Legislative proposal to amend Dutch Financial Supervision Act implementing art. 162 Solvency II Directive - end of free market access for third-country insurers

On 1 June 2020, the legislative proposal to amend the Dutch Financial Supervision Act (Wet op het financieel toezicht (FSA)) to implement art. 162 of the Solvency II Directive (the Bill) has been published for consultation. The Bill introduces a ban on the provision of services to the Netherlands by prohibiting non-life and life insurers (schade- en levensverzekeraars) with their registered office in a state that is not an EU Member State (third-country insurer). Such a ban would be in line with insurance regulations effective in other EU member states. The European Commission has also expressed that it is of the opinion that, based on its revised interpretation of art. 162 Solvency II Directive[1], that provision of services by third-country insurers is prohibited. Due to an increase in legislation and regulations applicable to EU insurers, there is no longer a level playing field between EU insurers and third-country insurers. After all, third-country insurers do not have to meet, for example, (onerous) requirements with regard to business operations, integrity and governance. This gives them an advantage over EU insurers. In addition, the Dutch Central Bank (“DCB”) and the Netherlands Authority for the Financial Markets have virtually no possibilities to intervene if necessary, something that for example in the event of bankruptcy situations can lead to unwanted situations. In this newsletter we elaborate on some important changes the Bill entails for the current insurance practice.

Prohibition on the provision of services by third-country insurers to the Netherlands

Currently third-country insurers can conduct their business to the Netherlands through a notification procedure with DCB whereby they need to successfully demonstrate, in accordance with (the current) art. 2:45 FSA, that they are authorized to operate as an insurer in their home country and that they have to comply with comparable capital requirements as Dutch insurers have to do. As soon as the Bill has been adopted and implemented in the FSA this practice will come to an end and a ban on the provision of services by third-country insurers to the Netherlands will be effective. The Bill proposes to amend art. 2:45 paragraph 1 FSA, as a result of which  it will no longer be permitted for a third-country insurer to provide services to the Netherlands. The amended art. 2:45 paragraph 1 FSA will read as follows: "It is prohibited for anyone with a registered office in a state that is not a member state to conduct the business of a life insurer or non-life insurer by providing services to the Netherlands from an establishment in a state that is not a member state.” Based on the amended art. 2:46 paragraph 1 FSA, the same prohibition will be introduced for third-country insurers that provide their services to the Netherlands by means of a branch office located in another EU Member State. The amended art. 2:46 paragraph 1 FSA will read as follows: "It is prohibited for anyone with a registered office in a state that is not a member state to conduct the business of a life insurer or non-life insurer by providing services to the Netherlands from a branch office in another member state." Third-country insurers that currently provide their services to the Netherlands, whether or not via a branch located in another EU Member State, can choose to liquidate their Dutch activities, transfer their portfolio or apply for a license with the DCB.

Reinsurers

The prohibition introduced by the Bill does not relate to the provision of services in the reinsurance business (herverzekering) to the Netherlands by third-country insurers. With regard to reinsurers, the current applicable requirements continue to apply, for example reinsurers may only conduct reinsurance business with regard to the risks of the insurance category for which they are licensed. Third-country insurers that also carry on the business of reinsurer and who provide reinsurance services to the Netherlands may only carry out such activities if they notify the DCB thereof and demonstrate that they comply with:

• art. 3:24 FSA with regard to legal personality, the power to conduct the business of a life insurer or non-life insurer and to exercise due power in the state of its registered office;
• art. 3:57, paragraph 1 to 3 FSA, with regard to solvency, on the understanding that for the purposes of this section, in that section, “an insurer with registered office in the Netherlands” should read “an insurer with its registered office in a State that is not a Member State ”.

The third-country insurer must demonstrate this by providing an attestation of its home regulator in which the above is confirmed (art. 2:45 paragraph 2 FSA). The Bill provides for a similar provision for third-country insurers that provide reinsurance services to the Netherlands from a branch office located in another EU Member State. This will be laid down in the new art. 2:46 paragraph 2 FSA. With regard to the provision of services in the reinsurance business by insurers with a limited risk exposure (verzekeraar met beperkte risico omvang) with a registered outside the EU, it is proposed to no longer allow such services to be provided to the Netherlands. Finally, it is proposed to include a specific reference to the Exemption Regulation to the FSA (Vrijstellingsregeling Wft) in Section 2.2.2A FSA (conducting the business of a reinsurer). In this way, there remains a possibility to implement, for example, bilateral agreements between the Netherlands and non-EU countries with regard to the provision of services as a reinsurer from a third-country.

Transitional period

The Bill proposes a transitional period of 2 years that will apply to third-country insurers that provide services to the Netherlands on the date the Bill enters into force. If you have any questions or comments regarding this article, please contact Ploum's Banking & Finance team (Matthijs Bolkenstein: m.bolkenstein@ploum.nl or +31 6 46630866 or Lucas Lustermans: l.lustermans@ploum.nl or +31 6 19850096). [1] DIRECTIVE 2009/138/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 25  November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (PbEU 2009 L 335)