17 de Abril), Section 3, article 22 describes the mutual insurance company (mútuas de seguros) as a form of cooperative society with limited liability, established by notarial deed, governed by the provisions of the Act 94-B/98 and, alternatively, by the provisions of Cooperative Code and other complementary legislation in all matters not contrary to this Act or other specific provisions concerning insurance activity. Mutual Insurance companies are composed of natural or legal persons who, acting in the same business or professional production, seeking Insurance to cover risks arising directly out of that activity.

According to amendment of the insurance law (Decreto-Lei 8-C/2002 de 11 de Janeiro), the law does not apply to livestock mutual insurance having, cumulatively, the following characteristics:  a) The Statute provide the opportunity to make up additional contributions or reducing the benefits;  b) It concerns only the coverage of risks inherent to livestock insurance;  c) The amount of annual premiums or contributions is not more than 1 million Euros.

C) Methods of creation (required capital or assets)

1) Mutual associations: The creation of a mutual association is open to everybody (natural persons) and is considered as a private activity. There are no specific rules regarding required assets, other than that there should be a ‘guaranteed financial balance’, proven before registration. This also counts for the minimum number of members, as it should be ‘sufficient’ to ensure the functioning and delivery of services.3 They are established by notarial deed.

Chapter II of the 72/1990 decree concerns the constitution of mutual associations. Article 14: General requirements of constitution states that the mutual associations should have the number of associates and the financial system in place that allow the technical and financial balance necessary to fulfil the obligations the organisation should fulfil. Article 15 mentions that the registration includes submission of bylaws. Also, it states that mutual associations may not levy contributions or benefits when not stated otherwise in the Statutes.

3 http://www.dre.pt/pdf1s/1990/03/05200/09030915.pdf (this is the legislation on the website of the ministry of social affairs) Decreto-Lei 72/90: Código Mutualista: http://www.pedromartinho.com/portal/codigo.htm

274 Portugal

According to article 18, the statutes of mutual associations should specify the following:  a) The name, which can not be confused with names of existing institutions and that is always preceded or followed by the words "mutual association";  b) The primary and secondary purposes that the association intends to pursue;  c) The headquarters and the field, which can be territorial, professional, business, company or group of companies;  d) the manner and conditions of admission of members, their rights and duties and pen- alties for non-compliance;  e) The composition, powers and operation of the Association;  f) The form of the association it takes;  g) The revenue and expenditure as well as the principles agreed upon for the establishment and management of the fund;  h) The way the statutes may be amended or how a merger, division or integration into another association can be approved;  I) The conditions under which it may be decided to dissolve the association;  j) The conditions of membership or affiliation in national and international organizations, particularly those that continue to defend and promote mutuality and social economy;  l) the electoral system of the corporate bodies of the association.

2) Mutual insurance company For establishing a mútuas de seguros, in general the same rules apply as for joint stock companies. The authorisation from the Ministry of Finance is required, Also, the Instituto de Seguros de Portugal (ISP, Insurance and Pension Funds Supervisory Authority)4 is involved. To obtain authorisation (see article 14), the same information needs to be provided to the Ministry or the Insurance institute (Articles of association, aim of the organisation, identifi- cation of founding members, statements on criminal records, notification absence of bankruptcy). The mutual insurance companies may, in case of insolvency call upon their members for variable contributions. They are established by notarial deed.

On the date of creation, the half of the capital required is provided. The remaining (if any) will have to be provided within six months. The minimum capital, fully paid, for the formation of mutual insurance companies is 3,750,000 Euro (See article 40, Law 94-B/98 of April 17 (Decreto-Lei n.o 94-B/98 de 17 de Abril and amendment Decreto-Lei 8-C/2002 de 11 de Janeiro).

D) Management and corporate governance

1) Mutual associations: The legislation on mutual association provides some rules regarding governance and the organisation of the internal democracy (chapter 5 ). The governance bodies are the General Assembly, the Board of Directors and the supervisory board. The law allows the possibility of an assembly of delegates in case the association has a national scope (article 75). A ‘Fis- cal committee’ is required, next to a General Assembly and a Board of Directors.

Rights of members: The law mentions different types of members:  Effective members: They are active members who subscribe to any of the types of regulatory benefits and pay the corresponding levy.  Associate members: Workers covered by supplementary occupational schemes managed by mutual associations, may register as associated members of these associations, and their contributions to those schemes are then treated as shares. The conditions are regulated by the Statutes.

4 http://www.isp.pt/isp

275 Portugal

 Contributing members: The Statutes can allow individuals or entities supporting the association with relevant services or financial contributions.

As the law mentions, many mutual associations have to further specify these rules in their by-laws (which can vary a lot and which can’t be categorised).

Voting and representation of members in general meetings: Representation of votes is limited to one vote per member (and there is no possibility to represent fractions and/ or groupings of members). There is however the possibility to establish an assembly of delegates in case the association has a national scope (article 75).

Type of shares if any: There are neither shares nor external investors.

Reserves: Regarding reserves there are no legal restrictions and/or requirements set forth in the Mu- tual Association Code. It is stressed that against this lack of legal regulation, actuarial principles and accounting procedures (and their strict application) are of utmost importance to sustain mutual associations.

Today, many small mutuals are facing major problems, but by lacking regulation and supervision, these (financial) problems are mostly unrecognised.

Possibility for non members’ investors: Non member investors are not possible. There is a possibility of contributing (investing) members

Transparency and publicity requirements/ related auditing issue: Regarding transparency and publications, the Mutual Association code does not foresee any obligations or requirements, other than handing over the annual accounts to the responsible Ministry (i.e. Ministry of Social Affairs). Some mutual associations, like Montepio, do publish annual accounts and annual records publicly, but as a voluntary act only.

Auditing issues are dealt with by Articles 20 and 51 of the Mutual Association Code and state that a ‘Fiscal committee’ is required, next to a General Assembly and a Board of Direc- tors. A ‘technical balance’ has to be presented to the members once every three years in order to examine the financial position of the mutual association.

Protection of assets: Asset protection is barely regulated. Articles 55 and 56 do list assets, but do not set limits, nor requirements. The articles seem to state that assets are in order ‘as long liquidity position justifies’. In practice, regulator and supervisor do not control or adjust malpractice, it is said. In case of liquidation the assets will be distributed according to the following priorities (article 108):  Payment of public debts and debts to the social security system  Payment of the employees of the mutual  Payment of third party debts  Payment of debts to the members  Attribution of rest sums to a mutual solidarity fund (fundo de solidariedade mutualista)

276 Portugal

2) Mutual insurance company The mutual insurance companies are governed similar to the joint stock insurance companies. In the Law (Decreto-Lei n.o 94-B/98 de 17 de Abril) no specific restrictions/regulations are included.

Rights of members: Is being dealt with in the Statutes

Voting and representation of members in general meetings Is being dealt with in the Statutes

Type of shares if any Is being dealt with in the Statutes

Reserves: In principle as other insurance companies.

Possibility for non members’ investors: There is a possibility to take subordinated loans, like other insurance companies.

Transparency and publicity requirements/ related auditing issue: In principle as other insurance companies.

Protection of assets: In principle as other insurance companies.

E) Additional information: Portuguese insurance market

There are very few mutual insurers (only one) in Portugal, but several foreign mutual insurers and groups with mutual characteristics operate through subsidiaries in Portugal. The overall mutual market share, though, is below 1% in 2010.5

1. Legislation impacting the functioning of mutuals:

1 Is there legislation on taxation issues (preferential treatment)?

Mutual associations in Portugal are exempted from income tax, which may vary between 15-30%. They are not subject to company tax as they are not regarded being a commercial entity.

Until recently, this exemption also counted for the subsidiaries of mutual associations. This rule has been adapted after EU interventions in relation to austerity measures and the financial crisis. The impact on mutual associations is considerable, as some (4) mutual associations own savings banks (caixa) that profited from this exemption.

Mutual insurance company In principle as other insurance companies.

5 See data obtained from ICMIF on 2010, including data from Credito Agricola Vida SA, Mapfre Assistên- cia, Groupama Vida, Mutua dos Pescadores.

277 Portugal

2 Is there legislation concerning employee involvement systems?

Mutual associations Most employees of mutual associations are a member of the mutual association themselves. As a member they have their own rights and duties, as do all other members. To avoid an overruling majority of the employees, the Mutual Associa- tion Code prevents them from being in a majority position in all governing bodies, except in the General Assembly (optional, and in case there is one).

Mutual insurance company In principle as other insurance companies.

3 What are the possibilities and regulations in a situation of demutualization (e.g. transforming a mutual to a traditional capital company) protection of assets in case of demutualization?

Mutual associations The Mutual Association Code lists four ways of ending a mutual association (Article 101): 1 Winding up 2 Integration 3 Fusion 4 Cession Transformation (into other corporate or legal statute) is not foreseen.

Article 108 regulates and orders the way assets are distributed in case of winding up:  Payment of public debts and debts to the social security system  Payment of the employees of the mutual  Payment of third party debts  Payment of debts to the members  Attribution of rest sums to a mutual solidarity fund (fundo de solidariedade mutualista)

Mutual insurance company An example of a mutual insurer being converted is Mútua dos Pescadores - Mútua de Seguros, CRL6. Mútua dos Pescadores is an insurer that began operations in 1942 (created as a mutual insurance company, as part of a government corporate fisheries organization) in the fisheries sector. With 16.000 shareholders, it became Portugal's largest association in the maritime sector. As the Insurance law (De- creto-Lei n.o 94-B/98 de 17 de Abril) already indicated that the mutual insurance company is in the first place a cooperative society. In 2004, the mutual insurance company endorsed the legal status of a cooperative (consumer cooperative), thus becoming the first and only cooperative insurance company in Portugal.7 All members (associades) became cooperadores. Hence, it was not so much the company that changed its legal form, the legal form itself is increasingly regarded a cooperative society than a mutual society.

6 http://www.mutuapescadores.pt/new/index.php

7 See : http://www.marleanet.com/partners.php?ID=7

278 Portugal

2. Concerning internal barriers (barriers mutuals face within their own country):

4 Issues concerning the legal entity:

 The obstacles operators may have when they want to create a mutual in a country;

Mutual association Creating a mutual association in Portugal is considered to be ‘easy’ and is just a matter of following the formalities as described in the Mutual Associa- tion Code (Decreto-Lei No 72/90 of 3 March). Everybody can create a mutual association and there are hardly any formal requirements that are difficult to meet.

However, despite that it is said that the Decreto 72/90 is that ‘easy’, it leaves much unclarity and this is the main problem with legislation on mutual associations in Portugal. For example, Article 20 states that mutual associations have to have a guaranteed financial balance. This requirement is easy to fulfil as, due to the fact that in principle, the legal form of the mutual association is activity-neutral, supervision is lacking or insufficient and mutual associations’ management thus can comply themselves. The supervision comes in when the mutual association is involved in types or financial services.

Mutual insurance company There are no obstacles for establishing a mutual insurance company other than the usual obstacles for other types of insurance companies.

 The obstacles operators may have when they want to proceed to a merger of mutuals/division/acquisition of a mutual;

For both mutual associations and mutual insurance companies no specific obstacles have been identified with regard to mergers and, divisions. As being mutually owned, both types can not be acquired by a third party.

 The obstacles operators may have when they want to convert to another type of legal entity Mutual association Legislation does not foresee any form of conversion. If a mutual association wants to convert, it has to wind up first and then start a new legal entity (see Article. 101). Technically speaking it is possible, but said to be very difficult.

Mutual insurance company Legislation does not foresee any form of conversion. If a mutual insurance company (i.e. cooperative society) wants to convert, it has to wind up first and then start a new legal entity.

279 Portugal

5 Issues concerning the activity:

 Specific rules/obligation related to the nature of the business in which mutuals operate (e.g. insurance activities, providence services, management of hospitals, creation of subsidiaries etc.)

Mutual association Mutual associations have to pursue a selected number of goals (Article 2.1): complementary social security and/ or health. As a complementary activity, mutual associations could focus on ‘quality of life’ (Article 2.2), which in practice translates into the organisation of Kindergarten and (home) care for the elderly.

There are possibilities in the field of health, maternity, unemployment, occupational health, professional illnesses, but these are mostly covered by State provisions and/ or commercial insurers. Mutuals are seen as too small-scaled to provide sustainable insurance products in these fields.

Mutual insurance company Life, non-life and reinsurance. Other businesses/services via subsidiaries.

6 Issues concerning the neglect of mutuals in policy making:

 National rules which by not taking into account the mutual specificities hinder the mutuals’ development (e.g. public procurement, specific tax rules, etc.).

Mutual association In Portugal, there is uncertainty on the effect and application of Competition Law on mutual associations. In the Portuguese setting, a differentiation is made between public, private and cooperative & social economy.

Today there is a project of Law regulating Social Economy in Portugal, which foresees that all the entities belonging to the Social Economy Sector will be covered by Competition Law. So far only cooperatives were regulated by Competition Law.

The discussion (and issue regarding the application of Competition Law to social economy actors) is focused on whether or not competition law – in the meaning of consumers’ protection – is applicable to actors that do not have ‘consumers’ but ‘members’.

Mutual insurance company the same discussion applies to the mutual de seguros which have also members and which are subject to competition law. However, in general, these organisations are regarded similar to joint stock insurance companies.

280 Portugal

3. Concerning cross border barriers (barriers mutuals face when operating across barriers):

Mutual association Legislation on mutual associations (Decreto 72/90) stems from 1990s and does not consider any cross-border issues at all. There are no provisions to deal with cross- border issues. In the law there are no restrictions to operate in other countries.

Mutual insurance company Also the insurance law (Decreto-Lei n.o 94-B/98 de 17 de Abril) does not provide rules for cross-border activities. However, under the EU legislation of freedom of services, the mutual insurance companies are allowed to operate in other Member States.

8 Issues concerning cross-border cooperation with other European partners for the creation of groups of mutuals, or to create a local subsidiary.

Mutual association According to article 11 of the Mutual Association Code, mutual associations in Por- tugal have the possibility to form a grouping:  1 - The mutual associations can be grouped into a larger mutual in the form of associations, unions and confederations, under the Statute of Private Institu- tions of Social Solidarity.  2 - The associations, federations and confederations of mutual associations are considered, for all purposes, mutual associations, subject to its rules and enjoy- ing the same exemptions and privileges.

Nothing is foreseen to allow foreign mutual associations to be part of such grouping.

Mutual associations can have savings banks as subsidiaries.

Mutual insurance company There are no legal possibilities to form groupings. Operate in other countries through the use of subsidiaries is possible.

9 Examples of existing cross-border co-operations and their legal form

Mutual association There is an example of a Franco-Portuguese co-operation project of mutuals (with Portuguese mutual associations) and within the current legal framework, the cooperation had to adopt a commercial statute (Europamut – mediacão de seguros S.A.8) because it is not possible to have financial ties between different mutual associations. Hence, the policyholders of Europamut in Portugal are currently members of the French mutual MGEN and they have voting rights. In a way, Europamut operates as a insurance broker for MGEN.

Mutual insurance company There are no examples of existing cross-border cooperations.

8 http://www.europamut.pt/index.html

281 Portugal

10 Examples of autonomous expansion across the frontiers of mutuals.

Mutual association None

Mutual insurance company None

4. Concerning national measures, for promoting mutuals and measures aiming at access to finance for mutuals:

Mutual association None

Mutual insurance company The mutual insurance companies may, in case of insolvency call upon their members for variable contributions.

Mutual association None

Mutual insurance company None

13 The existence, if any, of national, regional or local policies aiming at the promotion of mutuals, such as tailored business support services, specialised agencies, creation of federations etc.

Mutual association None

Mutual insurance company None

There are some educational (post-graduate) curricula (at the Lisbon and Coimbra University) that address mutual associations and the mutualistic model in general.

282 26 Romania

283

284

Country study on the current situation and prospects of mutuals

Romania

According to the Solvency II Directive non-life and life insurance can be provided by: ‘so- cietăţi pe acţiuni’ (joint stock companies) and ‘societăţi mutuale’ (mutual insurance under- takings1). There are however no mutual associations - operating/supervised in these markets. Reinsurance can only be offered by ‘societăţi pe acţiuni’ (joint stock companies).

A) Definitions of mutuals

There is no general definition of a mutual in Romanian law.

There are two specific definitions:

 The Law no. 32/2000 on insurance undertakings and insurance supervision (hereafter called Insurance Law) provides in article 2 (definitions) the following definition of an insurance mutual insurance undertakings (‘societăţi mutuale’): civil legal entity whose associates are both policyholders and insurers.

 According to the Framework Law on associations and foundations Governmental Or- dinance 26/2000, mutual organizations/societies are registered as associations hereafter called GO 26/2000).2 Art 1, (2) Associations and foundations established according to the present ordinance are legal persons of private law without patrimonial aim. Two further types of mutual aid associations are identified:

 Casa de Ajutor Reciproc a Salariatilor – Mutual Aid Associations for Employees CAR;  Casa de Ajutor Reciproc a Pensionarilor – Mutual Aid Associations for Pensioners –CARP.

Each type of mutual associations CAR and CARP has a specific law (secondary legislation):

 CAR – L 122 from 1996 - The Law regarding the juridical regime for Mutuals of Employees and their Unions; the mutuals are defined as non-profit associations aiming to provide support and mutual financial help to their members.  CARP – L 540 from 2002 – The Law regarding the juridical regime for Mutuals of Pensioners, the mutuals are defined as “association with civic character, non- profit and apolitical, having as objectives charity, mutual help and social assistance to their members”.

Legislation on Mutual Aid Associations3 Mutual Aid Associations (CAR) are private law associations without a patrimonial purpose, incorporated based on the free consent and will of membership of the members of such organizations. The goal of such organizations is to develop solidarity relations, support and give material help to its members. This is done by attracting social funds from the members and granting loans to them.

1 Also the translation in mutual association is used; see: http://www.unsar.ro/en/legislation/law-32- 2000.htm

2 http://legislatie.resurse-pentru-democratie.org/26_2000.php 3 http://www.undp.ro/libraries/projects/Ghid_UNDP_EN.pdf, p 65-66

285 Romania

Legally, CARs are associations without a patrimonial purpose. According to the legislation in force, CARs can be incorporated under the provisions stipulated in Government Ordinance no. 26/2000 on associations and foundations, completed and amended by Law no. 246 for the approval of Government Ordinance no. 26/2000 on associations and foundations.

In addition to the legal incorporation framework, the Mutual Aid Associations (CARs) operated under certain special laws regulating their field of operation. These special laws are: Law no. 122/1996 (restated in 2009) on the legal regime of mutual aid associations for employees and their unions and Law no. 540/2002 on mutual aid associations for pensioners updated by Law no. 248/2011 for amending and completing Law no. 540/2002 Legal Framework for on mutual aid associations for pensioners.

Law no. 122/1996 states that the employees or other people gaining income as wages can set-up mutual aid associations by associating them within the units they work or at a territorial level. The manner of association, operation, and organization of the mutual aid associations for employees is stipulate within their own articles of incorporation. The documents necessary for incorporating a CAR for employees, namely the articles of incorporation and the statute, together with the application for obtaining legal status, must be submitted to the court of law under whose territorial range the office of the mutual aid association is located. Law no. 540/2002 states that the incorporation of mutual aid associations for pensioners is done by the free association of the following categories of people:  Pensioners, without taking into account the social insurance system they belong to;  Beneficiaries of social aids;  Family members of pensioners or beneficiaries of social aid who are members of the same CAR for pensioners, namely husband, wife, as well as children of age who are unable to obtain wages.

The CARs for pensioners are usually incorporated according to territorial areas and they can unite in central associations composed only of organizations of the same profile.

The minimum number of members necessary for incorporating a Mutual Aid Association is of 30 people. The members must give a monthly fee, as well as other monthly contributions, in percentages or fixed amounts established by the board of that CAR, under the limitations and terms stated in the statute. Once any member ceases to be a member, the amounts given as monthly fees are reimbursed to the holder or to the suc- cessors thereof.

Since the sole business of the CAR is represented by the granting of loans to natural persons who are its members, they must comply, in addition to the law on incorporation and the law on the business field, with another legislative document on non-banking financial institutions – Law nr. 93/2009 on non-banking financial institutions. This legislative document includes the Mutual Aid Associations (CAR) as financial institutions and not as crediting institutions, fact which prohibits the crediting of legal persons and attracting deposits.

According to Law 93/2009, the minimum registered capital of non-banking financial institutions should be of at least Euro 200,000 euro (the equivalent in lei), namely of Euro 3,000,000 for non-banking institutions granting mortgage loans. At the same time, the registered capital is set up and increased by contributions in cash, as the contributions in kind are not allowed; the registered capital must be fully paid in upon subscription, including when it is increased.

B) Legal types (if more types exist)

There are three types of mutuals identified in the legal framework, one in the Insurance Law (‘societăţi mutuale’ (mutual companies)) and two in the law on associations (Casa de Ajutor Reciproc a Salariatilor – Mutual Aid Associations for Employees CAR; Casa de Ajutor Recip- roc a Pensionarilor – Mutual Aid Associations for Pensioners –CARP).

The Law no. 32/2000 on insurance undertakings and insurance supervision provides in article 2 (definitions) as mentioned above the definition of mutual insurance undertaking: civil

286 Romania legal entity whose associates are both policyholders and insurers. There are however no organisations operating under the title of societăţi mutuale (mutual company).

Regarding CAR and CARP, these types of mutual aid associations are, by their own specific law, not allowed to provide insurance. What is more, both CAR and CARP are IFN (non- banking financial institutions) and are not allowed to operate in credit markets (except from providing small loans to members: Law 93/2009 regarding the non-banking financial institutions).

For this reason the legal framework for mutuals is not coherent in Romania. Mutual insurance companies (also from other Member States) can operate on the Romanian market and are supervised by the Insurance Surveillance Commission, but the Romanian mutuals (CAR and CARP) which are considered IFN, can by law not operate on the insurance markets. In order to do so, they need to change their legal status.

There are associations that identify them as “mutuals” in the writing of their statutes but are registered legally as associations. – see also FDAAM (www.fdaam.ro): small federation of Romanian mutual associations. These “mutual” associations are not active in compulsory health insurance but are members’ movements offering complementary services (health/social/voluntary) to their members.

C) Methods of creation (required capital or assets)

For insurance mutual companies, article 16 of the Insurance Law states that for each insurance undertaking the share capital or the effective initial fund shall not be lower than (Old currency): a) 7 billion lei for non-life insurance business, with the exception of compulsory insurance; b) 14 billion lei for non-life insurance business; c) 10 billion lei for life insurance business; The effective initial fund is the total of sums contributed by members of mutual insurance undertakings.

For mutual aid associations, CAR and CARP, the same rules apply as for other associations (GO 26 from 2000). According to Article 4 of the GO 26/2000, the legal entity of an association is set up by three or more people, according to an agreement, in which it is stated that the members have no right to return the material contribution, knowledge and their contribution. They obtain their legal status on the basis of a motivated decision of the civil court in the district of which they were created. A minimum guarantee fund is required of at least one gross salary and the association has to draw up a statute containing amongst others the purpose and objectives of the association; rights and obligations of members; the powers of the management, administration and control of the association; destination of goods, the dissolution of the association, in compliance with art. 60 (assets will not be distributed to individuals).

The mutual aid associations (CAR and CARP) are registered with the Central Bank of Roma- nia as Non-Banking financial Institution (IFN). Only with IFN status they can engage in financial operations.

D) Management and corporate governance

For insurance mutual companies, the law does not provide any indication of rules on management and corporate governance specific for mutual companies. Only concerning the minimum guarantee fund a specific rule is mentioned: According to article 16 of Law 32/2000, one third of the minimum solvency margin set out in paragraph (1) letter b) shall account for the guarantee fund. The items which account for the guarantee fund shall be set out in the norms issued for the implementation of this law. The amount of the guarantee fund cannot be lower than the amount set out in the European legislation concerning insurance business and shall be updated in norms issued in compliance with the provisions of the

287 Romania said legislation. Depending on the risk classes written, the minimum amount of the guarantee fund shall be set out in the norms issued for the implementation of this law. For mutual insurance undertakings, the guarantee fund shall account for at least three quarters of the minimum amount of the safety fund established for insurance undertakings.

For mutual aid associations, CAR and CARP the following can be mentioned on management and corporate governance:  Governance bodies: Association bodies are: a) general meeting; b) the board; c) the auditor or, where appropriate, the audit commission. The General Assembly is the governing body, composed of all shareholders.  rights of members: the rights of members are stipulated in the statutes.  voting and representation of members in general meetings: As stipulated in the statutes  types of shares if any: mutual aid associations have no shares, but only contributions.  reserves: yes, according to the law GO 26/2000 they can have reserves.  possibility for non members investors: This is not permitted by the law GO 26/2000  transparency and publicity requirements: annual reports are mandatory  related auditing issues: there is no obligation for an external audit, only internal audit is required  protection of assets: Because they are first registered as NGOs (associations), these mutuals are defined as non-patrimonial organization. They have protected assets, as established by GO 26/2000.

According to the GO 26/2000, Article 60 1-2, in case of dissolution of the association or foundation, the assets remaining after liquidation can not be transferred to individuals. These assets may be transferred to legal persons similar to the dissolved entity.

1 Legislation impacting the functioning of mutuals:

1 Is there legislation on taxation issues (preferential treatment)?

Insurance mutual companies No preferential treatment known.

Mutual aid associations: The only taxation preferential treatment operating in the case of mutuals is related to their registration as associations. Within the Fiscal Code (L 571 from 2003) the profit tax exemption for associations has been stipulated up to the level of 15,000 Euro per fiscal year and not more then 10% of the overall revenues concerned by tax exemption. Associations are also exempted from VAT taxation.

2 Is there legislation concerning employee involvement systems?

Insurance mutual companies: No specific legislation on this issue for mutual insurance companies

Mutual aid associations: Only dealt with in the statutes of the individual association.

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3 What are the possibilities and regulations in a situation of demutualization (e.g. transforming a mutual to a traditional capital company) protection of assets in case of demutualization?

Insurance mutual company: Although, mutual insurance undertakings are listed as being allowed to operate insurance services, there is no legal framework Concerning demutualisation of mutual insurance companies.

Mutual aid associations: The demutualization and transformation of a mutual aid association into a for-profit organization can not be done directly. The General Assembly is the only instance able to take the decision of demutualization. In this case, according to the GO 26/2000, all the assets of the concerned mutual aid association should be transferred to another mutual organization.

2 Concerning internal barriers (barriers mutuals face within their own country):

4 Issues concerning the legal entity:

 The obstacles operators may have when they want to create a mutual in a country;

Insurance mutual company: Although, mutual insurance undertakings are listed as being allowed to operate insurance services, there is no legal framework to establish these type of mutuals in Romania.

Mutual aid associations: No. The registration system is very simple (as an association + IFN status)

 The obstacles operators may have when they want to proceed to a merger of mutuals/division/acquisition of a mutual;

Insurance mutual companies: There is no legal framework in place specifically aimed at mutual insurance undertakings.

Mutual aid associations: The GA has all prerogatives to decide on issues regarding merging, division, (acquisition is not possible). In practice, those managerial decisions are implemented without complications, based on GA decisions.

 The obstacles operators may have when they want to convert to another type of legal entity

Insurance mutual companies: There is no legal framework in place specifically aimed at mutual insurance undertakings, dealing with converting mutuals.

Mutual aid associations: They cannot convert to another type of organisation. The GA can decide to register another type of legal entity (an SA). But they cannot convert. So this means that a transformation implies demutualization/liquidation and then creation.

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5 Issues concerning the activity:

 Specific rules/obligation related to the nature of the business in which mutuals operate (e.g. insurance activities, providence services, management of hospitals, creation of subsidiaries etc.)

Insurance mutual companies: They can only provide insurance.

Mutual aid associations: In Romania, as association and an IFN status (non-banking financial institution), the mutual aid associations are not involved in insurance activities. In the last year there has been a growing interest and debate about the possibility to change the legislation in order to allow the mutual aid associations to operate on the insurance market. As has been mentioned, although in the Insurance Law the mutuals are listed as organizations that can operate in the insurance market. In practice however, because of the fact that in the CAR and CARP legislative framework the insurance activity is not mentioned as an activity that CAR and CARP are allowed to conduct, the involvement of mutual aid associations in insurance activities is not legally possible. Also, the Insurance Law does not recognize CAR and CARP as legal forms to engage in insurance business. Providence activities are in theory allowed for mutual aid associations, but they have to change the IFN status. In practice mutual aid associations do not provide providence services. Within their not for profit status, some mutual aid associations have opened small medical units providing medical services to members (for free or low cost), in recent years. Mutual aid associations are not allowed to have subsidiaries.

6 Issues concerning the neglect of mutuals in policy making:  National rules which by not taking into account the mutual specificities hinder the mutuals’ development (e.g. public procurement, specific tax rules, etc.).

Insurance mutual companies: Although, mutual insurance undertakings are listed as being allowed to operate insurance services, there is no legal framework in place regulating how mutual insurance companies should be set up and managed. Hence, there are no mutual insurance companies active on the Romanian insurance market.

Mutual aid associations There is not a coherent legal framework for mutuals. As has been mentioned, mutuals are allowed to operate in insurance markets according to the Insur- ance Law. On the other hand, the legal status of mutual aid associations (CAR and CARP) exclude them from underwriting insurance.

Although millions of persons are member of a CAR or CARP, mutuals are ig- nored by public authorities in the way that they are not allowed to operative in insurance markets. On the other hand, due to their legal status (and not having an insurance license), they do receive tax advantages and do not have to comply with a minimum amount of own funds. Hence, they are easier to set up than mutual insurance undertakings.

Also, in the last years, because the banks have changed their credit policies, it is very difficult for an NGOs (including mutuals) to get credit. Recently, a new initiative is launched by the Romanian Commercial Bank concerning a special credit line for social enterprises. Unfortunately, mutuals are, as NGOs, not qualified to make use of this credit line.4

4 See Question 11.

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3 Concerning cross border barriers (barriers mutuals face when operating across barriers):

There are no cases known

8 Issues concerning cross-border cooperation with other European partners for the creation of groups of mutuals, or to create a local subsidiary.

No debate on the subject

9 Examples of existing cross-border co-operations and their legal form

There are no cases known

10 Examples of autonomous expansion across the frontiers of mutuals.

There are no cases known

4 Concerning national measures, for promoting mutuals and measures aiming at access to finance for mutuals:

Concerning internal financing, mutual aid associations can buy investment titles. They can not have non-members clients and the increase of contributions is decided by the GA.

Concerning external financing, mutual aid associations can take banking loans for investments such as a building, but is not allowed to take a credit and use the money to increase their lending capacity. They are allowed to issue bonds or specific investment funds, but there are no examples of this in practice.

In the last years, because the banks have changed their credit policies, it is very difficult for an NGOs (including mutuals) to get credit. Recently, a new initiative is launched by the Romanian Commercial Bank concerning a special credit line for social enterprises. Unfortunately, mutuals are, as NGOs, not qualified to make use of this credit line. Hence, the mutual aid association are neither seen as social enterprises, nor as commercial enterprises. The new draft legislation on social economy will probably change this situation and will include mutual aid associations as social enterprises.

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There is very low interest of public authorities in mutuals in general.

There is however a growing interest in the social economy. Currently, a draft legislation on social economy (Framework Law on Social Economy) is ready to be presented to the Parliament by the initiator, The Ministry of Labour, Family and Social Protection. Within this framework, mutual aid associations are listed as social economy entities that can be qualified to receive the status of social enterprise (if they respond to specific conditions). This draft law has an “open law format” and the main interest is to stimulate the development of social enterprises.

13 The existence, if any, of national, regional or local policies aiming at the promotion of mutuals, such as tailored business support services, specialised agencies, creation of federations etc.

There is very low interest of public authorities in mutuals.

Mutual aid associations: However, there are a number of federations for mutual aid associations:  FEDCAR: The Federation of CAR5; affiliated to the World Council of Credit Un- ions.  UNCAR6: National Union of CAR: affiliated REM7  Federation CARP “Omenia”8

The Foundation for the Development of Civil Society (FDSC) have launched recently the Social Economy Institute –IES (resource center)9. IES is providing training for social entrepreneurs and they also have business case studies for mutuals (e.g. how to start and operate a CAR). In addition, there are social economy courses and programmes at master level. All academic initiatives are very recent and reflects a growing trend.

5 www.fedcar.ro/

6 http://www.uncar.ro

7 http://www.european-microfinance.org/index2_en.php

8 http://www.carp-omenia.ro/

9 www.fdsc.ro

292 27 Slovenia

293

294

Country study on the current situation and prospects of mutuals

Slovenia

The Solvency II Directive applies to the following company forms in both non-life and life insurance: delniška družba’ (Joint Stock Company), ‘družba za vzajemno zavarovanje (mutual insurance company). Reinsurance can only be provided by delniška družba’ (Joint Stock Company).

A) Definitions of mutuals

According to the Insurance act (Official Gazette of Republic of Slovenia no. 13 on 17 Febru- ary 2000 and corrigendum published in no. 91 on 6 October 2000), a mutual insurance company is a legal entity which, in accordance with the principle of mutuality, performs insurance business for its members.

In Slovenia, there is no specific act for mutual insurance companies.

The new Social Entrepreneurship Act for example does not specifically mention mutuals1, it includes a so-called open model of social entrepreneurship, which means that associations, institutes and companies can all be considered as entities dealing with social entrepreneurship.2 The following characteristics are mentioned for social entrepreneurship (which are closely related to mutual values and principles):  market based private initiative,  private ownership,  governance based on one member one vote (not dependant on capital share),  social and/or environmental objectives,  profits are reinvested for development of enterprise,  combination of employees and voluntary workforce,  solidarity between members and employees and with community

B) Legal types (if more types exist)

There is only one legal type: družba za vzajemno zavarovanje (mutual insurance company)

There is one existing mutual present in the field of insurance.

Mutuals fall under the Insurance Act, which includes special provisions for mutuals, regarding establishment, organisation, financing, winding up, mergers and demutualisation. Mu- tual insurance companies in the supplementary health insurance sector furthermore have to comply with the Health Care and Health Insurance Act. The only mutual insurance company active in this sector, Vzajemna, was established by Law Amending the Law on Health Care and Health Insurance (Official Gazette of the Republic of Slovenia, no. 29/98), which separated it from the Health Insurance Institute of Slovenia (the provider of compulsory insurance). The Act on the Reorganization of the Status of Vzajemna health insurance regulates the conditions for possible demutualisation of this mutual.

The following legal definition of mutual insurance company is provided in the Insurance Act (Article 36):

1 Published on March 18, 2011, in the Slovene Official Gazette, n. 20/2011, to be used from January 1, 2012

2 http://www.ukom.gov.si/en/media_room/newsletter_slovenia_news/news/article/391/2435/4d144e9d0 ad0d76b6559387d242260d6/?tx_ttnews[newsletter]=97

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(1) A mutual insurance company shall be a legal entity which, in accordance with the principle of mutuality, performs insurance business for its members, and which has obtained an authorisation from the Insurance Supervision Agency. (2) A mutual insurance company may also perform insurance business for non-members, should this be stipulated in its bylaws. (3) A mutual insurance company may perform all insurance business other than reinsurance business.

C) Methods of creation (required capital or assets)

A mutual insurance company shall be founded by the founders by adopting and signing the bylaws, and paying the initial capital (Insurance Act, Article 39). The Insurance Act, Article 44/2 provides that the minimum initial capital of a mutual insurance company shall be equal to the guarantee fund referred to in the second paragraph of Article 112 of the same Act (2.3 million EUR).

Bylaws (Article 40): (1) The bylaws of a mutual insurance company must be drawn up in the form of a deed by a public notary. (2) The bylaws of a mutual insurance company must lay down the following: 1. the firm name and head office; 2. the type of insurance business to be performed by the mutual insurance company; 3. the form and method of announcing the facts relevant to the company or its members; 4. the beginning of membership; 5. the amount of initial capital; 6. the terms and conditions, and the method of paying the funds by the members; 7. the amount and method of forming contingency reserves; 8. the terms and conditions, and the method of using profits and covering loss; 9. the number of members of the board of directors and supervisory boards; 10. the minimum number of members participating in the general meeting who can exercise minority rights. (3) the Insurance Supervision Agency may refuse to grant the mutual insurance company an authorisation to perform insurance business if the members’ interests are endangered due to the provisions of the bylaws.

Liabilities of a mutual insurance company Initial capital (Article 44) (1) Upon the founding of a mutual insurance company, the initial capital must be formed to cover start-up costs, organisational costs and other costs relating to the start -up of operations. Unless otherwise stipulated in the bylaws, the initial capital may also be used to form contingency reserves. (2) The minimum initial capital of a mutual insurance company shall be equal to the guarantee fund referred to in the second paragraph of Article 112 of this Act (2.3 million EUR). (3) The bylaws must lay down the terms and conditions and the method of repaying the funds paid to form the initial capital. Should it be stipulated in the bylaws that the funds paid to form the initial capital shall not be repaid, the method of using the said funds must be laid down. (4) When, following its foundation, a mutual insurance company applies for the authorisation to perform insurance business with regard to additional classes of insurance, the Insur- ance Supervision Agency shall be obliged to require, as a condition for granting the authorisation, an appropriate increase in the initial capital, if the expenses relating to the start-up of operations with regard to the new classes of insurance cannot be covered otherwise.

Paying and repaying the initial capital (Article 45) (1) A mutual insurance company may only start its operations when the initial capital has been paid in cash. (2) The funds paid to form the initial capital may only be repaid from the profits of individual business years. Repayments in an individual year may not exceed the amount allocated to form contingency reserves in that year.

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(3) Persons providing the funds for the formation of the initial capital, other than members of the mutual insurance company, shall not have the right to the repayment of those funds prior to meeting the conditions referred to in the second paragraph hereunder. The bylaws may stipulate that the said persons have the right to participate in the management of the mutual insurance company or the right to receive interest on annual receipts and to participate in the profits disclosed in the annual report.

According to article 41, a mutual insurance company shall acquire legal personality upon being entered in the companies’ register.

D) Management and corporate governance

The bodies of a mutual insurance company shall be the board of directors, the supervisory board and the general meeting (article 50). The Corporate governance is arranged by means of a two tier model.  The board of directors of a mutual insurance company shall be appointed by the supervisory board (article 51).  A mutual insurance company must have a supervisory board consisting of at least three members. The bylaws may stipulate that the supervisory board has more than three members but not more than twenty members (article 52).  The members of a mutual insurance company shall exercise their rights in the mutual insurance company by means of a general meeting, unless otherwise stipulated by law (article 53). Concerning the general meeting (article 53), the general meeting of shareholders may be organised as a general meeting of all the members (meeting of members) or as a meeting of representatives, who themselves must be members (representatives’ meeting). Should the bylaws stipulate that the general meeting of a mutual insurance company be organised as a representatives’ meeting, they must also lay down the composition of the general meeting and the procedure of appointing representatives. The general meeting shall adopt decisions with regard to the issues for which it is explicitly stipulated by law or the bylaws that decisions relating to them must be adopted by the general meeting. Decisions regarding the management of operations may only be adopted by the general meeting if this is required by the board of directors or, where permitted under the Company Act (CA) provisions regulating the responsibilities of the supervisory board, this is required by the supervisory board3. If the provisions of the CA applying to the general meeting of a mutual insurance company pursuant to this Act stipulate the minority rights of members whose joint holdings reach a certain share in the equity, the bylaws must lay down an appropriate number (minority) of members of the general meeting.

Right of members Relations between a mutual insurance company and its members Membership of a mutual insurance company (Article 42) (1) Membership of a mutual insurance company shall be related to the existence of an insurance contract entered into by the company. (2) A mutual insurance company may, if this is explicitly stipulated in its bylaws, also enter into insurance contracts in such a way that by making the contract the policy holder does not acquire the status of a member of the mutual insurance company.

Rights, obligations and responsibilities of members (Article 43) (1) Members shall not be responsible for the mutual insurance company’s obligations. (2) A member may not offset his/her obligations to the mutual insurance company as regards the payment of contributions and subsequent payments with his/her claim on the mutual insurance company.

3 Act amending the Insurance Act (ZZavar-C). Official Gazette of the Republic of Slovenia, no: 79/2006. Article 17.

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(3) Contributions and subsequent payments of the members, as well as the obligations of the mutual insurance company in relation to its members, may only be determined upon equal assumptions and by applying the same criteria.

Premiums and subsequent payments (Article 46) (1) The bylaws must lay down the terms and conditions and the method of providing the funds for financing the mutual insurance company’s operations by its members. The funds needed to finance the mutual insurance company’s operations in an individual year shall be provided by previously-determined contributions (premiums) paid by the members. (2) Should the remaining assets of the mutual insurance company not suffice to cover losses, the bylaws must lay down whether and to what a degree the members are obliged to make subsequent payments. Should the assets of the mutual insurance company not suffice to cover the losses, the bylaws may, instead of or in addition to subsequent payments, stipulate that the insurance undertaking’s obligations be reduced. (3) Should the bylaws stipulate the obligation of subsequent payments, those subsequent payments must also be made by the person acquiring membership during the year and the persons whose membership expired during the year, which shall be made in proportion to the duration of membership in that year. Should contributions (premiums) or insurance sums serving as the basis for determining the volume of subsequent payments be changed during the business year, subsequent payments shall be measured with regard to the higher basis.

Voting and representation of members in general meetings Convening the general meeting and adopting decisions (Article 54) (1) The Company Act provisions concerning the general meeting of a public limited company, which regulate possibility to take part in a general meeting also for non-shareholding members of the management board and supervisory board, subject matter to be decided in the meeting, call of the general meeting, call of the general meeting at the request of minority, notice period of the general meeting, publication of the agenda, shareholders' proposals and motions, minutes of the general meeting, shareholder's right to information and court decision upholding the right to information, shall apply mutatis mutandis to the call of the general meeting of the mutual insurance company, participation in the general meeting, minutes of the general meeting, and the members' right to information. When the above provisions apply to the general meeting of a mutual insurance company, any reference made to shareholders shall be deemed to be a reference to the members of the general meeting. (2) During the general meeting, a list of the members present and their representatives shall be compiled, stating their names and addresses. The list, to be signed by the chairman, shall be made available to the participants of the general meeting for inspection before voting. (3) In order for the general meeting to pass a resolution, a majority of the votes cast shall be required (simple majority), unless a higher majority is stipulated by law or the bylaws. The bylaws may lay down different requirements for voting. (4) Should the general meeting be organised as a meeting of members, the members’ voting rights may be exercised by their representatives. Proxy forms must be made in writing and shall remain with the company. (5) A member of the general meeting shall not be allowed, either in his/her own name or as a proxy or representative of another member, to participate in adopting a decision with regard to either him/her being relieved of his/her obligations or a claim by the company being filed against him/her

Type of shares, if any None, but: Additional capital (Article 48) On the basis of an approval from the general meeting, a mutual insurance company may raise additional capital by issuing subordinate debt instruments, such as securities and other financial instruments which, in the event of the bankruptcy or liquidation of the issuer, are repayable only after other debts of the issuer have been satisfied, or which, with regard to their maturity and other characteristics, are appropriate for covering possible losses due to risks to which the insurance undertaking is exposed (Article 107, par. 3).

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There are no voting rights attached to these debt instruments.

Reserves Contingency reserves (Article 47) The bylaws must lay down the method of forming the reserves intended to cover operating losses (contingency reserves), and stipulate which contributions (premiums) shall annually be set aside to form contingency reserves and the minimum amount of the said contingency reserves.

Use of the profit for the year (Article 49) (1) The profits disclosed in the annual report may be distributed to the members or brought forward to the next business year, up to the portion which is not required to: 1. form contingency reserves or any other reserves laid down in the bylaws; 2. repay the initial capital or make other repayments laid down in the bylaws (third paragraph of Article 45 of this Act). (2) The bylaws must stipulate the criteria according to which the profits are distributed among the members and, in particular, whether the profits are also to be distributed to the persons whose membership expired during the year.

Possibility of non-member investors: See under section: type of shares, if any

Related auditing issues Extraordinary and special audits (Article 55) With regard to extraordinary and special audits of a mutual insurance company, provisions of the law governing takeovers, specifically the provisions concerning special audit and compensation claims shall be reasonably applied. When the abovementioned provisions refer to shareholders, these shall, when reference is made to extraordinary or special audits of a mutual insurance company, be deemed to be members of the general meeting4.

Annual report audit (Article 167) (1) The annual report of an undertaking and the consolidated annual report of a group must be reviewed by a certified auditor. The tasks of auditing annual reports referred to in the preceding Paragraph may be performed within an auditing company by a certified auditor with an authorisation of the Slovenian Audit Institute to perform the tasks of auditing. (3) An insurance undertaking shall be obliged to submit to the Insurance Supervision Agen- cy an audited annual report and the auditor's report within eight days of receiving the auditor’s report, or within six months of the end of the calendar year at the latest.

Contents of audit examinations (Article 170) (1) An auditor shall examine and report primarily regarding: 1. the balance sheet; 2. the statement of the business result; 3. cash flow statement; 4. the statement of capital movements; 5. the balance of and changes to technical provisions; 6. the balance and structure of investments of assets covering technical provisions; 7. the balance and structure of investments of funds covering mathematical provisions managed by the insurance undertaking; 8. the compliance with risk-management rules; 9. the operation of internal audit; 10. the method of managing business books; 11. the quality of the information system in the insurance undertaking; 12. the correctness and completeness of notifications and reports to the Insurance Supervi- sion Agency; 13. the evaluation of balance-sheet and off-balance-sheet items and accounting policies.

4 Act amending the Insurance Act (ZZavar-C). Official Gazette of the Republic of Slovenia, no: 79/2006. Article 19.

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Transparency and publicity requirements: Announcement of audited annual report summary (Article 171) (1) An insurance undertaking shall announce in the daily press or the professional financial press, which is published at least once a week, a summary of the audited annual report together with the opinion of the auditor and the opinion of a certified actuary within eight days of the adoption thereof, but no later than within eight months after the end of the calendar year. (2) The Insurance Supervision Agency shall prescribe in more detail the contents of the summary under the preceding Paragraph hereunder.

Protection of assets: The assets left after the obligations have been met or adequate security have been provided shall be distributed to persons having the status of members of the mutual insurance company at the moment the resolution to dissolve the company was adopted. The distribution shall be subject to the criteria laid down by the bylaws with regard to the distribution of profits to members.

E) Additional information on the insurance market in Slovenia

Slovenia is a relatively small insurance market with around 20 domestic and foreign insurance and reinsurance companies. The Slovenian insurance market is supposed to be under- developed in terms of depth and concentration. In 2005, the generated gross premiums amounted to 5.1 percent of GDP, while the market share of the largest insurance company amounted to 43 percent5.

1 Legislation impacting the functioning of mutuals:

1 Is there legislation on taxation issues (preferential treatment)?

None

2 Is there legislation concerning employee involvement systems?

Yes. In all types of organisations, employees have up to one third members in supervisory board.

Vzajemna employs about 270 employees.

3 What are the possibilities and regulations in a situation of demutualization (e.g. transforming a mutual to a traditional capital company) protection of assets in case of demutualization?

Dissolution of a mutual insurance company is possible in case of the following circumstances (Article 57): (1) A mutual insurance company shall be dissolved: 1. upon the expiry of the period for which it was founded; 2. on the basis of a resolution of the general meeting (voluntary liquidation); 3. if either bankruptcy proceedings or the compulsory liquidation of the company is concluded. (2) A three-quarters majority of votes cast shall be required for the adoption of a resolution on the dissolution of the company by the general meeting. (3) The approval of the Insurance Supervision Agency shall be required for the resolution referred to in the second paragraph to be valid. The Insurance Supervi- sion Agency shall only be allowed to refuse to grant an approval if, in the event of

5 Privatisation in Slovenia.

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the dissolution of the mutual insurance company, the interests of the insurers, insured persons or other beneficiaries6 are not sufficiently safeguarded.

Voluntary Liquidation is possible (Article 58): (1) On the basis of a valid resolution on the dissolution of the company adopted by the general meeting, the company shall carry out liquidation proceedings. (2) During liquidation proceedings, the mutual insurance company shall be subject to the same regulations as were valid prior to the commencement of liquidation, unless otherwise stipulated by the provisions of this Act or the purpose of the liquidation. (3) During liquidation proceedings, the company shall be allowed neither to effect new insurances nor to increase and prolong existing policies. (4) The funds paid to form the initial capital and the funds in the accounts of the members of the company, taken into account as core capital7 may only be repaid after the remaining obligations of the company to its members arising from insurance have been met or adequate security has been provided to meet the said obligations. (5) The assets left after the obligations referred to in the fourth paragraph hereunder have been met or adequate security have been provided shall be distributed to persons having the status of members of the mutual insurance company at the moment the resolution to dissolve the company was adopted. The distribution shall be subject to the criteria laid down by the bylaws with regard to the distribution of profits to members. (6) With regard to receivers, the provisions relating to the board of directors of a mutual insurance company shall be reasonably applied. (7) Unless otherwise provided in the preceding paragraphs, beside the provisions of Articles 32 to 35 of this Act together with the provisions of Articles 193a, 193b, 193c, 193č, 193d and 193e of this Act applied mutatis mutandis, whereby the duty to inform on the initiation of the voluntary liquidation of a mutual insurance company shall refer to the company's general meeting, the following CA provisions shall apply mutatis mutandis to the voluntary liquidation of a mutual insurance company: provisions on the content of a liquidation resolution, liquidation procedure, indication in the registered name in case of a liquidation procedure, powers of a liquidator, termination of a liquidation procedure and continuation of a bankruptcy procedure, time limit for the distribution of assets in a liquidation procedure, liquidator's duties at the end of the distribution process, liquidator's damage liability, and on the protection of creditors8.

Transfer of insurance contracts (Article 59) is allowed in the following circumstances: (1) In order to transfer insurance contracts, the approval of the general meeting shall be required, in addition to the terms and conditions laid down in Articles 80 to 82 of this Act. Unless no higher majority is laid down by the bylaws, a three- quar- ter majority of all the votes cast shall be required for the resolution to transfer insurance contracts to be adopted by the general meeting. (2) The Insurance Supervision Agency may also refuse to grant an authorisation to transfer insurance contracts if, due to the transfer of insurance contracts, the members’ interests arising from their membership of the mutual insurance company are not sufficiently safeguarded.

6 Act amending the Insurance Act (ZZavar-C). Official Gazette of the Republic of Slovenia, no: 79/2006. Article 21

7 Act amending the Insurance Act (ZZavar-C). Official Gazette of the Republic of Slovenia, no: 79/2006. Article 22.

8 Act amending the Insurance Act (ZZavar-C). Official Gazette of the Republic of Slovenia, no: 79/2006. Article 22

9 Act amending the Insurance Act (ZZavar-C). Official Gazette of the Republic of Slovenia, no: 79/2006. Article 24

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Transfer of assets to an insurance public limited company is allowed (Article 61): (1) The total assets of a mutual insurance company may, without preceding liquidation, be transferred to an insurance public limited company. (2) With regard to the transfer of the assets of a mutual insurance company to an insurance public limited company, the provisions of the CA regulating acquisition9 shall be reasonably applied. The mutual insurance company shall be deemed to be an acquired company and the insurance public limited company an acquiring company. (3) Unless no higher majority is laid down by the bylaws, a three-quarters majority of all votes cast shall be required for the resolution approving the acquisition contract to be adopted by the general meeting of the mutual insurance company.

2 Concerning internal barriers (barriers mutuals face within their own country):

4 Issues concerning the legal entity:

 The obstacles operators may have when they want to create a mutual in a country;

There are no obstacles to the creation of a mutual (insurance company) in Slovenia, provided that the above-mentioned legal requirements are met

There is however no legislation to create other mutuals.

 The obstacles operators may have when they want to proceed to a merger of mutuals/division/acquisition of a mutual;

By law, mergers are possible (see below). However, in Slovenia presently only one mutual insurance company exists.

Amalgamation (Article 60) (1) Two or more mutual insurance companies may amalgamate, whereby: 1. the assets of one or several companies (acquired company) are transferred to another company (acquiring company), whereby members of the acquired companies become members of the acquiring company (acquisition); 2. a new mutual insurance company is established, to which the assets of acquired companies are transferred, whereby members of the acquired companies become members of the newly-established acquiring company (merger). (2) In order to amalgamate, an approval of the general meetings of the amalgamating companies shall be required. Unless no higher majority is laid down by the bylaws, a three- quarters majority of all the votes cast shall be required for the resolution on amalgamation to be adopted by the general meeting. (3) Unless otherwise provided in the preceding paragraphs, the following CA provisions shall apply mutatis mutandis to the concentration of mutual insurance companies: provisions on the acquisition agreement, acquisition report, acquisition audit, preparation and conduct of a general meeting in case of acquisition, type of acquisition agreement, proposal for and actual registration of an acquisition, protection of creditors, protection of holders of special rights, damage liability of management and supervisory boards, claims to compensation and their prescription, nullity and contestability of general meeting's resolution on the approval of acquisition, convalidation of the resolution on the approval of acquisition, elimination of grounds for contesting general meeting's resolution on the approval of acquisition, judicial scrutiny (preizkus) of exchange ratio, waiver of the right to additional cash payment, joint representative, settlement and settlement expert board for the review

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of the exchange ratio, effects of a final court decision and settlement, interest on additional cash payments and issue of additional shares, publication of a final court decision or settlement, and on the procedure costs and merger10. If the abovementioned provisions refer to shareholders or shares, these shall be deemed to be members or the rights and obligations.

 The obstacles operators may have when they want to convert to another type of legal entity

The Insurance Supervision Agency shall refuse to grant the said approval when, through transformation, the members’ interests are endangered. (Arti- cle 62/4)

Transformation into a public limited company (Article 62) (1) A mutual insurance company may be transformed into a public limited company on the basis of a resolution adopted by the general meeting. Unless no higher majority is laid down in the bylaws, a three- quarters majority of all votes cast shall be required for the resolution to be adopted by the general meeting. (2) Each member may, by the end of the third day prior to the general meeting, object to transformation by sending a registered letter. (3) The board of directors shall be obliged, no later than by the time the general meeting is convened, to inform all members of the contents of the proposed resolution on transformation according to the method of the company’s notifications laid down in the bylaws. By means of the said notification, the members must be informed of the right to object (the second paragraph hereunder) and the rights arising from the objection lodged. (4) The approval of the Insurance Supervision Agency shall be required for transformation. The Insurance Supervision Agency shall refuse to grant the said approval if, through transformation, the members’ interests are endangered.

Resolution on transformation (Article 63) (1) A resolution on transformation must lay down the share capital, the amounts for which the shares will be issued, and other amendments to the bylaws necessary for the transformation. The nominal amount of the share capital must not exceed the value of the mutual insurance company’s assets decreased by its obligations. The amounts for which the shares are issued must be equal to the minimum amount for which the shares may be issued pursuant to the CA. (2) Unless otherwise stipulated by the resolution on transformation, the members of the mutual insurance company shall participate in the share capital. When no provision is made in the resolution as to the fact that all members of the mutual insurance company participate with equal holdings, the holding of an individual member may only be determined on the basis of one or several criteria as follows: 1. the amount of the insurance sum; 2. the amount of the contribution (premium); 3. the amount of coverage required in the event of life assurance; 4. the criteria for the distribution of profits; 5. the period of membership. (3) Should the participation of an individual member not reach the minimum nominal amount of a share, his/her holding in the share capital shall be disregarded. Other holdings shall be rounded out so as to be divisible by the minimum nominal amount of a share, whereby the entire share capital shall be divided. (4) Should the nominal amount through which a member participates in the

10 Act amending the Insurance Act (ZZavar-C). Official Gazette of the Republic of Slovenia, no: 79/2006. Article 23

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share capital of the public limited company exceed the holding stipulated on the basis of the first or second paragraphs hereunder, the amount in excess must be paid to the public limited company by the member. Should the nominal amount through which a member participates in the share capital of the public limited company be lower than the holding stipulated on the basis of the first or second paragraphs hereunder, or should a member not participate in the share capital of the public limited company, the difference or the holding must be paid to the member by the public limited company.

Carrying-out of transformation (Article 64) (1) Unless otherwise stipulated by this Act, the provisions of Article 187, Ar- ticle 188, Articles 193 to 195, and Article 548 of the CA shall reasonably apply to the transformation of a mutual insurance company into a public limited company. (2) A public limited company shall exist from the moment of its entry in the companies’ register. From that moment on, members of the mutual insurance company shall also be shareholders pursuant to the resolution on transformation. (3) Any member who, according to the method referred to in the second paragraph of Article 62, has lodged an objection against transformation may make his/her shares available to the company. In such an event, the provision referred to in Article 550 of the CA shall be reasonably applied.

The transformation in the other direction, i.e. joint stock into a mutual is not described by law.

5 Issues concerning the activity:

 Specific rules/obligation related to the nature of the business in which mutuals operate (e.g. insurance activities, providence services, management of hospitals, creation of subsidiaries etc.)

The Insurance Supervision Agency may refuse to grant the mutual insurance company an authorisation to perform insurance business if the members’ interests are endangered due to the provisions of the bylaws (Article 40/3).

Regulations and developments concerning health care insurance and the 'Vzajemna Case'

Health insurance and the creation of Vzajemna Since 1992, Slovenia has a healthcare insurance system based on Bismarkian principles. There is one single insurer for statutory health insurance, administered by the Health Insurance Institute of Slovenia (English abbreviation: HIIS, in Slovenian language: Zavod za zdravstveno zavarovanje Slovenije: ZZZS). To lower utilisation of healthcare, financial incentives were introduced such as co-payments, but this never led to effective reductions due to the fact that most of the population subscribed into - complementary insurance schemes to cover their co-payments. The utilisation of healthcare services maintained therefore high.

Since the introduction of the HIIS, a mixed model developed in which public money (compulsory health insurance) and private money (premiums for complementary schemes) were gathered by the same organisation. This led to unclarity about what funds were used for the compulsory and what funds for the complementary health insurance. In 1998, as a result of amendments to the Healthcare and Health Insurance Act, the HIIS was obliged to completely separate its compulsory insurance and complementary schemes. For managing the complementary part, the mutual insurance company “Vza- jemna”, meaning mutuality, was created, and it immediately became the

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largest provider of complementary voluntary health insurance (VHI) in Slo- venia.

With regard to the compulsory health insurance, virtually the entire population is covered. Regarding the complementary insurance for covering co- payments, the coverage is again almost 100 per cent.

The rise of competition and skimming Since 2004-2005 the mutual insurance company has not been the only insurer on the market: two private companies (Triglav and Adriatic Slovenica) have entered the market of complementary health insurance policies. Nowa- days, the only mutual insurance company active in Slovenia thus operates in competition with commercial insurance companies.

The entering of the commercial insurers created an uneven situation: the commercial insurers started cream-skimming campaigns for selling policies only to younger and healthier individuals by offering risk-related premiums. Vzajemna, the oldest and most significant provider of complementary insurance, had the highest number of insured individuals but a less favourable risk structure, because large numbers of retired or elderly people took out VHI coverage with Vzajemna11.

When in 2003-2006 plans were made for restructuring Vzajemna into a joint stock company to better compete with the other two insurers, the Ministry of Health submitted a proposal for an act to preserve the transformation concerning “Reorganization of the Status of Vzajemna health insurance”, which was adopted by the Parliament in April 2007. The aim of the proposal by the Government was to preserve the only mutual health insurance company in order to assure solidarity in the complementary health insurance system.12

Risk equalisation The above-mentioned inequities were related to co-payment of health insurance being based on flat premiums. Premiums for complementary VHI were therefore not risk related and the companies (both the mutual and joint stock companies charged identical premiums.

To avoid cream-skimming by voluntary health insurers and to equalize the variations in risk structure between private health insurance companies, a risk equalization scheme was introduced in 200513 that ensured equal premiums for all insured individuals, irrespective of age14. The newly adopted legislation attempts to resolve the problem of health insurers accumulating losses by implementing risk equalisation and maintains solidarity by intro- ducing the principle of ‘intergenerational mutuality’ (community-rating) to VHI companies15.

11 Albreht, T., E. Turk, M. Toth, J. Ceglar, S. Marn, R.P. Brinovec and M. Schäfer. Slovenia Health System review. Systems in Transition. Vol. 11 No. 3 2009. Edited by: M. Schäfer., O. Avdeeva and E. van Gin- neken

12 Albreht, T, Turk E, Toth M, Ceglar J, Marn S, Pribaković Brinovec R, Schäfer M, Avdeeva O and van Ginneken E. Slovenia: Health system review. Health Systems in Transition. 2009; volume 11(3): 56, 142; Corporate governance in a mutual insurance company. Case of Vzajemna mutual insurance company, Slovenia. Dušan Kidrič, Chairmen of the management Board.

13 Law on Changes and Amendments to the Health Care and Health Insurance Act, Official Gazette of the Republic of Slovenia 100/05

14 Law on Changes and Amendments to the Health Care and Health Insurance Act, Official Gazette of the Republic of Slovenia 100/05

15 Tajnikar, M. and P. Došenovič . The development of voluntary health insurance in Slovenia and its role in funding health care. University of Ljubljana, Faculty of Economics.

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The impact of competition on Vzajemna Since 2005, VHI is offered by four main insurance providers: Vzajemna, Triglav, Adriatic-Slovenica, and Merkur (Austrian). Vzajemna is still the largest provider; however, it lost part of its share (from 1.2 million in 1993 to 900 000 in 2005) due to the increased number of providers of VHI in the country. Vzajemna’s market share nowadays amounts to 11,9% (2009) of all insurances and 60,2% (2009) of complementary voluntary health insurance. This amounts to a membership of around 44% of the total population in 2009 (895.363 members on December 31, 2009; total population of Slovenia, March 31, 2009: 2.038.733).

Amendment to the Insurance Act In 2010, an amendment to the Insurance Act has been adopted, stipulating that the General Assembly of a mutual insurance company that carries out supplementary health insurance or life insurance must reflect the age structure of the members16, 17. This act was initiated due to irregularities in the management and doubts about the democratic structure of the governance of the mutual insurance company.

Are Slovenia’s Health Insurance regulations in line with EU-rules? On 30 September 2010, the European Commission decided to request Slove- nia to ensure that its rules on complementary health insurance comply fully with the EU Non-life insurance Directives and with EU rules on free movement of capital and the freedom to provide services. In the Commission's view, three aspects of the Slovenian system were not in line with EU legislation, namely 1) the requirement for foreign health insurers to appoint a representative to deal with the Slovenian authorities, 2) the fact that health insurers are restricted to using their profits for distribution to their shareholders, and 3) the provision that insurers must notify their insurance terms to the Slovenian supervisory authority, which may appoint an independent certified actuary to investigate further and - based on the actuary's findings - take further actions against the insurer.

As a consequence of the infringement procedure by the European Commis- sion, currently, there are debates about including the complementary scheme into the HIIS and fund it through taxes. This would mean that the one mutual insurance company Vzajemna, were to be abolished and integrated into the HIIS. This would also result in major fiscal reforms with major financial, state budget, consequences.

Thoughts on the future based on the current situation The infringement procedure questions the future organisation of complementary health insurance. The Minister of Health proposed a complete health reform in 2012 with the possibility of abolishing the complementary health insurance.

16 Corporate governance in a mutual insurance company/amendment to the Insurance Act - ZZavar-H

17 The role of mutual societies in the 21st century. July 2011. Directorate General for internal policies. Policy department A: Economic and scientific policy, employment and social affairs. IP/A/EMPL/ST/2010-004 PE 464.434

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6 Issues concerning the neglect of mutuals in policy making:

 National rules which by not taking into account the mutual specificities hinder the mutuals’ development (e.g. public procurement, specific tax rules, etc.).

None.

3 Concerning cross border barriers (barriers mutuals face when operating across barriers):

Vzajemna is legally allowed to have members in other countries or to merge with mutuals from other countries.

Regarding inward foreign insurance services, EU regulations generally apply. Over the years, Slovenia has established comprehensive insurance laws to regulate insurance activities. These insurance regulations are now in accordance with the EU law, including the freedom of establishment, the freedom of service and the so called single passport system. Foreign insurance companies may operate directly or through branches, and Insurance accounting standards have been adopted based on the EU directive18.

However, regarding health insurance in particular, certain barriers for foreign providers aiming to provide these services in Slovenia have been identified. On 30 September 2010, the European Commission decided to request Slovenia to ensure that its rules on complementary health insurance comply fully with the EU non-life insurance Directives and with EU rules on free movement of capital and the freedom to provide services. In the Commission's view, the following requirements are not in line with EU legislation: 1) the requirement for foreign health insurers to appoint a representative to deal with the Slovenian authorities, 2) health insurers are restricted to using their profits for distribution to their shareholders, and 3) insurers must notify their insurance terms to the Slovenian supervisory authority, which may appoint an independent certified actuary to investigate further and - based on the actuary's findings - take further actions against the insurer19.

By February 2011, Slovenia has therefore been referred to the EU Court over these complementary health insurance regulations. In the view of the EC, the regulations restrict the ability of health insurers from other Member States to establish themselves and offer their services in Slovenia. This would prevent other health insurers from competing on the Slovenian insurance market and limit the choice available to Slovenian consumers20.

18 Pavliha, M. and J. Rodica. Insurance law in Slovenia

19 Financial Services: Commission requests Slovenia to comply with EU rules on complementary health insurance, IP/10/1247, Brussels, 30 September 2010

20 Insurance: Slovenia referred to EU Court over complementary health insurance. IP/11/181, Brussels, 16 February 2011.

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8 Issues concerning cross-border cooperation with other European partners for the creation of groups of mutuals, or to create a local subsidiary.

None specifically, EU regulations apply.

9 Examples of existing cross-border co-operations and their legal form

None

10 Examples of autonomous expansion across the frontiers of mutuals.

A subsidiary of Austrian mutual group Merkur operates in the country21.

4 Concerning national measures, for promoting mutuals and measures aiming at access to finance for mutuals:

Internal capital: Funds in accounts of members of a mutual insurance company (Article 44.a) (1) The bylaws of a mutual insurance company may stipulate that funds in the accounts of members of the mutual insurance company may also be considered as the initial capital of the mutual insurance company. (2) Funds in the accounts of members of the mutual insurance company may be considered as initial capital of the mutual insurance company when the bylaws stipulate that: - payments may only be made from the accounts of members when such action does not endanger the capital adequacy of the company, or after completion of the liquidation procedure once all other liabilities have been settled; - one month prior to the payment from the accounts of members (with the exception of repayment in the event of cessation of membership) the mutual insurance company shall be obliged to inform the Insurance Supervision Agency of the intention to make such payment; - the mutual insurance company may not alter the bylaws so as to affect personal accounts without the prior authorisation of the Insurance Supervision Agency.

Premiums and subsequent payments (Article 46) (1) The bylaws must lay down the terms and conditions and the method of providing the funds for financing the mutual insurance company’s operations by its members. The funds needed to finance the mutual insurance company’s operations in an individual year shall be provided by previously determined contributions (premiums) paid by the members. (2) Should the remaining assets of the mutual insurance company not suffice to cover losses, the bylaws must lay down whether and to what a degree the members are obliged to make subsequent payments. Should the assets of the mutual insurance company not suffice to cover the losses, the bylaws may, instead of or in addition to subsequent payments, stipulate that the insurance undertaking’s obligations be reduced. (3) Should the bylaws stipulate the obligation of subsequent payments, these subsequent payments must also be made by the person acquiring membership during the year and the persons whose membership expired during the year, which shall be made in proportion to the duration of membership in that year. Should contributions (premiums) or insurance sums serving as the basis for determining the volume of subsequent payments be changed during the business year, subsequent payments shall be measured with regard to the higher basis.

21 AMICE The market share of Mutual and Cooperative Insurance in Europe 2008

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Additional capital (Article 48) On the basis of an approval from the general meeting, a mutual insurance company may raise additional capital by issuing the subordinate debt instruments.

External capital: None specifically, EU and general insurance regulations apply.

None

13 The existence, if any, of national, regional or local policies aiming at the promotion of mutuals, such as tailored business support services, specialised agencies, creation of federations etc.

None

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310 28 Slovakia

311

312

Country study on the current situation and prospects of mutuals

Slovakia

The Solvency II Directive applies to the following company form for both life and non-life insurance and reinsurance: ‘akciová spoločnosť’ (Joint stock company).

A) Definitions of mutuals

Mutuals do not seem to exist in Slovakia. They are not allowed to conduct the business of insurance. Slovakian insurance undertakings have to be in the form of joint-stock companies1.

B) Legal types (if more types exist)

According to the Slovak Insurance Law, article 5, (1) ´Insurance company´shall mean a legal entity being a joint stock company with its registered office in the territory of the Slovak Republic that pursues insurance activities upon the authorisation to pursue insurance activities granted by the National Bank of Slovakia within the proceedings under a special regulation;2 the insurance company may also have the legal form of a European Company.3

C) Methods of creation (required capital or assets)

N/A

D) Management and corporate governance

N/A

1 AMICE The market share of Mutual and Cooperative Insurance in Europe 2008

2 Act No. 747/2004 Coll. on supervision over financial market and on amendments and supplements to certain laws as amended by subsequent legislation.

3 Act No. 562/2004 Coll. on a European Company and on amendments and supplements to certain laws.

313 Slovakia

314 29 Sweden

315

316

Country study on the current situation and prospects of mutuals

Sweden

For non-life and life insurance the Solvency II Directive applies to the following company forms: "försäkringsaktiebolag" (insurance company), "ömsesidiga försäkringsbolag" (Mutual insurance company), "understödsföreningar" (friendly societies). Reinsurance can only be provided by "försäkringsaktiebolag" (insurance company), "ömsesidiga försäkringsbolag" (Mutual insurance company).

A) Definitions of mutuals

There is no general definition of mutuals in Swedish law. Mutuals providing services other than insurance are not legally recognised (see barriers part). As of April 2011, the law on friendly societies was been repealed.1

There are no other mutuals than insurance mutuals.

There are two kinds of insurance mutuals, mutual insurance companies (ömsesidiga försäk- ringsbolag) and insurance associations (försäkringsföreningar). Only the latter is legally defined.

An insurance association (försäkringsföreningar) is an association with the objective to promote members’ interests by conducting insurance business in which members participate by using the association’s services as policyholder or insured. (the Insurance Business Act2, chapter 13, 1).

B) Legal types (if more types exist)

There are three types of insurance mutuals:

 Mutual insurance companies (ömsesidiga försäkringsbolag) are legally recognised but not legally defined. However according to the Insurance Business Act3 (hereafter called the Act) the policyholders are the owners of the company (but not policyholders which take out reinsurance), with some possibility to extend ownership to the insured. Accord- ing to the Act the owners have no personal responsibility for the company’s liabilities. However there is a possibility to enter into the Articles of Associations a liability for owners to pay supplementary contributions under certain circumstances.  Insurance associations (forsakringsforeningar) are legally recognised and defined in the Insurance Business Act chapter 13, 1 as an association with the objective to promote members’ interests by conducting insurance business in which members participate by using the association’s services as policyholder or insured.  Hybrid mutuals. Life insurance companies can be categorised in three different forms:  (i) mutual companies;  (ii) limited liability companies that are entitled to distribute profits to their shareholders; and  (iii) limited liability companies that are operated on a mutual basis

1 Lag (1972:262) om understödsföreningar (Law (1972:262) on friendly societies: http://www.notisum.se/rnp/sls/lag/19720262.HTM

2 Försäkringsrörelselag (2010:2043), Insurance Business Act: http://62.95.69.3/SFSdoc/10/102043.PDF

3 Försäkringsrörelselag (2010:2043), Insurance Business Act: http://62.95.69.3/SFSdoc/10/102043.PDF

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The third category of companies is generally referred to as "hybrid companies" as they are, on the one hand, limited by shares but, on the other, not entitled to distribute any profits to their shareholders. With some exceptions (e.g., Nordea, Handelsbanken and SPP), all major traditional life insurance companies in Sweden are either mutual insurance companies (e.g., Alecta and Folksam) or hybrid companies (e.g., AMF, Skandia and LF). This means that most Swedish traditional life insurance companies only distribute profits to their policyholders and beneficiaries. These companies hold 95 per cent of the risk capital in the entire Swedish life insurance sector.4

Hence, in addition to the insurance associations and mutual insurance companies, for life insurance, “hybrid companies” exist, i e “mutually run” stock companies where dividends are prohibited. These organisations are also referred to as ‘old mutuals’. Le- gally, these hybrid companies are owned by the shareholders, however since they are governed in a mutual way, the public refers to them as being mutual (not being always aware of the difference between company forms) and has a general idea that the company, the assets, the capital is public property.

Changes in legislation In general, the reason for the change in legislation is that voting power often lies in the hands of organisations such as trade unions, rather than individual policyholders. This issue of policyholder influence itself was also controversial. More specifically, the motive for the changes in the legislation has to do with the hybrid mutual Skandia life insurance company. Around the turn of the century, the company, despite having a solid financial position, felt into a scandal concerning misbehaviour of the top management. Despite that legally, providing excessive bonuses was allowed, since the public felt that it was their money, this be- haviour was not acceptable. The Skandia life scandal5 influenced all life insurance companies in Sweden and political action was taken to enhance the influence of the policyholders in the hybrid and ‘real’ mutual insurance companies.

In December 2010 a new Insurance Business Act was adopted in Sweden, which entered in- to force on April 1, 2011. The old Insurance Business Act of 1982 and the Benevolent Socie- ties Act of 1972 were repealed. Until April 1st 2011 mutual insurance companies’ legislation was built on the legislation for joint stock companies (“aktiebolag”). From that date the legislation is built on the legislation for cooperatives and other economical societies (“ekonomiska föreningar”).

In the new Act, the general Companies Act will (by reference) be applicable to limited liability insurance companies, while mutual insurance companies and insurance associations (forsakringsforeningar) will be covered by the Cooperative Societies Act.6 Originally, the Insur- ance Company Committee had proposed that under the new Act, only policyholders should have voting power. This attracted criticism because such direct democracy would be difficult to apply in practice. The compromise reached is that half of the voting power should be held by policyholders or organisations that can be considered to represent their interests.7 The new Act and the harmonisation of mutual and cooperative legal frameworks, do not affect the way mutuals operate on insurance markets in Sweden.

Until April 1st 2011 there was also the possibility to establish life and non-life “closed” mutuals (in the form of either “understödsföreningar” or as “kassor”), only open for a group of people with common interests (insurance of the person such as pensions, funeral, etcetera), comparable to the German “Kassen”. After that date these closed types of “understöds-

4 See: Sweden — current solvency regulation and efforts towards Solvency II Jan 08 2010 Per Johan Ec- kerberg and Katarina Rykowska (source: the Swedish Insurance Federation).

5 See for instance: http://knowledge.insead.edu/finance-skandia-scandals100419.cfm?vid=406 6 http://www.sweden.gov.se/sb/d/12677/a/152256/, http://www.sweden.gov.se/sb/d/13416/a/152060.

7 Eckerberg, Per Johan, Peter Morawetz and Per Brandt, A possible modernization of the Swedish Insurance Business Act. In: Nordisk Försäkringstidskrift, 2009: http://www.nft.nu

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föreningar” still exists for a transfer period, but they should convert to cooperatives. The Solvency II Implementation Committee however, suggests that tjänstepensionskassor (i.e. occupational pension Kassen)8 will transfer from insurance to IORPs (Institutions for occupational retirement provision) and be able to continue to exist (the suggestion is negotiated with the Ministry of Finance and the social partners).

Whether the Companies Act or the Cooperative Societies Act should be applicable to mutual insurance companies was a controversial issue, because many features of the leading Swed- ish mutual insurance societies have been borrowed from general company law, rather than cooperative law.

The remaining of the existing “understödsföreningar” (so the ‘open’ friendly societies) will be considered cooperatives. Within the Swedish tradition, the distinctions between societies (“ideella föreningar”), cooperatives and other “economical” societies (“ekonomiska förenin- gar”), foundations (“stiftelser”), partnerships and mutuals or mutual-like organisations are weak, making the legal system difficult to understand.

All insurance companies, including the mutual type organisations, are jointly represented by Svensk Försäkring (Insurance Sweden)9. Insurance Sweden is the industry organisation for insurance companies. They work to promote modern and competitive ground rules for insurance companies and to increase knowledge of the importance of private insurance for individuals and society.

In the remaining of this country chapter, the focus is on mutual insurance companies and insurance associations.

C) Methods of creation (required capital or assets)

Mutual insurance companies need a certain amount of policyholders (at least one) and also start-up capital. In order to obtain an insurance licence, the founders will sign a memorandum containing details on the manner in which the inaugural meeting will be organised.

To create a mutual insurance company the following “building stones” are needed.

According to Chapter 12, § 6 of the Insurance Business Act (2010:2043)10, a mutual insurance company is formed by one or several founders. A founder will be:  a natural person residing in a country within the EEA;  a Swedish legal entity, or  a legal entity incorporated under the laws of a country within the EEA and having its registered office, central administration or principal place of business in this area. Partnerships or similar legal entities formed under the legislation of a country within the EEA may be founders under the condition that every unlimited liability partner resides in this area.

The Swedish Financial Supervisory Authority (Finansinspektionen)11 may in individual cases decide that someone other than the one specified may be founders.

According to Chapter 12. § 812, the founders set the conditions for its formation and establish the articles of association. They must determine that a certain number of insurance to at least a certain total amount be subscribed, before the company is deemed formed. In de-

8 There are also some minor pensionskassor that have non-occupational pensions and they should not be considered as IORPs.

9 http://www.svenskforsakring.se/

10 Försäkringsrörelselag (2010:2043), Insurance Business Act: http://62.95.69.3/SFSdoc/10/102043.PDF

11 http://www.fi.se/

12 Försäkringsrörelselag (2010:2043), Insurance Business Act: http://62.95.69.3/SFSdoc/10/102043.PDF

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termining the number and insurance amount they shall take into account the nature of the planned operations and to guarantee the capital.

The guarantee capital is predetermined by the founders and is paid back when it is no longer needed any more.

Insurance associations need only start-up capital. According to Chapter 13 concerning insurance associations, § 5, an insurance association may not be formed without working (guarantee) capital. The capital may be contributed also by non-members. The guarantee capital is predetermined by the founders and is paid back when it is no longer needed any more. The amount of the required capital is the same as for other insurance operators.

There is no de minimis regime in Sweden; all insurance activities in Sweden require a license. There were exemptions but they only relate to reporting requirements and apply only to cattle insurance companies (Kreatursförsäkringar) and insurance associations (under- stödsföreniging) that operated under the Benevolent Societies Act of 1972, which has been repealed in 2011.

D) Management and corporate governance

Management and corporate governance requirements are to a large extent the same as for other insurance companies. Some specifics are mentioned here.

Mutual insurance companies: - Corporate governance: the mutual insurance company has a board of Directors, which is elected by the general meeting. - Rights of members: According to the Act (chapter 12, article 1)13, the policyholder is co-owner of the mutual insurance company (the insured can be co-owner only if the articles of association stipulates it). As such they have voting rights in general meetings. - Voting and representation: The voting rights, membership etc. is described in the articles of association. In principle in general meetings the one man one vote principle is applied. However, in larger mutual insurance companies it is common that the articles of association stipulate that the voting rights are conferred on representatives appointed by explicitly mentioned organisations or by members. At least half of such representatives should however be appointed by the members or by organisations representing members’ interests. In case of indirect representation the organisation representing the members may not have been founded for that purpose, organisation within the cooperative movement (labour union, consumer cooperative, etc.) are however accepted. Within the framework of the new legislation, there is currently a governmental committee assigned to look into if and how to enhance policyholders’/owners’ influence in mutual insurance companies. - Type of shares: There are no shares. However, since April 1st 2011 hybrid capital exists. But this legislation is included in an ongoing revision by the Committee on life insurance. Therefore, the existing rules are fairly new, and are subject to discussion and revision. - Reserves: General insurance law applies. The life insurance companies have as reserve “Konsolidieringsfonden”. Reserves are used to maintain capital buffers and to lower premiums. - Non-member investors: Non members investors are possible to a limited extent (see in relation to hybrid capital). - Transparency and disclosure: With regard to transparency and disclosure, there is no difference with non-mutual insurers operating on the Swedish market. - Related auditing issues: Auditing is no different from other companies. - Protection of assets: Protection of assets is no different from other companies. Assets will be distributed amongst the policyholders.

13 Försäkringsrörelselag (2010:2043), Insurance Business Act: http://62.95.69.3/SFSdoc/10/102043.PDF

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Insurance associations (försäkringsföreningar): - Corporate governance system and bodies; insurance associations have a one tier governance structure consisting of a board of Directors (including the managing director) and the general assembly, electing the board. - Rights of members: Policyholders are members of the association. The possibility exists to have non member investors. Their rights are described in the Statutes. - Voting and representation: As the policyholders are members of the association, they have voting rights in general meetings. There are the same possibilities as for mutual insurance companies to confer voting rights to representatives assigned by organisations or members, with the same restrictions. The Statutes may provide for voting rights for those who put in working capital. - Type of shares: There are no shares - Reserves: General insurance law applies. The life insurance companies have as reserve “Konsolidieringsfonden”. Reserves are used to maintain capital buffers and to lower premiums. - Non-member investors: Non member investors are possible to a limited extent. - Transparency and disclosure: With regard to transparency and disclosure, there is no difference with non-mutual insurers operating on the Swedish market. - Related auditing issues: Auditing is no different from other companies. - Protection of assets: Protection of assets is no different from other companies. Assets will be distributed amongst the policyholders.

1 Legislation impacting the functioning of mutuals:

1 Is there legislation on taxation issues (preferential treatment)?

In principle, mutual insurance companies and insurance associations are both treated as any other insurance company. (Former Swedish tax legislation included some specific tax rules for mutual type organisations (other than insurance companies) providing healthcare services and other benevolent services. These activities are all taken over by the welfare state. Some of these tax rules on non-profit making organisations still exist today despite the fact that the form of mutuals providing services other than insurance is not legally recognised.)

Chapter 7. § 15 of the Income Tax Act14 identified a number of legal entities that are only taxed on income. This included charitable institutions, where the company does not have the intention of making profit (contrary to where the owners lacks the intent of making profit)15. Insurance mutuals nor hybrid companies do not qualify for being charitable institutions.

2 Is there legislation concerning employee involvement systems?

The employee involvement system is legally the same for mutual insurance companies and insurance associations as any other insurance company.

14 Inkomstskattelag (1999:1229): http://www.notisum.se/rnp/sls/lag/19991229.htm

15 See Supreme Administrative Court: Föredraget 2008-09-17, föredragande Sjöberg, målnummer 367- 08 RÅ 2008 ref. 74RÅ 2008 ref. 74.

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3 What are the possibilities and regulations in a situation of demutualization (e.g. transforming a mutual to a traditional capital company) protection of assets in case of demutualization?

In order to demutualize a mutual insurance company or an insurance association it has to transfer the portfolio of insurance contracts to another insurer and then liquidate. Transformation of hybrid companies is regulated. Assets will be distributed amongst the policyholders.

2 Concerning internal barriers (barriers mutuals face within their own country):

4 Issues concerning the legal entity:

 The obstacles operators may have when they want to create a mutual in a country;

Since both mutual insurance companies and insurance associations are based on policyholder ownership and there is solvency requirements for insurance undertakings there can be a funding problem when starting a new insurance mutual. However there is a possibility to start the undertaking with non- members’ investors, but in that case, the capital should be repaid as soon as possible.

Currently, the Skandia insurance group is involved in the transformation from a hybrid company to a -mutual insurance company as it is leaving the South African Old Mutual group.

In brief, Skandia Liv is one of Sweden’s leading traditional life insurance companies and has over the last 15 years generated an average annual return of approximately 7.7 per cent. The new Skandia group will operate as an independent customer-owned business. During the mutualisation process, which is expected to take up to one and a half years to complete, Skandia Liv will be owned by a newly established foundation. The purpose of the foundation will be to promote the interests of Skandia Liv’s customers’ during the transition period.16

 The obstacles operators may have when they want to proceed to a merger of mutuals/division/acquisition of a mutual;

Two (or more) mutual insurance companies may merge on similar conditions as other companies, but when the transformations include other type of companies the only possible way is via portfolio transfer. However a wholly owned daughter company may be absorbed by the mother company (merger by absorption). The same rules apply to insurance associations. Hence alos a merger bwteen a mutual insurance company and an insurance association will result in a portfolio transfer followed by the dissolution of one of the organisations.

Some basic legislative rules concerning mergers are included in the Insur- ance Business Act mentioned above.

16 See: http://feed.ne.cision.com/wpyfs/00/00/00/00/00/17/99/50/release.html and http://www.skandia.se/hem/

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 The obstacles operators may have when they want to convert to another type of legal entity

As described here above, conversion is only possible through creating a new organisation, portfolio transfer and liquidation. The process is hence complex and cumbersome.

5 Issues concerning the activity:

 Specific rules/obligation related to the nature of the business in which mutuals operate (e.g. insurance activities, providence services, management of hospitals, creation of subsidiaries etc.)

Only insurance activities are allowed by law. Mutual insurance companies are mostly treated in the same way as other insurance companies. One thing that Folksam has called for is allowing mutuals (mutual insurance companies) to be and form a grouping of mutuals. That would make it much easier for mutual insurance companies to organize themselves efficiently in a group of mutuals. The same is applicable for insurance associations as well.

6 Issues concerning the neglect of mutuals in policy making:

 National rules which by not taking into account the mutual specificities hinder the mutuals’ development (e.g. public procurement, specific tax rules, etc.).

Despite that mutuals have a long tradition in Sweden, there is a general mis- understanding of the mutual form and mutualistic ideas. As Folksam mentions: “In Sweden, […] the legislation only recognises mutual insurance companies (“ömsesidiga försäkringsbolag”) as defined in the insurance business act (“försäkringsrörelselagen”). The Swedish language even lacks the word for other activities in the mutual form; i. e. democratic societies owned by and built for its customers (could be called “ömsesidingar”). It could therefore sometimes be difficult to explain the idea on which the mutual insurance companies are built as people don’t understand the difference between a stock and a mutual company in the first place.” The same argument applies to the insurance associations: these are also explicitly defined as insurance operators, even more than that they are defined as mutual-type organisations.

3 Concerning cross border barriers (barriers mutuals face when operating across barriers):

Each company has issues concerning expanding across borders. There are no specific issues with regard to the mutual company form.

8 Issues concerning cross-border cooperation with other European partners for the creation of groups of mutuals, or to create a local subsidiary.

As any other insurance company, however due to the “policyholder ownership” principle a mutual insurance companies or an insurance associations cannot be a subsidiary in a group. This principle on the one hand prevents insurance mutuals from take-overs, but on the other hand it limits them in forming groupings as the concept of a mutual group does not exist in Swedish nor European law.

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9 Examples of existing cross-border co-operations and their legal form

Examples of cross border activities of mutual insurance companies or insurance associations are very limited. Of course, the mutuals participate in various international associations and have subsidiaries and investments in other countries, but having policyholders-owners in other countries is uncommon for most mutual insurance companies or insurance associations.

10 Examples of autonomous expansion across the frontiers of mutuals.

There are not many examples known.

4 Concerning national measures, for promoting mutuals and measures aiming at access to finance for mutuals:

The Insurance Business Act was amended in 2011. One aim was to improve insurance mutuals’ financing options. This new act allows hybrid capital (“förlagsinsat- ser”) equal to shareholders contributions in cooperatives (same legislation). Also, a governmental committee is currently assigned to look at policyholders’ influence in insurance mutuals.

None

13 The existence, if any, of national, regional or local policies aiming at the promotion of mutuals, such as tailored business support services, specialised agencies, creation of federations etc.

None

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326

Country study on the current situation and prospects of mutuals

United Kingdom

The Solvency II Directive (Annex 3) provides the following legal forms for life, non-life and re-insurance undertakings in the UK:  Companies limited by shares or by guarantee or unlimited  Societies registered under the Industrial and Provident Societies Acts  Societies registered or incorporated under the Friendly Societies Acts  The association of underwriters known as Lloyd's.

A) Definitions of mutuals

As a general definition, a mutual company is defined as a company without shareholders which carries on business on a mutual basis, that is in such a way that the policy holders are entitled to the surplus arising from the business. However, some companies that are mutual in the sense of having no shareholders may carry on all or part of their business in a way that takes that business outside the legal concept of mutuality, for instance because the policyholders are not members1.

Before 2007, mutuals were even more loosely defined than they currently are. The only legal definition of a ‘mutual’ was established in 2007, under the Building Societies (Funding) and Mutual Societies (Transfers) Act 2007 (hereafter called 2007 Act).

In the Act 2007, the definition refers to ‘mutual society’ and to different types of existing mutual societies and their specific legislation:

A mutual society is either: (a) a building society2 incorporated under the Building Societies Act 1986 (c. 53); (b) a friendly society within the meaning of the Friendly Societies Act 1992 (c. 40); (c) an industrial and provident society registered under the Industrial and Provident Socie- ties Act 1965 (c. 12); or (d) an EEA mutual society3.

Since October 2007, the Building Societies (Funding) and Mutual Societies (Transfers) Act 2007 applies regarding funding, asset protection in case of dissolution / winding-up and asset transfers to subsidiaries of other mutual societies4.

There are other mutuals especially in insurance (mutual insurance companies, see sub B) not falling under the above named Acts. As such the definition of mutual society is not en- compassing for all mutuals active in the financial sector.

Legally, mutual companies may pursue a wide variety of activities in the UK. The UK5 legal framework allows mutuals to offer an alternative for joint-stock companies in the provision of services in the public interest, which are presently often provided by public institutions.

1 http://www.hmrc.gov.uk/manuals/gimanual/gim1180.htm

2 A building society is a mutually-owned mortgage-lending institution 3 Building Societies (Funding) and Mutual Societies (Transfers) Act 2007 C.26. http://www.legislation.gov.uk/ukpga/2007/26/pdfs/ukpga_20070026_en.pdf

4 http://www.legislation.gov.uk/ukpga/2007/26/pdfs/ukpga_20070026_en.pdf

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Different from most other countries in Europe, the term mutual in the UK covers a very broad set of businesses, also outside the insurance sector. The term ‘Mutual’ is also used loosely in the UK, to refer to member owned businesses that do not have external equity investors. Sometimes it is called an ‘umbrella’ term for different ownership models but the fact that different ‘official publications’ from the Government use different definitions does not make it easier6. Generally, the term has been applied to customer owned firms, but more recently has also been applied to employee owned firms too. The 2007 Act should serve as a precedent regarding the legal definition of mutuals. Hence, recent referring by government officials to employees-owned businesses as “mutuals” has no legal foundation. Yet, it may create confusion.

B) Legal types (if more types exist)

It is important to note that legal structure is not the same as ownership model – mutuals can be based on a variety of different legal structures7.

A mutual society is either: (a) a building society8 incorporated under the Building Societies Act 1986 (c. 53); (b) a friendly society within the meaning of the Friendly Societies Act 1992 (c. 40); (c) an industrial and provident society registered under the Industrial and Provident Socie- ties Act 1965 (c. 12); or (d) an EEA mutual society9.

Building societies are regulated by the FSA subject to legislation set out in the Building Societies Act 1986. That Act has subsequently been amended on numerous occasions, and was substantively revised by the Building Societies Act 1997 and by the Financial Services and Markets Act 200010.

A friendly society is a mutual organisation which exists to provide its members (or their relatives) with benefits such as life and endowment assurance and with relief or maintenance during sickness, unemployment and retirement. Mutuals (friendly societies) fall under general insurance/financial business legislation, as well as the special legislation for mutuals mentioned above and hereunder.  Registered friendly societies are unincorporated societies set up under the provisions of the Friendly Societies Act 1974 and earlier similar legislation, and carry on types of business within the objects of that legislation.  The Friendly Societies Act 1992 provided for a new breed of incorporated friendly society and gave registered societies the ability to convert into the new style incorporated society. Most (insurance) ‘Directive’ societies, those large enough to be regulated under the

5 Recently, in the UK, the current coalition government has stated its support for mutuals, which they see as part of ‘Big Society’, a programme that includes initiatives to enable civil society organisations to help shape and deliver public services. The legal possibility to pursue a wide variety of tasks provides options to increase mutuality in the UK : See: Michie, Jonathan, Promoting Corporate Diversity in the Financial Sector, Oxford Centre for Mutual and Employee-owned Business, 2010; http://www.cabinetoffice.gov.uk/content/big-society-frequently-asked-questions-faqs; http://www.mutuo.co.uk/wp-content/shared/mutuals-public-service-4.pdf and: http://www.mutuo.co.uk/wp-content/shared/Mutuals-post-office-3.pdf.

6 http://www.bis.gov.uk/assets/biscore/business-law/docs/g/11-1401-guide-mutual-ownership- models.pdf

7 http://www.bis.gov.uk/assets/biscore/business-law/docs/g/11-1401-guide-mutual-ownership- models.pdf

8 A building society is a mutually-owned mortgage-lending institution 9 Building Societies (Funding) and Mutual Societies (Transfers) Act 2007 C.26. http://www.legislation.gov.uk/ukpga/2007/26/pdfs/ukpga_20070026_en.pdf

10 http://www.bsa.org.uk/policy/policyissues/bslegislation/bslegislation.htm

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EC Insurance Directives, have incorporated11. (see further regarding the de minimis regime)

To complicate matters, many Friendly societies use in their trading name other denomina- tions that ‘friendly society’, such as insurance society, benevolent society, relief society, benefit society, collecting society, burial society. To name a few examples of Friendly societies: Police Mutual Assurance Society Limited (known as Police Mutual), Engage Mutual Associa- tion (Homeowners), Pharmaceutical and General Provident Society Limited, Merseyside Police Fu- neral Society, Ronald Moore Sickness and Benevolent Association, DG Mutual12.

The Friendly societies have two regimes: the ordinary regime and the de minimis regime or non-directive regime.

An Industrial or provident society is 1) a cooperative society or 2) in other cases, a society which conducts its activities for the benefit of the community and for special reasons should be registered under the 1965 act rather than as a company under the Companies Act 1985. Members of registered societies may be 1 Persons 2 Bodies corporate / Companies 3 other registered societies 4 as well as holdings by virtue of the Housing Act 1996 (section 22) or the Housing Asso- ciations Act 1985 (section 58 or 59(2) or the Agricultural Credits Act 1923 (when section 2 applied to that society). No other members than those mentioned under 3) and 4) above shall have or claim any interest in the shares of the society exceeding twenty thousand pounds13. Shareholding is permitted and each member may have more than one share. There are no legal prerequisites regarding democratic governance, member representation and voting. The Industrial and provident societies as well as the European Cooperative societies are not necessarily democratically governed mutual societies in the sense of democratic member representation in governance and one vote per member, we do not focus on these types of societies in more detail for the purposes of this research.

An EEA mutual society is:  (a) a body which is a European Cooperative Society for the purposes of Council Regula- tion (EC) No 1435/2003 (statute for a European Cooperative Society);  (b) a body which is established as a cooperative under the law of an EEA state as mentioned in that Regulation14;  (c) a body which is a cooperative or mutual undertaking of such description as the Treas- ury specify by order and which is established or operates in accordance with the laws of an EEA state or any of the Channel Islands or the Isle of Man.

The Financial Services and Markets Act 2000 (FSMA 2000) created a single statutory regulator, the Financial Services Authority (FSA) for regulating all deposit taking, insurance and investment business in the UK. The Financial Services and Markets Act 2000 (Regulated Ac- tivities) Order 2001 (SI2001/544) (the ‘RAO’) is the principal item of secondary legislation which defines in detail which activities are regulated activities for the purposes of the Act15. Building societies, credit unions and many friendly societies fall under this act.

11 http://www.hmrc.gov.uk/manuals/gimanual/GIM1200.htm

12 http://www.dengen.co.uk/ .

13 Industrial and Provident Societies Act 1965, Section 6.

14 This would imply that a mutual insurer of another EU Member State cannot be considered as a mutual in the UK.

15 http://www.hmrc.gov.uk/manuals/gimanual/GIM3050.htm

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Besides being mutual societies (as explained here above), mutual insurers can have several legal forms: an unlimited company (e.g. Equitable Life16), a private company, either limited by shares or guarantee (e.g. BHSF Ltd, Paycare, Solicitor’s Indemnity) or unlimited (e.g. The Scottish Boatowners Mutual Insurance Association) or by private statute (e.g. Cornish Mutual, Standard Life until 200617) or of a Friendly Society. The Industrial and Provident Society can be considered equivalent to the cooperative form18. The majority of mutual insurers are, however, constituted as friendly societies19. Also NFU (National Farm- ers Union) or Royal London are mutual insurers.

Finally, there are also companies providing protection for their members in a mutual form, but not as insurers.20 These are discretionary mutuals (e.g. Dental Protection21) and the claims can only be settled after a decision by the board to pay out the claimed amount. These companies are not supervised by the FSA. Some are hybrids: a discretionary mutual which provides an extra cover for its members by insuring the losses above the retention rate of the mutual. These companies are often referred to as hybrids (as they then fall under the supervision of the FSA as insurance intermediaries). An example of a hybrid is The Benenden Healthcare Society Limited: Benenden is an incorporated friendly society, registered under the Friendly Societies Act 1992. The Society’s contractual business (the provision of tuberculosis benefit) is authorised by the FSA. The remainder of the Society’s business is undertaken on a discretionary basis.22 These discretionary mutuals acts as quasi- insurers and are not subjected to the rules of the FSA (to be dislike of other larger insurance companies). Before court, the discretionary mutuals successfully argued that they in- deed are not insurers.

Hence, to create order in the mutual landscape in the UK, the following terms can be used to describe mutual-type organisations in the UK:  Mutual insurance companies: mutual insurers not constituted as mutual society (so not as FS or I&P society or EEA mutual insurance society)  Mutual insurance society: insurer set up as Friendly Society or I&P society

16 P Guijarro and DJP Hare, 18.02.2002, Corporate Diversity and the Provision of Financial Services

17 Standard Life was incorporated by Act of Parliament in 1832 (Standard Life Assurance Company Act), and was reincorporated as a mutual assurance company in 1925. It changed into a plc in 2006.

18 “In the UK, a body wishing to function as a co-operative is free to use any legal form it chooses. That includes registering under the Companies Act 2006 or the Limited Liability Partnerships Act 2000 or operating as a partnership under the Partnership Act 1890, subject to restrictions on the use of the word “co-operative” in the name of a registered company. However, the Industrial and Provident Socie- ties Acts 1965 to 2003 (to be renamed the Co-operative and Community Benefit Societies and Credit Unions Acts 1965 to 2010 when s 2 of the Co-operative and Community Benefit Societies Act 2010 is brought into force) provide a legal structure specifically designed for co-operatives”. Source: http://snaithsco-oplawnews.blogspot.com/ See also: Directive 2003/72/EC supplementing the Statute for a European Cooperative Society with regard to the involvement of employees, national implementation report, United Kingdom, 2009: “As already noted, there is no specific UK legislation on cooperatives. The closest applicable legislation is the Industrial and Provident Societies Act 1965 (IPSA 1965)”. 19 Derived from AFM Company and financial data 2010: Nearly three quarters of the AFM members is constituted as a Friendly Society. http://www.financialmutuals.org/files/files/2010%20member%20accounts.xls

20 See: AMICE (2012), Facts and Figures: Mutual and cooperative insurancein Europe

21 Dental Protection is a wholly owned subsidiary of the Medical Protection Society designed specifically to serve the needs of the Society’s dental members. MPS is not an insurance company; it is a non-profit- making mutual association of doctors, dentists and other healthcare professionals. It does not exist to make profits and has no shareholders, its funds being owned by members. Source: http://www.dentalprotection.org/uk/vdp_yd/aboutdpl/ : MPS is not authorised according to the FSA online register but is categorized as introducer/appointed representative. Dental Protection is not found in the register.

22 AMICE (2012), Facts and Figures: Mutual and cooperative insurance in Europe

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 Insurance mutuals or mutual insurers: all mutual insurers (the insurers which according to the 2007 Act such as FS and I&P societies and EEA mutual societies are mutual, so the mutual insurance societies) as well as mutual insurance companies not falling under the 2007 Act such as NFU and Royal London for example.  Mutuals according to 2007 Act: mutual insurance societies (=some insurance mutuals) and some mutual credit institutions such as BS and credit unions  Financial mutuals: all mutuals according to 2007 Act including building societies and credit unions, as well as mutual insurers or mutual insurance companies not falling under the 2007 Act  All mutuals: all financial mutuals and non-financial mutuals.

All in all, the variety of mutual-type organisations in the United Kingdom is large, making it very difficult to clearly analyse what characteristics depend on the specific legal form of being a mutual-type organisation. Therefore, in the remaining of this country report only a general picture can be provided, without going in detail concerning differences with regard the different types of mutuals.

C) Methods of creation (required capital or assets)

Regarding Friendly Societies: Registered Friendly Societies are required to include the word 'Limited' in their names. Since 1993, a new society can only be registered as an incorporated society. An existing registered (unincorporated) friendly society can (but does not have to) convert itself to an incorporated society. An incorporated society can undertake much the same activities as a registered friendly society. Additionally, incorporated friendly societies can set up subsidiary companies23, which may engage in a wider range of activities than their parent society. The legislation provides for an incorporated society to set up local branches24.

The 1992 Friendly Societies Act in article 5 states the following concerning the establishment of Friendly Societies. A society may be established if under its proposed memorandum its purposes are to include the carrying on of one or more activities falling within the scope or the act; if any such activity is to be carried on by the society with a view to the provision, for its members and such persons connected with its members as may be prescribed in its rules, of insurance or other benefits; and if is to be funded by voluntary subscriptions from members of the society, with or without donations. Furthermore, a society established under this Act is incorporated as from the date of its registration under this Act by the Au- thority (FSA).

According to Schedule 3 of the Act, any 7 or more persons may establish a society by taking the following steps:  agreeing upon the purposes of the society and upon the extent of its powers in a memorandum the provisions of which comply with the requirements of this Schedule;  agreeing upon rules for the regulation of the society which comply with the requirements of this Schedule; and  sending to the Authority 3 copies of the memorandum and the rules, each copy signed by at least 7 of those persons (or, if there are only 7, by all of them) and (unless the secretary is to be elected) by the intended secretary.

23 Friendly Societies Act, 1992 art. 13

24 HM Revenue and Customs: http://www.hmrc.gov.uk/manuals/ctmanual/ctm40310.htm

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Other mutuals: The FSA is the registering authority for all financial mutuals that are also authorised firms. Their details are included in the FSA Register. Besides, there is a specific mutual register for the 2007 Act mutuals only.25

There is no uniform determination of the minimum level of capital for mutual-type organisations. The minimum capital requirement depends on the both the legal form chosen and the activity the mutual-type organisation is wishing to conduct.

To obtain an insurance license, in general the guarantee funds requirements set at Euro- pean level apply. The capital requirements for non-directive, de minimis regimes are lower.

D) Management and corporate governance

Management and corporate governance: governance bodies: Separate corporate governance codes exist for co-operatives, mutual insurers, building societies. AFM provides a Corporate Governance Code, which is a condition of membership and which provides clear principles of good governance, which member societies are expected to work to (or explain why different arrangements are more appropriate for their organisation). In general, in the Anglo-Saxon countries a one-tier corporate structure is applied.

Rights of members Mutual insurers in general have their own individual rules, laid down in their Statutes, which will define much of the relationship between the mutual and its members. There is a great deal of variation between individual mutuals. In general, members are legally considered to be jointly and indivisible owners.

The provisions of the memorandum of an incorporated friendly society are binding upon its members26. The Friendly Societies Act 1992 (art. 94) prescribes that within the range of activities permitted by the friendly Societies Act, if action not permitted by the rules of a registered friendly society or a registered branch is taken by or on behalf of the society or branch, the action is valid (whether or not it would be valid apart from this subsection) if all the members of the society or branch (entitled to vote) — (a)signified their agreement to it in writing before it was taken; or (b)signified their approval of it in writing before the end of the period of 28 days commencing with the day on which it was taken.

A policyholder need not be a member: for example, motor insurance policyholders are generally not members in many mutual-type organisations, and legislation includes that minors do not acquire membership rights until the age of 18.

Voting and representation This depends on the type of mutual. In their statutes, most mutual-type organisation operate on the basis of one-member-one-vote rules, though some retain delegate systems - where a delegate is appointed to represent the interests of a group of members. Voting by proxy is permitted by legislation, and since 2011 electronic voting is permitted - though not always adopted.

Additionally regarding Friendly Societies: The Friendly Societies Act 1992 (art. 6) specifically states that nothing in the Act may prevent an incorporated friendly society from providing in its rules: “(a) for such system of representation of the members in the making of decisions by the society as the society may think fit; (b) for the division of the society's members into groups under the control of the society and bound to contribute to the funds of the society but, subject to that, having funds and property of their own vested in trustees

25 https://mutuals.fsa.gov.uk/eurl.axd/2322fcb8083b364f9d20d6cfeb711ed1/

26 Friendly Societies Act 1992, art. 8

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and administered by themselves or through their own trustees, officers or committees (and in accordance with their own rules); (c) for the delegation of authority to any such group (or to its committee or any of its officers) to act, within such limits as the society may set, on the society's behalf”.

Shares Members of mutual-type organisation usually have no specific shares in the mutual, but they can have an interest in the underlying mutual capital of the organisation. The mutual- type organisations, in general are regarded as companies limited by guarantee and interest on the guarantee capital is possible.

Reserves The required reserves depend on the type of mutual.

Can non-members be investors? This is not usual but it is possible, for example in some Industrial & Provident Societies.

Transparency, publicity and auditing issues Separate corporate governance codes exist for co-operatives, mutual insurers, building societies.

Authorised mutual-type insurers are authorised and regulated by the Financial Services Au- thority, and are also subject to the Financial Services Compensation Scheme and Financial Ombudsman Service. Once registered, mutual-type insurers pay an annual fee to the FSA, allowing it to register rule changes, record or register other kinds of constitutional changes or to de-register without having to pay an additional fee. The fees are based on the activities that a society or company is permitted to undertake and are calculated in relation to the total assets of the mutual-type insurer27.

Concerning Friendly societies, the central office shall prepare and maintain a file relating to the Public file of a each friendly society (to be known as the public file) and the file shall— (a) contain the documents (or copies) and the records of the matters directed by or under any provision of this Act to be kept in the public file of the society; and (b) be available for inspection on reasonable notice by members of the public on payment of a fee (prescribed under section 114)28.

The mutual societies’ accounts are audited and the auditors report to the members at the annual general meeting29. Mutual societies must send an annual return and/or accounts to the FSA within the timescale prescribed for the particular type of society30.

Accounting (non-life insurance) is in principle as for all the other companies31. The ABI guidance applies. In addition, the Friendly Society Act stipulates that the accounting records must be pre- served for 6 years and in particular contain: (a)entries from day to day of all sums received and paid by the society or branch and the matters in respect of which they are received or paid; (b)entries from day to day of every transaction entered into by the society or branch which will or there is reasonable ground for expecting may give rise to liabilities or assets of the society or branch other than insignificant assets or liabilities in respect of the management of the society or branch; and

27 Financial Services Authority, Consolidated Policy Statement on our fee-raising arrangements and regulatory fees and levies 2010/11, Including feedback on CP10/5 and ‘made rules’. http://www.fsa.gov.uk/pubs/policy/ps10_07.pdf

28 Friendly Societies Act 1992, art. 114

29 Friendly Societies Act 1992, art. 73

30 http://www.fsa.gov.uk/doing/small_firms/msr/returns

31 See requirements in Friendly Societies Act 1992, art. 68-80

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(c)a record of the assets and liabilities of the society or branch32.

Protection of assets There is no legislative protection of assets. Usually, mutual-type organisations involved in insurance business do adopt a rule of asset protection in their articles, for example, a charitable assignment on conversion.

E) Additional information

Market share Mutuals and cooperatives are more active in the non-life insurance market than in the life sector. Mutual insurers have a relatively small market share in the UK insurance industry, which is dominated by joint-stock companies33. However, with the UK insurance market being the largest in the EU, the UK mutual insurance sector would still rank 17th, just behind Norway34. The UK mutual insurance sector manages assets of over £85 billion for over 20 million customers (2010)35. In addition, compared to other companies in the financial sector, mutuals have proven to be resilient in the face of the financial crisis. Premiums written of the members of the Association of Financial Mutuals (AFM) grew 7% in 200936 and 12% in 201037. With falling volume across the market, the share of the market within AFM members grew to 5.0% in 2009 from 4.2% in 200838. AFM members employ over 16,000 employees in 2010 (up from 14,300 in 2009)39.

1 Legislation impacting the functioning of mutuals:

1 Is there legislation on taxation issues (preferential treatment)?

Taxation (non-life insurance): if truly mutual for tax purposes, which is rare, mutual insurance companies are taxed on investment income, however, excluding income from UK dividends, capital movement on loan assets and most derivatives, and realised capital gains on land, shares and share-based collective investment schemes. Expenses of managing investments, as shown in the accounts are deductible.

Taxation (life insurance): The normal I-E (income less expenses) basis, including Gross Roll-up Business (GRB40) computation, applies. However, there is no NC1 (shareholders profit) computation. Mutual insurance companies providing life insurance have no shareholders. Instead the policyholders are treated as the owners with full entitlement to the company's profits. As mutual insurance companies have no taxable trading profits, they are always assessed on the I-E basis. GRB profits are usually minimal for a mutual insurance company because the taxable surplus is

32 Friendly Societies Act 1992, art. 68

33 Research voor Beleid (2011). The role of mutuals in the 21st century.

34 Derived from CEA analysis of its members drawn from 33 EU nations, in: Association of Financial Mutu- als, Sector key statistics- 2009. Mutual Insurers grow market share in 2009.

35 Association of Financial Mutuals website: http://www.financialmutuals.org 36 Market data from www.abi.org.uk, cited in: Association of Financial Mutuals, Sector key statistics- 2009. Mutual Insurers grow market share in 2009. 37 Association of Financial Mutuals, Sector key statistics- 2010. Another strong set of results for AFM members in 2010 38 Market data from www.abi.org.uk, cited in: Association of Financial Mutuals, Sector key statistics- 2009. Mutual Insurers grow market share in 2009.

39 Association of Financial Mutuals, Sector key statistics- 2010. Another strong set of results for AFM members in 2010

40 GRB implies activities such as pension, overseas, life, life reinsurance etc

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generally offset by tax-deductible policyholder bonuses (PWC International Com- parison of Insurance Taxation)41.

Friendly societies have their own taxation rules, which provide some preferential treatment for some products, and for smaller organisations there are corporate tax advantages. For example, exemptions are obtainable from income and corporation taxes in respect of certain profits from:  life and endowment business  profits from other business where the society was registered before June 197342 Overall these concessions are very limited and have not been modified or inflation indexed since 1996. They do not extend to mutual insurance companies or other 2007 Act mutuals.

There are special provisions covering the taxation of profits passed up by a subsidiary to an incorporated friendly society. Any society that sets up a subsidiary company or acquires shares in a joint venture company should be referred to CTIAA (Insurance)43.

2 Is there legislation concerning employee involvement systems?

There is no specific employee legislation for mutuals. Some employee owned businesses are however sometimes also referred to as mutuals but there is no legal base to do so.

3 What are the possibilities and regulations in a situation of demutualization (e.g. transforming a mutual to a traditional capital company) protection of assets in case of demutualization?

Any mutual-type organisation can demutualise.

A Friendly Society may dissolve upon members’ consent, or be wound up voluntarily or by court44.

The legislation and regulatory rules outline the nature of a demutualisation process: this includes the nature of member vote; the basis of regulatory approval; and the form of member reward, which in turn determines the form of policyholder protection post-demutualisation.

Protection of assets Legally, in the UK, mutual-type organisations have no undividable reserves.

In some other EU-countries, the principle of ‘disinterested distribution’ applies to mutuals: “This acts as a legal barrier to demutualisation by removing the incentive for current members to cash-out the value of the business. In effect, on a solvent winding up, assets and reserves in a mutual entity may only be transferred to another such body pursuing similar aims or to other general interest purposes. The assets cannot be transferred to a different corporate body such as a plc or private company, or distributed to members”45. Many mutual-type organisations have

41 See also: Anthony Menzies, Peter Kempe and Jonathan Rogers, Taylor Wessing LLP Insurance and Reinsurance: UK (England and Wales). http://crossborder.practicallaw.com/0-501- 2031?source=relatedcontent#a514234 42 Friendly Societies Commission Fact Sheet 1999. 43 HM Revenue and Customs: http://www.hmrc.gov.uk/manuals/ctmanual/ctm40310.htm

44 Friendly Societies Act 1992, art. 19 45 The Ownership Commission (2012). Plurality, Stewardship and Engagement. The Report of the Owner- ship Commission, March 2012.

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therefore adopted a rule of “charitable assignment” in their statutes. This implies that in the event of a transfer to another business, the assets of the mutual-type organisation will be transferred to a charity. Most of the mutual-type organisations in the UK do have a charity assignment in their Statutes. This provides some asset protection, but insufficient, as the Statutes can be changed.

Although the motivation for demutualisation has declined and nowadays it hardly ever happens that the statutes are changed, it still poses a threat, even though the demutualisation wave, which took place over some 20 years, is currently low.

Studies about demutualisation have pointed out that it generally happens because the managers want it. Even though the members vote on it in the end. The Trans- fer Act (2007) also helps preventing demutualisations, but it does not provide a guarantee. The reason why members want to demutualise a mutual is always because they want the money. The only effective way to stop it is to ensure that the money cannot be accessed.

In this regard, the Ownership Commission (2012) has recently proposed –amongst others - that mutuals should have the opportunity to choose a legally binding corporate form that enshrines the principle of disinterested distribution: “We recom- mend that mutuals become permanent through emulating in Britain the European principle of disinterested distribution so that when mutuals are wound up their assets have to be placed with another mutual […] Public sector mutuals should be protected from demutualisation by a clear ‘asset lock’.”46

2 Concerning internal barriers (barriers mutuals face within their own country):

4 Issues concerning the legal entity:

 The obstacles operators may have when they want to create a mutual in a country;

Concerning establishing a mutual-type insurance organisation: The high level of capital required, the lack of advise and the lack of expertise make it difficult to establish a new financial mutual with retail consumer members The registration costs to the FSA may be high for a mutual-type insurer. The capital requirements (by FSA, and based on Solvency II going forward) for insurance businesses are the major hurdle for the creation of any new mutual insurer (e.g. friendly society or mutual insurance company). The manner in which e.g. mutual insurers raise capital through retained earnings means that without new capital instruments, new financial service mutuals are unlikely to be established.

Very few new mutual insurers are therefore being created nowadays, the exception being discretionary “club type” insurers such as property insurance and insurance for specific professionals or businesses, called discretionary mutuals but which de iure do not operate with an insurance license (see above sub section 2). It simply takes too much time for the organic capital growth of a mutual insurer to become sufficient for compliance with the requirements.

46 The Ownership Commission (2012). Plurality, Stewardship and Engagement. The Report of the Owner- ship Commission, March 2012.

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The FSA does not distinguish between companies (PLCs) and mutuals as a separate class. The financial legislation equally applies to all types of companies. Regulation in the financial services industry therefore does not take into account the specific nature of mutually owned firms. As a result, mutual-type organisations involved in financial services are forced to “respond to a regulatory regime that does not take account of their different capital structure and business purpose”47.

There is little proportionality in the regulation for small entities, particularly those focused on retail consumers. This means that unless the organisation has immediate scale or access to appropriate member capital, they are unlikely to be viable. This is being accelerated by European rules such as Solvency II, which are very expensive to implement, particularly by nature of the way they are transposed into the UK rulebook.

As a result no new mutual-type organisation involved in financial services and focusing on consumer retail business has been created since 1996, and organisations are more likely to be established with private/ venture capital, or established as a business-to-business partnership.

Non-financial mutual-type organisations: In the non-insurance sector on the contrary, there happens to be in fact a mini-boom of cooperatives and friendly societies. This is partly related to the transfer of the provision of public services, which were previously provided by the state and municipalities (such as NHS Foundation Trusts, Leisure Trusts, Co-operative schools and community mutual housing schemes48), as well as new start-ups.

 The obstacles operators may have when they want to proceed to a merger of mutuals/division/acquisition of a mutual;

Mutual-type organisations involved in financial services: Before the 2007 Act was passed, mergers with retention of the mutual character could only take place within each mutual category. Mergers between different types of mutual societies were not possible. For example, a merger between a friendly society and a building society would previously always require conversion into a company. This has been remedied with the 2007 Act.

The Friendly Societies Act 1992, also provides for amalgamation of friendly societies (art. 85) and the transfer of engagements (art. 86).

Nowadays, for mutual-type organisations, the routes are well-established and mergers are not really difficult. Mostly, there is a lower voting threshold for mutual mergers. Also see legislation above.

There is significant regulatory oversight of potential mergers in the financial sector. This is intended to ensure policyholder protection, and that the assets are not being moved from one set of members to another, or removed for the use of the receiving organisation.

The regulator may provide for fast track arrangements in the event of a white knight transfer, where one financial mutual is failing and policyholders will enjoy a better position by avoiding the failure of the organisation.

47 The Ownership Commission (2012). Plurality, Stewardship and Engagement. The Report of the Owner- ship Commission, March 2012.

48 The Mutuals Manifesto 2010, Mutuo

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 The obstacles operators may have when they want to convert to another type of legal entity

Mutual-type organisations involved in financial services: Financial mutuals are able to demutualise, and there was a significant spate of demutualisations in the 10 years or so up to 2006.

Since 2007, new legislation namely, the 2007 Act, ch. 26 has made it possible for different forms of mutual societies to enable transfers and thus to begin to convert to different forms, though this legislation is incomplete. It has though resulted in a merger between the UK Coop Group and a building society.

The Friendly Societies Act 1992 (art. 91) provides for the conversion of a friendly society into a company (company under the Companies Act 1985, so also another mutual such as a company limited by guarantee)

The main obstacles to conversion of a mutual are not so much legal, but rather found in the costs, the required number of member votes and the reputation of the organisation when it is no longer a mutual.

Conversion does not seem to require dissolution or winding-up.

5 Issues concerning the activity:

 Specific rules/obligation related to the nature of the business in which mutuals operate (e.g. insurance activities, providence services, management of hospitals, creation of subsidiaries etc.)

Legally, mutuals may pursue a wide variety of activities.

Mutual societies active in the financial and insurance services face obstacles as the Financial Regulation is made based on poor understanding of the mutual sector. Mutual insurers (all types) can be active in any insurance class, life and non- life, in line with their authorization. Composites are not allowed (mutual and other companies alike).

Larger mutual-type organizations which conduct non-life insurance business (for example accident, sickness, short-term contracts and miscellaneous financial loss) are subject to the EU Non-Life Directives. Those mutual-type organisations (e.g. friendly societies) active in life insurance business are subject to the EU life Directives.

Friendly societies have a more restricted activity area. Regulations for friendly societies are fairly onerous, though more relaxed in the most recent legislation in 1992. The activities of friendly societies must be either:  Carrying on long term (=life) insurance business;  General (= non-life) insurance business, incl. provision of benefits during sickness or distress or provision of discretionary benefits for education, relief or funeral expenses, and directly related and social and benevolent activities; or  Non-insurance business

Also allowed are group insurance, reinsurance of risks insured by other

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friendly societies, control of other bodies corporate, as well as limited additional activities49. In essence, an authorised friendly society shall not carry on any commercial business otherwise than in connection with or for the purposes of its insurance business50.

The ability to create subsidiaries has been the main route to extending activities, as these enable mutual insurers to undertake activities/ product lines the main group will not have permissions for.

The discretionary mutual-types are not allowed to offer insurance.

More generally, both mutual insurers and commercial insurers are restricted to carrying on insurance activities and limited peripheral services. The latter must be managed and controlled to avoid any risk of these services preventing the insurer from being able to meet its liabilities51.

6 Issues concerning the neglect of mutuals in policy making:

 National rules which by not taking into account the mutual specificities hinder the mutuals’ development (e.g. public procurement, specific tax rules, etc.).

The legislation applying to mutual-type organisations in general, and especially for those involved in financial services, is considered to be outdated, fragmented and without benefits or incentives for mutuals.

Mutual insurance companies (not those registered as friendly societies) limited by guarantee formed under the Companies Acts have recently benefitted from a major consolidation and updating of companies legislation in the Companies Act 2006. Although it happens to be the longest statute in British legal history, it has streamlined the process of setting up and running a company in the UK. It is one of the most enterprise-friendly jurisdictions for company administration within the EU.

However, the majority of mutual insurers are constituted as friendly socie- ties52. The last update of friendly society legislation was the Friendly Socie- ties Act of 1992. On the positive side, the 1992 Act allowed friendly societies for the first time to incorporate and to have subsidiaries. Yet, the 1992 Act only partially and incomprehensively consolidates earlier legislation (e.g. on transfers on engagements, accounting records, committees of management and procedures at meetings). As a result, registered societies must refer both to the 1992 Act and the 1974 Act, which the 1992 Act substantially amended but did not repeal. Diverse amendments by subsequent Acts of Par- liament and statutory instruments, as well as a stream of subordinate legislation have added to the “legislative labyrinth”. In addition, many provisions in the 1974 and 1992 Acts are outdated and inconsistent, and contain barriers to efficiency and enterprise. Consolidation, streamlining and modernization of

49 Friendly Societies Act 1992, art.5 and Schedule 2 and 5. Additional activities are: loans out of separate loan fund, set up funds for purchasing Government Securities, Investment of funds in housing association, Accumulation of members' surplus contributions, Subscription of funds to hospital, infirmary, charitable or provident institution, take part in the government of any other friendly society.

50 Ibid. art. 38

51 Anthony Menzies, Peter Kempe and Jonathan Rogers, Taylor Wessing LLP. Insurance and Reinsurance: UK (England and Wales). http://crossborder.practicallaw.com/0-501- 2031?source=relatedcontent#a514234

52 See also: AFM Key Statistics, Company and financial data 2010. http://www.financialmutuals.org/files/files/2010%20member%20accounts.xls

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Friendly Society law is therefore called for, with due attention to identifying the distinctive features of friendly societies in order to preserve these53. In- deed, when going through the Friendly Societies Act 1992 made available on the internet54, the large number of “outstanding changes that have not yet been made” is striking.

3 Concerning cross border barriers (barriers mutuals face when operating across barriers):

UK mutual-type insurance organisations have not sought significant overseas expansion and there seems, leave aside some well knows exceptions such as Stan- dard Life prior to its demutualisation, to be little interest. This is very different from the other insurance companies, which are completely multi-national. Mutual insurers in general tend to have a regional history and have recently become more national, amongst others due to the internet. However, within a few years, or with one successful example, the interest might increase.

The efforts of Standard Life at the beginning of the century to operate in France, stranded on the issue concerning the trading or civil status of the mutual and in which register the company should have been included (code de la mutualité or code d’assurance).

A number have established subsidiaries in Ireland to take advantage of tax arrangements, particularly for general (= non-life) insurance, though as subsidiaries it is very unlikely the customers will be members of the mutual-type organisation.

As the UK is outside the euro-zone, there are complications with overseas expansion, and the differences in tax and VAT regime in different countries also tend to make this an unappealing route to growing the business.

8 Issues concerning cross-border cooperation with other European partners for the creation of groups of mutuals, or to create a local subsidiary.

Mutual-type insurance organisations in the UK are opting for a different development than those in other EU-countries. Cooperative insurers seem more open than mutual-type insurance organisations in this regard. An example is the Cooperative Group, which has more actively engaged with the Rabobank and other cooperatives abroad.

Because no cross-border partnerships have been established yet, the extent to which there are obstacles is unknown.

For co-operatives, the European Cooperative Statute is available. There is not yet an equivalent available for mutuals.

53 A single Mutuals Statute – now we see it, now we don’t; but do we want it anyway? by John Gilbert, Hogan Lovells. February 2012. Association of Financial Mutuals (AFM) website: http://www.financialmutuals.org/resources/mutually-yours-newsletter/a-single-mutuals-statute

54 http://www.legislation.gov.uk/ukpga/1992/40: Revised legislation carried on this site may not be fully up to date. Changes and effects are recorded by our editorial team in lists which can be found in the ‘Changes to Legislation’ area. Where those effects have yet to be applied to the text of the legislation by the editorial team they are also listed alongside the legislation in the affected provisions. Use the ‘more’ link to open the changes and effects relevant to the provision you are viewing.

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9 Examples of existing cross-border co-operations and their legal form

As above, some mutual insurers have established insurance subsidiaries, mainly in Ireland.

10 Examples of autonomous expansion across the frontiers of mutuals.

None from the UK to other EU-member states.

There is one mutual insurer from another EU-country active in the UK: the French Groupe Inter Mutuelles Assistance (leader in road side assistance). They have established a branch in Leeds. Because it is such a small mutual insurer (in the UK), it has not received much attention.

Other EU mutual insurers are active via (acquired) subsidiaries but are not necessarily perceived as mutual insurers.

4 Concerning national measures, for promoting mutuals and measures aiming at access to finance for mutuals:

There is very little scope for capital raising in mutual insurers other than through accumulated surpluses.

In the past one mutual insurer issued PIBS55, though this will not be counted as tier one capital post-Solvency II and there is currently no viable alternative.

Few mutual insurers are happy to use reinsurers to reduce capital requirements, partly through loss of control and cost, but also because currently most mutual insurers are relatively well capitalised.

According to the Ownership Commission (2012)56, new capital instruments are required for customer owned mutuals. These instruments should permit and encourage both individual members and institutions to invest in mutuals. Mutual ownership should be incentivised as much as equity ownership, benefiting from the same incentives as listed share ownership. Tax incentivised savings and investments such as Individual Savings Accounts (ISAs) should be extended to include new capital instruments in consumer mutuals that may be offered to their members: “Mutual insurers and friendly societies could issue bonds for consumers that are invested in holdings which could be of practical use to the economy. This might include investment in long-term capital instruments that support infrastructure projects, or community-based investment projects, or in providing the seed capital that would enable the creation of new mutuals. Government should incentivise this kind of investment by enabling it to qualify for tax-efficient savings such as ISAs”57.

55 Permanent Interest Bearing Shares (PIBS) are securities issued by building societies, usually at fixed interest rates, and quoted on the stock market. They are essentially a form of risk capital, ranking lower than subordinated debt, and have been issued by building societies, which cannot raise risk capital by issuing ordinary shares on the stock market like a bank: http://www.bsa.org.uk/faq/whatarepibs.htm

56 The Ownership Commission (2012). Plurality, Stewardship and Engagement. The Report of the Owner- ship Commission, March 2012.

57 The Ownership Commission (2012). Plurality, Stewardship and Engagement. The Report of the Owner- ship Commission, March 2012, p. 87

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None. There are no subsidies for mutuals and no meaningful tax concessions except for very small friendly societies.

13 The existence, if any, of national, regional or local policies aiming at the promotion of mutuals, such as tailored business support services, specialised agencies, creation of federations etc.

There are none from the side of government, though the UK government has com- mitted to ‘foster diversity and promote mutuals’58, albeit at present this has been largely restricted to creating public sector, non-financial mutuals. Since recently, government also supports the creation of employee owned companies. These are, however, not mutual societies according to the legal definitions.

The trade organisations for mutuals (MUTUO), Association of Financial Mutuals (AFM), the Building Societies Association, Co-operatives UK and the Employee Ownership Association have together developed the Mutuals Manifesto 2010. The Manifesto aims to improve the understanding of the mutual sector by government, by describing what the different types of mutuals do, how they operate and the resulting benefits for members and society. This should contribute to government being more mindful of the mutual sector when it is making legislation, regulating markets and planning policy. Moreover, it should foster partnership between government and the mutual sector for the prosperity of Britain59.

An All-Party Group of MPs has run for a considerable time, and works within parliament to ensure fair treatment of mutuals, and regularly publishes research on diversity issues (downloadable via AFM website).

Almost non-existent.

The Association of Financial Mutuals (AFM) is the body responsible for promoting financial mutuals in the UK, with the BSA (building societies association) undertaking a similar role in their sector. The Association of British Insurers (ABI) is the trade association for insurers in general.

AFM’s main work is on lobbying and promoting the value of the sector. There are a number of academic institutions that offer relevant courses and undertake relevant research. The most prominent of these is the Centre for Mutual and Employee- Owned Business (MEOB) at Kellogg College Oxford60. Other examples of academia who have researched the sector in the past are the Open University, Nottingham Business School and Warwick University.

58 The All-Party Parliamentary Group for Building Societies & Financial Mutuals (2011). Fostering diversity: promoting mutuals. July 2011. http://www.financialmutuals.org/files/files/Fostering_diversity_APPG_Report.pdf

59 MUTUO, Association of Financial Mutuals (AFM), the Building Societies Association, Co-operatives UK and the Employee Ownership Association (2010). The Mutuals Manifesto 2010.

60 http://www.kellogg.ox.ac.uk/researchcentres/meob/index.php

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Panteia – EIM P.O. Box 7001 2701 AA Zoetermeer The Netherlands Phone: + 31 79 322 2000 Fax: + 31 79 322 2101 Internet: www.panteia.nl Email: [email protected]

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