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2016 was the first year in which insurance and reinsurance companies operated in the regime the requirements of the Solvency II Directive.
2016 was the first year in which insurance and reinsurance companies operated in the regime the requirements of the Solvency II Directive, whose requirements have been implemented in the new Act dated 11 September 2015 on the Insurance and Reinsurance Activities and Implementing Regulations. The vast majority of provisions of this act came into force on 1 January 2016.
On the basis of that law, the Polish Financial Supervision Authority has issued Recommendations for insurance companies regarding:
- product adequacy tests – they apply in particular to life insurance contracts, if they are unit-linked, life insurance contracts in which the provision of insurance is determined based on certain indexes or other basis values;
- product management system – they provide a framework for the proper organization of the product management process covering the full product life cycle (from its design until its withdrawal from the market), as well as identification, measurement, monitoring, management and reporting of risks associated with this process;
- process of determining and paying compensation for non-material damage from the TPL insurance of motor vehicles owners – they indicate the PFSA expectations concerning sound and prudent management of the process for determining and paying compensation for non-material damage, including risks associated with this process.
The Act on Tax on Some Financial Institutions dated 15 January 2016. In accordance with the Act, as of February 2016, banks (domestic, branches of foreign banks, and branches of credit institutions), insurance and reinsurance companies, cooperative saving and credit institutions, and lending companies were subject to the so-called financial institution tax annually amounting to 0.44% of their assets’ value. For banks and cooperative saving and credit institutions, the value of tax-free assets is PLN 4 billion. For insurers this amount is PLN 2 billion, and PLN 200 million for lending companies. The limits of assets’ value beyond which insurance and reinsurance companies are subject to tax are specified for entire capital group and not respective companies.
Other regulations aimed at implementing EU legislation were also implemented in 2016:
- Act dated 9 October 2015 amending the Personal Income Tax Act, Corporate Income Tax Act, and Several Other Acts. The main concept of the Act is to seal up tax system, clarification of the regulation in the way it eliminates questions concernin interpretation and limit the phenomena of tax avoidance. The most important amendments relate to: exclude from the exemption from CIT of closed- end funds revenues (polish closed-end funds FIZ and comparable european union funds) as well as revenues from selling their shares and certain other revenues related to participation in such entities (including interests); introduction of tax rules related to contribution assets not constituting (organized part) companies in the market value; dependence of the exemption from tax on interest payments and royalties on the fulfillment by the recipient the actual status of the owner; introduction of so called „tax avoidance clause”;
- Act dated 5 September 2016 on Trust Services and Electronic Identification. The Act imposes on qualified trust service providers an obligation to conclude TPL contracts for damage caused to trust service users during the provision of these services;
- Act dated 23 September 2016 on Out-Of-Court Settlement of Consumer Disputes. The aim of the Act is to provide customers with a possibility to submit requests for resolving disputes with traders to entities offering independent, impartial, transparent, effective, and fast alternative dispute resolution procedures, that is, to create a system of out-of-court settlement of consumer disputes (ADR). The changes went beyond the implementation of EU legislation, including also several amendments to Polish law which had or will have an impact on the operations of PZU Group. Some of them are listed below:
The Act dated 15 May 2015 – Restructuring Law. The two main goals of this act are: effective satisfaction of creditors and helping indebted companies stay in business. The provisions of the Act introduced for example new forms of restructuring proceedings: concerning arrangement approval, accelerated arrangement, arrangement and reorganization proceedings.
The Act dated 9 June 2016 on the Terms of Setting the Remuneration of Managers of Certain Companies. The Act sets the terms of setting the remuneration of members of management and supervisory bodies of the companies whose shares are held by the State Treasury.
The Act dated 10 June 2016 amending the Act on Medical Activity and Several Other Acts. The legislator abolished the obligation for the health care institution running a hospital to have an insurance against medical events, as defined in the Act on Patients’ Rights and Patients’ Rights Ombudsman.
The Act dated 15 December 2016 amending of the Act on Insurance of Agricultural Crops and Livestock. The Act came into force on 1 January 2017. It aims to improve the insurance system in agriculture. Tariff rates for packages with premiums subsidized from the state budget will be introduced to fulfill this goal, and there will be a significant increase in the budgetary reserve for this purpose in the coming years.
An EU legislative package on fraud prevention on the capital market, which came into force on 3 July 2016, is to improve investor protection and increase confidence in the European financial markets. The basis of the package is formed by: Regulation (EU) No. 596/2014 of the European Parliament and of the Council dated 16 April 2014 on market abuse (MAR) and Directive 2014/57/EU of the European Parliament and of the Council dated 16 April 2014 on criminal sanctions for market abuse (MAD). The EU regulations introduce a whole new confidential information regime in public companies, whose main feature will be a single definition of confidential information. The regulatory package will influence the creation of a uniform communication policy of public companies. Criminal sanctions for market abuse provided in the Directive are an important part of the package. The Directive introduces common definitions for such offences as: insider dealing, unlawful disclosure of inside information and market manipulation, and sets maximum penalties for committing such offences.
Ordinance of the Minister of Development and Finance dated 5 October 2016 on the documents related to the conclusion and implementation of insurance contracts prepared in electronic form. The Ordinance defines a detailed way of creating, recording, storing and securing documents related to the conclusion and implementation of insurance contracts with the help of an electronic signature or seal.
On 16 November 2016, the Parliament (Sejm) passed the act lowering the retirement age to 60 for women and 65 for men from 1 October 2017. It will have the effect of increasing payments of pension benefits from both the Social Security Fund (FUS) and the Open Pension Funds (OFE) in connection with the insured reaching an age of 10 years less than retirement age (the so-called slider mechanism).
The PFSA Recommendations for the banking sector
In May 2016, the PFSA issued a new version of Recommendation C (replacing Recommendation C of 2002) on the management of concentration risk, issued based on Article 137 paragraph 1 point 5 of the Act dated 29 August 1997 – Banking Law. In its new version, Recommendation C supplements and further develops provisions concerning issues related to the concentration risk management in banks, caused by developments in the banking sector, the acquisition of new experiences by both banks and financial supervision, as well as development of European regulations over the past several years. It is addressed to all banks regardless of the consolidation.
In addition, from 1 January 2016, in accordance with the provisions of Recommendation S of the PFSA, banks are supposed to require bigger own contribution from their clients applying for mortgage loans. The minimum amount committed by the borrower is to correspond to 15% of the property value, whereby it is imperative for the client to provide a 10% own contribution in cash, and the missing 5% can be secured, for example, by the means of the savings accumulated on individual pension accounts (IKE) and individual pension security accounts (IKZE). From January 2017, the ratio rise up to 20%.
The projected legal regulations which may have significant influence on the operations of PZU Group
The legislative works on a draft law on insurance distribution implementing into the domestic legal order the provisions of the Directive (EU) of the European Parliament and of the Council dated 20 January 2016 on insurance distribution (IDD – Insurance Distribution Directive) are currently still in progress. European Union Member States should carry out the implementation of the Directive by 23 February 2018. The IDD Directive increases client protection regardless of the distribution channel the clients use to purchase insurance products, as well as it improves their confidence in insurance companies. According to the IDD, the clients should receive a product which is adjusted to their needs and capabilities. The new rules are subject to severe administrative sanctions applied in case of a breach of any obligations or rules governing the sale.
The Responsible Development Plan announced by the government provides changes in, inter alia, the current pension system. The reform resulting from the statutory review of the pension system envisages in particular a transfer of 25% of the funds from the Open Pension Funds to the Demographic Reserve Fund and 75% of funds to the newly created Individual Pension Accounts managed by General Pension Companies transformed into Investment Funds. The liquidation of the Open Pension Funds is also to be accompanied by the introduction of a new, comprehensive system of non-compulsory II pillar employee pension programs in the enterprise sector – Employee Capital Plans where premiums will be contributed by both the employer and the employee, and the funds will be managed by the Investment Funds.
