In accordance with art. 3 item 1 point 55 of the Act on insurance activity, a foreign insurance company shall mean a foreign entrepreneur in the meaning of the Act of 2 July 2004 on freedom of economic activity, i.e. a foreign entity performing business activity (in this case insurance activity) abroad.
According to art. 204 item 1 of the Act on insurance activity, an insurance company having its registered seat in a different than Poland European Union (hereinafter referred to as: the EU) member state, may pursue its insurance activity within the territory of Poland, provided it has obtained the appropriate authorization for the pursuit of that activity in the state in which its registered office is located.
The pursuit of activity performed by such insurance company shall be subject to the supervision of Polish Financial Supervision Authority (KNF), subject to provision of art. 204 item 3, which introduced the principle of exclusive supervision of the competent supervisory authority of an EU member state, in whose territory the foreign insurance company is established, over the financial management of the foreign insurance company, performing activity in Poland. Thus, the Act on insurance activity granted KNF with broader supervisory powers towards foreign insurance companies, in comparison to the previously effective provisions on insurance activity.
In accordance with art. 3 item 1 point 55 of the Act on insurance activity, a foreign insurance company shall mean a foreign entrepreneur in the meaning of the Act of 2 July 2004 on freedom of economic activity, i.e. a foreign entity performing business activity (in this case insurance activity) abroad.
According to art. 204 item 1 of the Act on insurance activity, an insurance company having its registered seat in a different than Poland European Union (hereinafter referred to as: the EU) member state, may pursue its insurance activity within the territory of Poland, provided it has obtained the appropriate authorization for the pursuit of that activity in the state in which its registered office is located.
The pursuit of activity performed by such insurance company shall be subject to the supervision of Polish Financial Supervision Authority (KNF), subject to provision of art. 204 item 3, which introduced the principle of exclusive supervision of the competent supervisory authority of an EU member state, in whose territory the foreign insurance company is established, over the financial management of the foreign insurance company, performing activity in Poland. Thus, the Act on insurance activity granted KNF with broader supervisory powers towards foreign insurance companies, in comparison to the previously effective provisions on insurance activity.
This principle, being a novelty in the Act on insurance activity, results directly from the provisions of the Solvency II Directive, under which the financial supervision of insurance companies, including that of the business they pursue either through a branch or under the FOS principle, shall be the sole responsibility of the home EU member state. The current act on insurance activity entrusts the supervision of the competent authority of the home EU member state over the entire activity performed by a foreign insurance company in Poland. This principle provided in the Act on insurance activity corresponds with the provisions on KNF supervision, which grant KNF limited powers over foreign insurance companies from EU member states conducting activities in Poland. Bearing in mind the wording of the above provision, it must be considered that in all other respects, i.e. beyond the scope of the financial management, the supervision of such insurance company will be carried out by KNF.
The explicit indication of this principle are the provisions of the Act on insurance activity leaves no doubt that KNF is entitled to supervise all foreign insurance companies operating in the Polish market. The practical expression of this principle in relation to foreign insurance companies is the provision of art. 214 providing that KNF can request a foreign insurance company to provide the authority with insurance agreements and other documents for the purpose of verifying their compliance.
A foreign insurance company established in the territory of an other than Poland EU member state, performing insurance activity in Polish territory, shall be obliged to comply with Polish law to the extent necessary to protect the overriding public interest, referred to in the Act of 4 March 2010 on provision of services on Polish territory, unless something else results from an international agreement to which Poland is party, subject to the provision of art. 204 par. 3 (providing the above mentioned principle of exclusive supervision of the competent supervisory authority of an EU member state, in whose territory the foreign insurance company is established, over the financial management of the foreign insurance company, performing activity in Poland).
The overriding public interest shall mean the value under protection, in particular, public order, public security, public health, the financial balance of the social security system, the protection of consumers, recipients of services and employees, fairness of trade transactions, countering fraud, protecting the environment and urban development, health of animals, intellectual property, social and cultural policy goals and protection of the national historic and artistic heritage.
The above obligation is correlated with the privileges of KNF in respect of foreign insurance companies, in particular the power to impose sanctions specified in art. 214 par. 2-6 of the Act on insurance activity, if such an insurance company does not comply with the provisions of Polish law.
A foreign insurance company shall be accountable with its entire assets for liabilities arising from the insurance activity pursued. It shall be considered that this provision covers their activity performed in Poland. Moreover, in the absence of any restrictions in this regard, it shall be considered that the entire assets should be understood as both those located in Poland, as well as those placed abroad, without any geographical limitation.
As for insurance companies seated in EU member states, the Act on insurance activity, following EU law, provides for two types of pursuing insurance activity in the territory of Poland based on (i) freedom of establishment and (ii) freedom of services.
Freedom of establishment (FOE) – a branch in Poland
Under art. 206 item 1 of the Act on insurance activity, a foreign insurance company from an EU member state may pursue activity within the territory of Poland in the form of a branch, within the freedom of establishment.
The Act on insurance activity in art. 3 item 1 point 22 introduced the legal definition of a branch, which shall mean each form of permanent presence in the territory of Poland of an insurance company having its registered seat in an EU member state, including the branch within the meaning of the Act of 2 July 2004 on freedom of economic activity. Branch, within the meaning of the latter, shall mean a separate and organizationally independent part of the business activity, performed by the entrepreneur outside its registered seat or principal place of performing activity.
What must be pointed out is that the meaning of a branch in the light of the Act on insurance activity is much wider than before, where there were no explicit legal definition of an insurance company’s branch, therefore a situation cannot be excluded in which KNF verifies the character of activity of a foreign insurance company operating in Poland under the FOS principle and requires the relevant insurance company to modify its legal status in Poland and transfer its activity into the branch, to comply with the new provisions.
A foreign insurance company from an EU member state may pursue its insurance activity within the territory of Poland under the FOE basis, i.e. through a branch, following the fulfilment of two conditions.
Firstly, after KNF has received from the competent authorities of the state where the registered office of the insurance company is located the relevant data and information including:
(i) a certificate confirming that the insurance company possesses eligible own funds in an amount not less than the Solvency Capital Requirement and eligible basic own funds in an amount not less than the minimum capital requirement,
(ii) indication of Poland as a state on whose territory the foreign insurance company intends to carry out insurance activities,
(iii) activity plan, including the risks that foreign insurance company intends to cover in the territory of the Poland, and the organizational structure of the branch,
(iv) address of the branch in the territory of Poland,
(v) the names and surnames of the persons authorized to represent and manage the affairs of the insurance company in respect of its operations through a branch, indicating the manner of representation,
(vi) a statement that the insurance company is a member of the Polish Motor Insurers’ Bureau, if it intends to pursue insurance activity referred to in section II, a group of 10 of the Annex to the Act.
Secondly, such insurance company shall receive from KNF the information on the conditions under which insurance activity is pursued within the territory of Poland. This information, in practice, shall be delivered by KNF to the competent authority of the state of origin of such insurance company within 2 months following the day of receiving the relevant data and information referred to above. If KNF does not provide the relevant information to the competent supervision authority concerned within the specified time-limit, the insurance company may commence operations in the form of a branch after 2 months from the day of receipt of the relevant data and information by KNF, unless KNF specifies an earlier date from which operations may be commenced.
Freedom of services (FOS)
Under the art. 207 item 1 of the Act on insurance activity, a foreign insurance company from an EU member state may pursue activity within the territory of Poland in a different form than a branch, within the freedom to provide services, after KNF has received from the competent authorities of the state where the registered office of the insurance company is located the following documents:
(vii) the certificate confirming that the insurance company possesses eligible own funds in an amount not less than the Solvency Capital Requirement and eligible basic own funds in an amount not less than the minimum capital requirement,
(viii) the information about the insurance classes for the pursuit of which it possesses authorization and
(ix) the information about the types of risks that this insurance company intends to cover within the territory of Poland.
There are also additional requirements provided, related to, among others, claims representatives which are to be met by foreign insurance companies pursuing in Poland activity within third party liability insurance of any type, arising out of the possession and use of self-propelled land vehicles, including insurance of carrier’s liability.
The foreign insurance company may commence operations within the freedom to provide services on the day it is informed by the competent authorities of the state where the registered office of the insurance company is located that the certificate and information referred to above have been sent to KNF.
FOE vs FOS with regard to an insurance company
Despite the statutory definition of a branch, which has been introduced into the Act on insurance activity, it may still be problematic to determine when the presence in the territory of another member state is to be regulated on the FOE or FOS basis. Hence, to assess what kind of insurance activity performed by an insurance company in a different than its origin EU member state shall be considered to be carried out under the FOE basis, it shall be indicated that the Court of Justice of the EU in its jurisprudence has developed some principles and guidelines in this respect (e.g. the case C-55/94, C-9/02 and C-456/02). The Court has pointed out that FOE consists in performing the activity in a continuous and permanent manner, with intention to establish a permanent business organization in a different than the origin member state. While the activity under the FOS basis shall be characterized by its temporariness and lack of intention to render services on a permanent basis. The temporary character of activity shall be assessed depending not only on the duration of the service, but also on its frequency, regularity, periodicity and continuity. Thus, if an entity performs its activity in a constant and continuous manner in a different than origin member state, it shall act under the FOE and not FOS basis.
The activity under the FOS basis, in turn, shall be transitional and temporary and as such it does not require a foreign insurance company to establish any infrastructure in the territory of Poland, however it is not excluded. The permanent character of activity performed under the FOS basis shall not prevent an entity from establishing some infrastructure such as an office of staff in a different than origin EU member state, if it is indispensable to render services (case C-55/94).
The difference between the FOE and FOS basis with particular regard to insurance activity was subject to European Commission analysis, summarized in the Commission Interpretative Communication on Freedom to provide services and the general good in the insurance sector (200/C 43/03). The Commission considers that ”for the links between an independent person, such as, for example, an independent intermediary, and an insurance company to be regarded as meaning that the insurance company falls within the scope of the rules governing the right of establishment rather than those applicable to the freedom to provide services, the independent person must meet the following three cumulative conditions:
(i) he must be subject to the direction and control of the insurance undertaking he represents
(ii) he must be able to commit the insurance undertaking, and
(iii) he must have received a permanent brief.
It is only where the above three conditions are met that an insurance company, using independent persons e.g. intermediaries, permanently established in the host member state, must be treated as if it had a branch in the host member state, with all that this implies from the legal point of view. Accordingly, the insurance undertaking will have to follow the procedure for opening a branch.”
According to the view presented above, performing of insurance activity in the territory of a different than origin EU member state, through independent entities shall be considered as performing such activity through a branch if the three conditions mentioned above are met cumulatively. Thus an insurance agent acting on behalf of a foreign insurance company, (i) being under its management and control, (ii) being authorized to commit obligations on its behalf and (iii) having permanent scope of duties and tasks, shall meet all the three conditions mentioned above i.e. shall act in Poland under the FOE basis.
Supervisory powers of KNF towards foreign insurance companies
KNF can request a foreign insurance company from a EU member state, pursuing activity in the territory of Poland, to provide the authority with insurance agreements and other documents for the purpose of verifying their compliance with the Polish law provisions regulating insurance agreement.
If the insurance company does not perform KNF’s recommendation, KNF may oblige it to do so by way of an administrative decision (which is subject to appeal proceedings within the applicable administrative procedure).
If the insurance company does not take the necessary actions, resulting from the decision, KNF shall inform the home state supervisory authority.
If, despite the application of measures by the home state competent authorities towards the foreign insurance company, these measures prove inadequate or are not applied, and the foreign insurance company persists in violating the provisions of Polish law, KNF, after informing the competent supervisory authorities of the EU home member state, may:
1) use all the powers available to it under the Act on insurance activity in relation to national insurance companies, to prevent further violations;
2) submit a request for assistance to the EIOPA.
Within the above supervisory actions, KNF is also entitled to prohibit the foreign insurance company from performing insurance activity on Polish territory. With respect to Polish insurance companies, KNF has the right to prohibit the disposal of assets and profit sharing, particularly in the event of infringement of provisions on financial management; however due to the principle of exclusive home state supervision over financial management, KNF may not do so in relation to foreign insurance companies; hence the general prohibition from performing activity on Polish territory.
The supervisory authority shall inform the European Commission and the EIOPA of any cases and reasons for the application of the measures referred to above.
The above powers of KNF shall break the principle of the home member state supervision over the insurance companies acting under the FOE or FOS principle.
