Embed Size (px)
Citation preview
Contact Details
482
TheInsurance and
ReinsuranceLaw Review
Law Business Research
Third Edition
Editor
Peter Rogan
The Insurance andReinsurance Law Review
The Insurance and Reinsurance Law ReviewReproduced with permission from Law Business Research Ltd.
This article was first published in The Insurance and Reinsurance Law Review - Edition 3(published in April 2015 – editor Peter Rogan).
For further information please [email protected]
TheInsurance and
ReinsuranceLaw Review
Third Edition
EditorPeter Rogan
Law Business Research Ltd
PUBLISHER Gideon Roberton
BUSINESS DEVELOPMENT MANAGER Nick Barette
SENIOR ACCOUNT MANAGERS Katherine Jablonowska, Thomas Lee
ACCOUNT MANAGER Felicity Bown, Joel Woods
PUBLISHING COORDINATOR Lucy Brewer
MARKETING ASSISTANT Dominique Destrée
EDITORIAL COORDINATOR Shani Bans
HEAD OF PRODUCTION Adam Myers
PRODUCTION EDITOR Claire Ancell
SUBEDITOR Charlotte Stretch
MANAGING DIRECTOR Richard Davey
Published in the United Kingdom by Law Business Research Ltd, London
87 Lancaster Road, London, W11 1QQ, UK© 2015 Law Business Research Ltd
www.TheLawReviews.co.uk No photocopying: copyright licences do not apply.
The information provided in this publication is general and may not apply in a specific situation, nor does it necessarily represent the views of authors’ firms or their clients.
Legal advice should always be sought before taking any legal action based on the information provided. The publishers accept no responsibility for any acts or omissions contained herein. Although the information provided is accurate as of April 2015, be
advised that this is a developing area.Enquiries concerning reproduction should be sent to Law Business Research, at the
address above. Enquiries concerning editorial content should be directed to the Publisher – [email protected]
ISBN 978-1-909830-44-8
Printed in Great Britain by Encompass Print Solutions, Derbyshire
Tel: 0844 2480 112
THE MERGERS AND ACQUISITIONS REVIEW
THE RESTRUCTURING REVIEW
THE PRIVATE COMPETITION ENFORCEMENT REVIEW
THE DISPUTE RESOLUTION REVIEW
THE EMPLOYMENT LAW REVIEW
THE PUBLIC COMPETITION ENFORCEMENT REVIEW
THE BANKING REGULATION REVIEW
THE INTERNATIONAL ARBITRATION REVIEW
THE MERGER CONTROL REVIEW
THE TECHNOLOGY, MEDIA AND TELECOMMUNICATIONS REVIEW
THE INWARD INVESTMENT AND INTERNATIONAL TAXATION REVIEW
THE CORPORATE GOVERNANCE REVIEW
THE CORPORATE IMMIGRATION REVIEW
THE INTERNATIONAL INVESTIGATIONS REVIEW
THE PROJECTS AND CONSTRUCTION REVIEW
THE INTERNATIONAL CAPITAL MARKETS REVIEW
THE REAL ESTATE LAW REVIEW
THE PRIVATE EQUITY REVIEW
THE ENERGY REGULATION AND MARKETS REVIEW
THE INTELLECTUAL PROPERTY REVIEW
THE ASSET MANAGEMENT REVIEW
THE LAW REVIEWS
www.TheLawReviews.co.uk
THE PRIVATE WEALTH AND PRIVATE CLIENT REVIEW
THE MINING LAW REVIEW
THE EXECUTIVE REMUNERATION REVIEW
THE ANTI-BRIBERY AND ANTI-CORRUPTION REVIEW
THE CARTELS AND LENIENCY REVIEW
THE TAX DISPUTES AND LITIGATION REVIEW
THE LIFE SCIENCES LAW REVIEW
THE INSURANCE AND REINSURANCE LAW REVIEW
THE GOVERNMENT PROCUREMENT REVIEW
THE DOMINANCE AND MONOPOLIES REVIEW
THE AVIATION LAW REVIEW
THE FOREIGN INVESTMENT REGULATION REVIEW
THE ASSET TRACING AND RECOVERY REVIEW
THE INTERNATIONAL INSOLVENCY REVIEW
THE OIL AND GAS LAW REVIEW
THE FRANCHISE LAW REVIEW
THE PRODUCT REGULATION AND LIABILITY REVIEW
THE SHIPPING LAW REVIEW
THE ACQUISITION AND LEVERAGED FINANCE REVIEW
THE PRIVACY, DATA PROTECTION AND CYBERSECURITY LAW REVIEW
THE PUBLIC-PRIVATE PARTNERSHIP LAW REVIEW
i
The publisher acknowledges and thanks the following law firms for their learned assistance throughout the preparation of this book:
BIRD & BIRD ADVOKATPARTNERSELSKAB
BUN & ASSOCIATES
CHALFIN, GOLDBERG, VAINBOIM & FICHTNER ADVOGADOS ASSOCIADOS
CLAYTON UTZ
CLYDE & CO LLP
CONYERS DILL & PEARMAN LIMITED
CROWELL & MORING LLP
ELVINGER, HOSS & PRUSSEN
FENXUN PARTNERS
GBF ATTORNEYS-AT-LAW
GROSS ORAD SCHLIMOFF & CO
GÜN + PARTNERS
INCE & CO
JORQUIERA & ROZAS ABOGADOS
KIM & CHANG
LC RODRIGO ABOGADOS
LEE AND LI, ATTORNEYS-AT-LAW
MAPLES AND CALDER
ACKNOWLEDGEMENTS
Acknowledgements
ii
NADER, HAYAUX & GOEBEL
NISHIMURA & ASAHI
ROSE-MARIE LUNDSTRÖM ADVOKAT AB
SEDGWICK LLP
STEPTOE & JOHNSON LLP
STIKEMAN ELLIOTT LLP
STUDIO LEGALE GIORGETTI
TULI & CO
URÍA MENÉNDEZ – PROENÇA DE CARVALHO
WOLF THEISS RECHTSANWÄLTE GMBH & CO KG
iii
Editor’s Preface ..................................................................................................viiPeter Rogan
Chapter 1 LATIN AMERICA OVERVIEW ............................................... 1Duncan Strachan
Chapter 2 AUSTRALIA .............................................................................. 9David Gerber and Craig Hine
Chapter 3 AUSTRIA ................................................................................. 21Ralph Hofmann-Credner
Chapter 4 BELGIUM ............................................................................... 35Philip Woolfson
Chapter 5 BERMUDA .............................................................................. 52Christian Luthi and Michael Frith
Chapter 6 BRAZIL.................................................................................... 72Ilan Goldberg, Priscila Mathias de Morais Fichtner and Pedro Bacellar
Chapter 7 CAMBODIA ............................................................................ 86Antoine Fontaine
Chapter 8 CANADA ............................................................................... 101Stuart S Carruthers, Peter J Cullen, Ellen M Snow and Matthew Angelus
Chapter 9 CAYMAN ISLANDS ............................................................. 115Tim Frawley and John Dykstra
CONTENTS
iv
Contents
Chapter 10 CHILE ................................................................................... 127Ricardo Rozas
Chapter 11 CHINA .................................................................................. 139Jianzhao Wang
Chapter 12 COLOMBIA .......................................................................... 152Neil Beresford and Raquel Rubio
Chapter 13 DENMARK ........................................................................... 176Philip Graff
Chapter 14 ENGLAND AND WALES .................................................... 188Simon Cooper and Mona Patel
Chapter 15 EUROPEAN UNION ........................................................... 207Philip Woolfson and Daniella Terruso
Chapter 16 GERMANY ............................................................................ 223Markus Eichhorst
Chapter 17 GREECE ................................................................................ 242Dimitris Kapsis and Dimitris Giomelakis
Chapter 18 INDIA .................................................................................... 253Neeraj Tuli and Celia Jenkins
Chapter 19 ISRAEL .................................................................................. 266Harry Orad and Rena Egulsky
Chapter 20 ITALY ..................................................................................... 276Alessandro P Giorgetti
Chapter 21 JAPAN .................................................................................... 297Shinichi Takahashi and Takahiro Sato
v
Contents
Chapter 22 KOREA .................................................................................. 312Jay Ahn, Jae Ho Baek, Joon Young Kim and Brandon Bae
Chapter 23 LUXEMBOURG ................................................................... 324Michel Marques Pereira and André Hoffmann
Chapter 24 MEXICO ............................................................................... 339Yves Hayaux-du-Tilly
Chapter 25 PORTUGAL .......................................................................... 353Pedro Ferreira Malaquias and Hélder Frias
Chapter 26 SPAIN .................................................................................... 368Jorge Angell
Chapter 27 SWEDEN .............................................................................. 383Rose-Marie Lundström
Chapter 28 SWITZERLAND ................................................................... 395Lars Gerspacher and Roger Thalmann
Chapter 29 TAIWAN ................................................................................ 409C T Chang, Trisha Chang and Jessica Wang
Chapter 30 TURKEY ................................................................................ 424Pelin Baysal and Bensu Aydın
Chapter 31 UNITED STATES ................................................................. 437Michael T Carolan, Paul W Kalish, William C O’Neill and Rachel P Raphael
Appendix 1 ABOUT THE AUTHORS .................................................... 455
Appendix 2 CONTRIBUTING LAW FIRMS’ CONTACT DETAILS .... 477
vii
EDITOR’S PREFACE
It is hard to overstate the importance of insurance in personal and commercial life. It is the key means by which individuals and businesses are able to reduce the financial impact of a risk occurring. Reinsurance is equally significant; it protects insurers against very large claims and helps to obtain an international spread of risk. Insurance and reinsurance play an important role in the world economy. It is an increasingly global industry, with the emerging markets of Brazil, Russia, India and China developing apace.
Given the expanding reach of the industry, there is a need for a source of reference that analyses recent developments in the key jurisdictions on a comparative basis. This volume, to which leading insurance and reinsurance practitioners around the world have made valuable contributions, seeks to fulfil that need. I would like to thank all of the contributors for their work in compiling this volume.
Looking back on 2014, Aon Benfield’s Annual Global Climate and Catastrophe Report (of 13 January 2015) reveals that 258 global natural disasters occurred worldwide. The two costliest insured loss events of 2014 were both as a result of severe thunderstorms, in the USA in May and Europe in June, although the September floods in northern India and Pakistan resulted in the largest economic loss of the year. The combined total insured loss for 2014 was US$39 billion, 38 per cent below the 10-year average of US$63 billion and the lowest annual insured loss total since 2009. However, we should not of course forget the cost in human terms: the deadliest event of 2014 was a stretch of flooding and landslides that killed an estimated 2,600 people in Afghanistan. Events such as these test not only insurers and reinsurers but also the rigour of the law. Insurance and reinsurance disputes provide a never-ending array of complex legal issues and new points for the courts and arbitral tribunals to consider. I hope that you find this third edition of The Insurance and Reinsurance Law Review of use in seeking to understand them and I would like once again to thank all the contributors.
Peter RoganInce & CoLondonApril 2015
86
Chapter 7
CAMBODIA
Antoine Fontaine1
I INTRODUCTION
The insurance market in Cambodia was, until recently, limited to non-life insurance businesses (i.e., general insurance and reinsurance). From 19932 to 2009, only six general insurers and one state-owned reinsurance company3 were duly registered. Of these six general insurers, the two latest arrivals were bank-affiliated companies, created mainly to provide insurance ancillary to banking activities.4 The others5 acted as insurance intermediaries by fronting insurance policies (reinsuring almost all of their risks abroad) rather than by underwriting risks.
In 2012, the market started to move significantly in industries which did not previously exist (i.e., life-insurance and micro-insurance). While the non-life insurance companies remain mainly regional in their shareholding (including those from Hong-Kong, Malaysia, Thailand and Vietnam), two leading worldwide life-insurance companies obtained their licences in 20126 and 20137 respectively. This was closely
1 Antoine Fontaine is head of the insurance practice group at Bun & Associates.2 First law on Insurance dated 9 January 1964 (abrogated in 1975 by the Khmer Rouge
regime); then new law dated 30 January 1992 abrogated in 2000 and then in 2014.3 Cambodian Reinsurance Company Plc. (Cambodia Re) (2002).4 Campubank Lonpac Insurance Plc. (2007) affiliated to Cambodia Public Bank Plc.; and
Cambodia - Vietnam Insurance Company Plc. (CVI) (2009) affiliated to Bank for Investment and Development of Vietnam.
5 Cambodian National Insurance Company, Plc. (CAMINCO) (1993); Forte Insurance (Cambodia) Plc. (1996); Asia Insurance (Cambodia) Plc. (1996); Inifinity General Insurance Plc. (2007).
6 Manulife (Cambodia) Plc.7 Prudential (Cambodia) Life Assurance Plc.
Cambodia
87
followed by the creation of the first state-owned life insurance company.8 Simultaneously, the Ministry of Economy and Finance (MEF) granted three micro-insurance licences: two in life9 and one in non-life.10
General insurance companies could have satisfied themselves by playing a limited role, providing standardised and limited insurance policies to the urban middle class, while still obtaining a profit at the level of their investments. The following table provides information regarding net premiums and reinsurance premiums by line of business (non-life) in 2013.
Line of business Net premium (US$) Reinsurance premium (US$)Auto 5,233,972 1,963,785
Fire 4,259,150 9,377,180
Marine 196,697 493,334
Engineering 400,820 3,875,444
WC 2,927 60,953
PA 1,940,339 1,088,629
H&S 3,240,820 2,456,403
Miscellaneous 1,383,711 5,882,253
Total 16,658,436 25,197,981
Source: Insurance Statistics from MEF.
However, life insurers have decided to strongly invest in the country in order to take advantage of their early arrival on the market. Through large advertising campaigns, they are generating a new interest for insurance in the general population.
While it is the role of the MEF to encourage fair competition in the insurance market, it should be noted that the MEF also has a duty to ensure its sustainability. Therefore we can foresee that licences will be granted for general insurance, but perhaps not for life insurance, as doing so may jeopardise the sustainability of the overall life insurance industry.
Even micro-insurers are playing a stronger role in promoting insurance. Since a micro-insurance business is sustainable only in selling products to a mass-market, micro-insurers opted to use the three best methods available to promote their insurance policies to all those in Cambodia who can afford to pay a small amount of premium: a using their own network;b selling to companies and factories; and c selling online.
8 Cambodia Life Insurance Company Plc. (2012).9 Prevoir (Kampuchea) Micro-Insurance Plc. (2011) and Milvik (Cambodia) Plc. (Bima)
(2014).10 Cambodian People Micro Insurance Plc. (2015).
Cambodia
88
The first method consists of using the very wide network of microfinance institutions (MFIs) to propose credit-life insurance. This approach was fruitful but required some of the MFIs to obtain an insurance agent licence, as the current regulation is not appropriate for this kind of distribution channel. This strategy also generated something unexpected: it opened a new business opportunity for the four non-bank-affiliated general insurance companies which finally found risks that they were financially able to underwrite by themselves.
This unexpected competition in their own market (the indigent population) led micro-insurers to their second method. Micro-insurers started competing with general insurers in the general insurers’ own market: selling group personal accident and group health insurance policies to companies and factories to cover their employees. The viability of this segment is also currently endangered by the National Social Security Fund, which was recently put in place. For now, the National Social Security Fund only covers work related accidents, but should eventually be extended to cover health too.
The third method used by micro-insurers to target the poor is to work with telecommunication operators to sell online insurance products. Even with the worldwide leader in online insurance products operating here (i.e., Bima), micro-insurers are facing competition from other general insurance companies in this area.
Regarding insurance intermediation, this has also grown very slowly. Until 2011, only one insurance agent and one insurance broker were duly registered. Until recently, unauthorised intermediaries acted in this regard, some covertly and some more officially (i.e., the banks), due to inconsistencies between banking and insurance regulations and practices. Since then, many banks, MFIs and even telecommunication operators have been granted with an insurance agent licence, and two new leading worldwide brokers just arrived.11
Despite the fact that the insurance market is still nascent, and even if pitfalls exist, Cambodia has many assets. The following are key assets of the Cambodian insurance market:a Cambodia has an insurance penetration rate of only 3 to 5 per cent of its
population, while the middle class is the fastest growing in the Association of Southeast Asian Nations (ASEAN);
b Cambodia has had a very fast growth premium rate of 20 per cent per year during the last 10 years, which nevertheless should be minimised due to the very low amount of premium (around US$40 million per year for the non-life insurance industry);
c very few businesses subscribe to insurance policies to cover their risks, and when it happens it is generally a fire insurance policy required by banks when granting loans;
d while some foreign businesses are covered in Cambodia through their worldwide policies, any risk in Cambodia must be underwritten by a duly authorised
11 MGA Asia Insurance Broker (2014) and Gras Savoye Willis (2015).
Cambodia
89
insurance company. Sanctions have drastically increased with the new Law on Insurance;12
e the MEF is strongly supporting this industry by adopting a new set-off regulation following the new law on insurance, and in implementing its very ambitious but realistic Insurance Strategic Plan 2011–2020. As a matter of principle, the new law on insurance provides that the MEF must ensure (1) the sustainable development of the insurance industry, (2) a public interest and confidence in insurance services, (3) consistency with the Insurance Core Principles (ICPs), and (4) protection of insureds’ interests. To this end, the MEF must strengthen management and supervision of insurance businesses. It must determine the management of operations in insurance businesses and encourage competition, loyalty and transparency in the insurance industry; and
f more generally, the existing legal framework offers notable incentives to which foreign investors might not be entitled in neighbouring countries. This includes no restriction on foreign ownership, no local joint venture requirement, free repatriation of benefits, no exchange control and minimum currency risk due to a highly dollarised economy.
Aside from these opportunities and the government’s best efforts to promote the industry, in this chapter we will examine some of the main concerns that actors are facing, mainly due to the very recent and sometimes ill-fitting insurance regulation.
II REGULATION
i Insurance regulator
The MEF is competent to issue regulations and to manage and control the conduct of insurance businesses. An insurance business is not clearly defined by the law, but the term is widely interpreted. Insurance supervision is delegated to the Insurance Division of the Department of Financial Industry. It also manages an Insurance Industry Development Fund for promoting, supporting, and encouraging dissemination of interest in insurance to the public.
The Insurance Strategic Plan 2011–2020 foresees the establishment of an independent insurance commission by 2020. However, there is no plan to merge the regulatory bodies of the insurance business (i.e., the MEF), the securities market (i.e., the Securities and Exchange Commission of Cambodia) and the banking sector (i.e., the National Bank of Cambodia) under only one supervising authority.
ii Non-admitted insurers
Any entity which carries out an insurance activity, except notably a reinsurance activity, is required to operate through a licence granted by the MEF. This rule applies to insurance companies, micro-insurance companies, insurance agents and brokers and loss adjusters.
12 Law on Insurance, NS/RKM/0814/021, dated 4 August 2014 (entered into force on 4 February 2015).
Cambodia
90
The new Law on Insurance created two important rules. First, to combat illegal insurance activities, the law has drastically increased its related sanctions. Underwriting insurance businesses without a licence will incur a fine of 50 million riels to 100 million riels.13 Recidivism for an entity is sanctioned at four times this rate. Recidivism for a natural person is sanctioned at two times this rate, or one to five years imprisonment, or both. Secondly, the law allows for a further sub-decree to provide exceptions for licensing, but for the time being there are none.
Even if reinsurance activity is free for foreign reinsurance and insurance companies, the law provides that an insurance company must, as a pre-emptive right, reinsure at least 20 per cent of the insurance risk for the state-owned reinsurance company (i.e., Cambodia Re) at the minimum insurance premium rate defined by the MEF. In practice, there has been no abuse from Cambodia Re.
The MEF requires a reinsurance company to be rated at least AA+.
iii Distribution of product
According to the law, there are only two ways to distribute insurance products – through a duly-licensed insurance agent or through a broker. The law does not mention the possibility of an insurance company’s staff distributing products, but the MEF has admitted it is permissible and a ministerial order provides specific authorisation for life-insurance staff-sellers. It should to be noted that, even if the regulation does not mention group insurance policies, the MEF considers that a compulsory group insurance policy is an insurance policy in itself and, therefore, the policyholder, acting for a group of insured, is not considered as an insurance intermediary.
There are no restrictions for outsourcing activities that are not subject to licensing. Currently, there are no loss adjustors or actuaries registered in Cambodia, so the MEF tolerates the outsourcing of such activities outside of Cambodia.
iv Authorisations
According to the Law on Insurance, there are four kinds of insurance companies: life insurance, general insurance, micro-insurance and reinsurance. Both general and life insurance companies may conduct health and micro-insurance businesses. This new legal provision seems to exclude micro-insurers from offering micro-health insurance, and it further seems to indicate that a life insurance company can provide any micro-general insurance business, and vice versa. We do not have a clear interpretation yet. It is also to be pointed out that, according to a temporary ministerial order, which will be amended by a future sub-decree, a micro-insurance company is currently not permitted to cover risk exceeding US$5,000 and exceeding a period of 12 months.14
The Law on Insurance provides limited information on obtaining an insurance licence. It states that insurance companies are required to get a licence from the MEF and imposes on the MEF a three-month time limit to decide on an application following
13 US$12,500–US$25,000.14 Prakas, 009 MEF, on Issuance of Temporary License for Micro-insurance, dated
29 June 2011.
Cambodia
91
the deposit of the required application form and supporting documents. In practice, it generally takes longer than the time limit. Also, as indicated above, it is unlikely that the MEF will grant many other life insurance licences in order to maintain a sustainable market. A sub-decree will provide further details for obtaining a licence. The former sub-decree and related ministerial orders remain valid in the meantime.15 Currently, the MEF exercises a two-step approach where, after obtaining the approval in principle from the MEF, the applicant must complete the set-up within six months, including the incorporation of the company at the Ministry of Commerce. Otherwise, the licence granted will automatically become null and void.
It is worth indicating that brokers, agents and loss adjusters are required to have a licence to operate.
All licences issued are not alienable under any circumstances. However, a change of control (greater than 10 per cent) is still possible, though the regulator must be properly notified. Furthermore, the portfolio may be partially or totally transferred, subject to prior approval by the regulator.
The duration of the validity of a licence varies as follows: a insurance company – five years for the initial licence and three years for renewed
licences; b micro-insurance company – one year; c insurance agent – three years for both the initial licence and renewed licenses; d insurance broker – one year for both the initial licence and renewed licences; and e loss adjuster – three years for both the initial licence and renewed licences.
The licences should become granted for an unspecified duration in a future regulation.
v Compulsory insurance
The former regulation mentioned two compulsory insurances (i.e., construction site insurance and transportation liability insurance whatever the means of transportation). As these requirements were not systematically implemented, the new Law on Insurance increased fines for non-compliance to up 150 million riels.16 However, the MEF has not put any system in place in case of refusal from insurance companies to provide coverage.
In addition to these compulsory insurances, the new Law on Insurance requires owners of motor vehicles (on road or waterway) to subscribe to motor vehicle liability insurance. A sub-decree will determine the conditions. This compulsory insurance is not likely to be implemented soon for many reasons, including the challenge of determining an affordable premium for the poorest owners of vehicles (which will sociologically appear as a tax) and the challenge of collecting premiums throughout all of Cambodia. This may also leave the illusion of sufficient insurance while the maximum coverage will, in fact, be very limited. There will also be challenges in organising the insurance industry to ensure proper claim adjustments and payment in a timely and reasonable manner.
15 Article 113, Law on Insurance. 16 US$37,500.
Cambodia
92
Apart from the Law on Insurance, the Sub-decree on Insurance, dated 22 October 2001 adds one more compulsory insurance: insurance brokers are required to subscribe to a professional liability insurance of US$500,000.17
vi Taxation
As in many other countries, due to the economic specificity of insurance, the tax on profit consists of a taxation of 5 per cent on the gross premium. Insurance companies are not VAT taxpayers.
However, in practice, part of the premium is subject to double taxation. For example, insurance intermediaries are required to charge VAT on their
commissions. Therefore, the insurance company cannot claim a VAT deduction. This non-deductible VAT will thus be included in the gross premium amount, and will therefore also be taxed at 5 per cent.
Furthermore, the tax administration has not put in place any set-off system when the payment to an insurance intermediary originates from a prepayment subject to other tax (1 per cent minimum tax on profit, VAT, tax on telecommunication).
Finally, the taxation on gross premium includes savings, which clearly jeopardises the development of life insurance companies’ activities and bancassurance activities.
In addition to the 5 per cent tax on premium, insurance companies must pay a 0.5 per cent contribution to the MEF Insurance Industry Development Fund.
Reinsurance premiums paid abroad are not subject to the 14 per cent withholding tax which is generally due for any payment abroad (except for payment of goods).
Changes in taxation are expected soon to mitigate the tax implications described above.
vii Ownership
While there is no restriction for foreigners to invest in insurance businesses, there is only one entity form available. An insurance company must be registered in the form of a public limited liability company. Surprisingly, an insurance company must have at least three shareholders, while this minimum is not required for bank or MFIs and this minimum is not generally required for a public limited company. The Law on Commercial Enterprise only requires a minimum of three directors.18 The new sub-decree should modify this useless and unjustified requirement.
For other insurance businesses (i.e., insurance intermediaries and loss adjusters), the form can be a branch of a foreign company, a private limited company or a public limited company.
viii Transfer of portfolio
A Cambodian insurance company may apply to the insurance regulator for approval to transfer all or part of its insurance business to another Cambodian insurance company.
17 Article 86.18 Article 118 Law on Commercial Enterprise, dated 19 June 2005.
Cambodia
93
The transfer comes into effect following an agreement between the transferor and the transferee once the MEF’s approval is given.
According to our experience, no portfolio transfer has ever been carried out. A further sub-decree will develop details of the process that is in the best interests of the policyholders.
ix Capital
The law on insurance provides a minimum capital of 5 million SDR19 for a general company, a life insurance company or a reinsurance company. A further sub-decree will provide rules to determine the amount of capital to be maintained to ensure an insurance company’s solvency. According to the current rules, the minimum capital requirements are as follows:a micro-insurance company (life or non-life): one-quarter of the amount of the
underwritten premium with a minimum of 600 million riels;20
b insurance brokers: 200 million riels; and21
c insurance agents and loss adjusters: 20 million riels.22
x Solvency requirements
There are two kinds of solvency requirements, but they may be modified following the new Law on Insurance since these requirements originate from a previous regulation.
First, insurance companies and intermediaries must maintain a deposit with the National Treasury (i.e., the MEF’s account at the National Bank of Cambodia (this account does not generate interest)):a an insurance company: 10 per cent of the registered capital;b an insurance broker: US$50,000 (equivalent to the minimum capital); andc an insurance agent and loss adjustor: US$10,000.
Second, insurance companies must maintain a solvency margin as follows: For the first year of operation, the solvency margin is 50 per cent of the registered
capital. Thereafter, each case is assessed on the previous year’s premiums: a 13.3 billion riels where net premiums are less than or equal to 66.5 billion riels; b 20 per cent of the total premium where net premiums are between 66.5 billion
riels and 332.5 billion riels; andc 66.5 billion riels plus 10 per cent of the insurance surplus from the previous year
where the net premium is more than 332.5 billion riels.
Even if the law does not provide it, the MEF requires insurance companies to maintain a solvency margin equal to the minimum capital.
19 SDR = IMF special drawing rights. As of 19 February 2015, 1 SDR = US$1.42.20 Approximately US$150,000.21 Approximately US$50,000.22 Approximately US$5,000.
Cambodia
94
xi Control
The MEF maintains three kinds of control: financial, legal and economic. Financial control is achieved through activities from the licence application to the yearly financial statement requirements (e.g., financial audit, business plan approval, approval for distribution of dividends). Legal control generally consists of requiring prior approval from the MEF for many activities, including changes in memorandum and articles of association, product approval, and distribution network organisation. Economic control over the industry involves gathering data, issuing licences, maintaining fair competition, approving any transfer of shares exceeding 10 per cent of the capital, and more.
The MEF may organise inspections and has wide power and protection to do so. Measures taken by an insurance inspection may be challenged by bringing a complaint within 45 days to the MEF. The MEF then has two months to decide on the complaint.
The new Law on Insurance has considerably reinforced both the MEF’s control and procedures when an insurance company is facing a serious financial crisis. In such a case, a provisional director may be appointed by the MEF to try to recover the company. However, if the company remains insolvent after the period of provisional governance, the insurance company may be liquidated voluntarily or through court proceedings.
The MEF may appoint a provisional director to attempt to recover the insurance company for a period of no longer than three months. This mandate may be extended for another three months if necessary. After this period, if the evaluation of the company has shown that it may be sufficiently solvent and can comply with the law and all cautious measures, the provisional director will make a report to the MEF to cancel any cautious measure taken against the company and the provisional governance will be terminated. However, if the evaluation has shown that the company is sufficiently solvent but cannot comply with the law and cautious measures within three months, the company’s licence will be temporarily revoked by the MEF and the provisional governance will be changed to a voluntary dissolution of the company. Moreover, if it is shown that the company is insolvent, the company’s licence will be revoked by the MEF and the provisional governance will be changed to liquidation through a court proceeding.
Unless the insurance company is in a solvent condition, the company may initiate the voluntary liquidation and dissolution processes. The insolvent company may submit to the MEF a request to liquidate voluntarily in the case that the company reaches its due duration period or by a resolution of a general or extraordinary assembly of the shareholders in accordance with the memorandum and articles of association. Upon receiving the statement of intent from the company to voluntarily liquidate, the MEF will issue a certificate of authorisation provided that the company has appropriate grounds. After receiving the certificate of authorisation from the MEF, the company must cease making new insurance contracts and must transfer existing contracts to other insurance companies before the start of the voluntary liquidation and dissolution of the company.
In the case of an insurance company’s insolvency, the MEF must submit a complaint to a court to initiate the liquidation through court proceedings. A liquidator is selected by the court from the MEF’s permitted list of liquidators. A court order may also select a provisional director as a liquidator.
The liquidator has the obligation to liquidate all assets and repay all the liabilities of the insurance company under the supervision of the court.
Cambodia
95
III INSURANCE AND REINSURANCE LAW
i Sources of law
The MEF launched an important reform in 2000 and 2001,23 which consisted of an increase in the minimum capital held by insurance companies to 5 million SDR,24 as well as a classification of insurance companies into three categories: general insurance companies, life insurance companies and reinsurance companies. This was followed in 2011 by the introduction of a fourth category: micro-insurance companies.
The government of Cambodia adopted the new Law on Insurance on 4 August 2014, and it entered into force on 4 February 2015. The law maintains all former regulations which comply with this new law. Three sub-decrees should be adopted soon, which will be followed by many ministerial orders. This ambitious review will provide Cambodia with one of the most advanced insurance regulatory schemes in the region.
The most important and notable changes will cover the following areas: general and life insurance contracts; insurance companies’ liquidation and dissolution processes; the micro-insurance legal framework; insurance control; and dispute resolution and disciplinary measures.
ii Making the contract
Generally, Cambodian regulations do not differ from others in terms of contract formation. The policy must be written and must indicate: a both parties’ names and addresses; b subject matter to be insured; c type of covered risks; d commencement date and location of risks; e insured value; f insurance premium and method of payment; g method and conditions for declaration of risks; h term of contract and period of coverage; i terms and conditions of nullification and forfeiture of rights; andj conditions to early termination.
For life insurance, it must also indicate the name of the beneficiary, and the event and condition for refund of the insured amount.
Regarding these standard requirements, it is worth pointing out that they are not always economically or practically adapted to all forms of insurance distribution networks. This is especially true for micro-insurance products, which should be easily executed. The future sub-decree on micro-insurance should officially authorise a paperless insurance policy. In addition, requiring the name of the beneficiary of a life insurance
23 Law on Insurance No. NS/RKM/0700/02, dated 25 July 2000; and Sub-decree on Insurance No. 106 ANK.BK, dated 21 September 2001.
24 SDR = IMF special drawing rights. As of 19 February 2015, 1 SDR = US$1.42.
Cambodia
96
supposes that he or she is identified. Again, the future sub-decree will provide more details for life-insurance products.
In addition, the new Law on Insurance provides precise points which are sometimes difficult to understand. At first, it may appear normal that insurance policies are required to be written in the Khmer language with clear terms and conditions, but the law does not provide any for any exception, especially for major risks and for international risks.
Furthermore, the new Law on Insurance seems to indicate that no insurance policy can enter into force prior to the payment of the premium. In another way, the payment is a condition for the enforceability of the insurance policy. This rule seems to be mandatory.
Surprisingly, the new Law on Insurance foresees only three parties to an insurance contract: the insurer (or its representative), the insured and the beneficiary. It assumes that the insured and the policyholder are always the same person. In addition, the law does not mention the possibility of underwriting a group insurance policy, even if, in practice, group insurance policies are widely spread out and accepted by the MEF, which even distinguishes between compulsory and non-compulsory group insurance policies. No doubt that this issue will be clarified in a future sub-decree.
Also, the new Law on Insurance states that an insurance contract is a commercial contract. However, while the insurer may always be a merchant, the policyholder may not be one.
Finally, we are reminded that the MEF’s practice requires a prior approval of insurance products and that the MEF’s inspector may temporarily suspend the underwriting of any non-approved policies. This practice, which is understandable in a country experiencing new products, sometimes creates lengthy delays.
A proposal for renewal or amendment of an insurance policy is deemed to be approved if the insurer has not refused such proposal within 15 days.
iii Interpreting the contract
General rules of interpretationThere is no rule of interpretation clearly stated in the Law on Insurance, and no law on consumer protection yet. Furthermore, there are very few rules of interpretation in the Civil Code.
However, since every insurance product must be approved by the MEF, it means that the MEF has its own interpretation which may be used as a benchmark for policyholders and insureds who are under the same insurance policy.
Type of terms in insurance contractsThe MEF is also very cautious regarding the Khmer-language terminology used. The MEF is working on a glossary to ensure consistency among the insurance policies, and should create pro forma clauses to avoid confusion.
A sub-decree on insurance contracts should be adopted detailing rules regarding conditions, interpretation, and more.
The new Law on Insurance adds two important details regarding the interpretation of the contract.
Cambodia
97
First, and naturally, it provides for nullification in case the insured (policyholder) has concealed the truth or willfully misrepresented material facts leading to any change of the insured subject of risk. However, negligence does not necessarily lead to nullification.
Second, it provides that for property insurance, the indemnity made by the insurance company must be the same amount as the declared property, unless agreed otherwise. This rule seems contradictory to the indemnification principle, though the reasons behind it are understandable. The Cambodian population is not familiar with insurance policies and may not understand that the insurer provides an amount lower than the declared or insured value of the property. This rule obliges the insurer to either assess the real value before covering the property or to clearly state that it will not pay the declared value if this value is above the real value. In addition, this provision will lead to a simplification of claims when there is no independent loss adjuster.
iv Intermediaries and the role of the broker
In addition to the information regarding distribution of products (see Section II.iii, supra), there are only three insurance brokers (Poe-ma (Cambodia) Insurance, MGA Insurance Brokers and Gras Savoye Willis), and the latter only received their licence during the last 12 months. With an insurance penetration rate from 3 to 5 per cent among the Cambodian population, the ignorance of many businessmen, (especially local tycoons), the growing interest in insurance, and stronger protections for duly-licensed insurance companies, all the ingredients exist to increase the number of brokers.
Apart from that, brokerage in Cambodia is typically defined as acting on behalf of the policyholder. However, due to the limited number of brokers, there is no association and no ethical code. The legal relationship between insurance companies and brokers falls under the Civil Code as there are no specific regulations.25 Brokers are not specifically protected when bringing businesses to insurance companies, even if insurance companies generally comply with general standards in these situations.
v Claims
The Law on Insurance provides only a few rules regarding claims, and the former regulation, which is still applicable, is useless. Therefore, claims must follow the common rules as provided for in the Civil Procedure Code.
The law only states that the insurer may complain before the court in order to void its responsibility if the risk occurred due to a fraudulent act of the insured.
The law also provides a subrogation mechanism to claim reimbursement of a duly-paid insurance indemnity from the third party who caused the damage. However, subrogation is not possible against relatives, managers, etc., except in case of malicious acts caused by any one of them. In addition, the Law on Insurance provides the victim with a direct payment mechanism against the insurance company for liability insurance.
The law provides no payment of life insurance if the insured committed suicide.Apart from that, all the procedures for dispute resolution will be determined by
sub-decree.The net rate ratio of claims was 32 per cent in 2013 for non-life activity.
25 Article 637 sq. Civil Code.
Cambodia
98
IV DISPUTE RESOLUTION
i Jurisdiction, choice of law and arbitration clauses
In Cambodia, arbitration clauses are commonly provided in insurance policies in case of a dispute between the policyholder or insured and the insurer, except notably for the micro-insurance policies. However, there is generally no reference to any arbitration forum and no indication of arbitration procedure (e.g., designation of arbitrators).
It is to be noted that, since compulsory liability insurance does not really exist, there are no set-off26 mutual debts between insurance companies.
There is neither a compensation fund nor a warranty fund in place, except for the National Social Security Fund.
ii Litigation
If a dispute is brought before a court, parties will follow the rules as provided in the Civil Procedure Code. However, when an arbitration clause exists there is generally no description of the claim procedure and the use of loss adjusters, as well as no explanation on how to challenge an insurer’s decisions. There has been no commercial arbitration centre in Cambodia until very recently.
iii Arbitration
Even though a commercial arbitration centre has recently been established, it is unlikely that it will be used for small claims, and large insurance claims are quite rare. However, the new Law on Insurance suggests that the MEF will create an insurance arbitration centre.
iv Alternative dispute resolution
The MEF does not have an ADR mechanism yet for insurance disputes. However, one may be adopted together with the arbitration mechanism. It is likely to follow the procedures for collective labour disputes in Cambodia, which provide for an internal mechanism to settle a dispute, then a conciliation procedure before the ministry, and finally a binding or non-binding award before specialised arbitrators.
V YEAR IN REVIEW
2014 was a very fruitful year. In August 2014, the MEF finally passed its new Law on Insurance, which will be followed by number of new regulations, promoting insurance policies and protecting the industry.
Life insurance businesses and micro-insurance activities are now in place and are moving very fast, with two new entrants in the micro-insurance industry. We do not have any data yet for these new activities but the players are advertising a lot, and by doing so, promoting the insurance industry as a whole.
26 However set-off is legally possible in application of Article 464 sq. Civil Code.
Cambodia
99
The Royal University of Law and Economics has finally created the first Master’s degree in risk management, which includes several courses on insurance.
The professionals are also organising themselves. The former General Insurance Association of Cambodia now welcomes life insurance companies, and is now called the Insurance Association of Cambodia (IAC). The IAC is establishing partnerships with other foreign institutes to train insurance staff.
Finally, the fact that two significant brokers have just obtained their licence evidences that Cambodia is definitely one of the most promising young markets, with a growth of around 20 per cent for non-life activity.
VI OUTLOOK AND CONCLUSIONS
Cambodia is still in the early stages of developing its insurance market, but many positive changes are likely in the near future.
Many regulations will be passed during the next few years, and the MEF will drastically improve the rules in order to promote the insurance industry, to protect insurance consumers, and to put in place reliable dispute resolution mechanisms.
These regulations will stem from the Insurance Sector Strategic Plan 2011–2020 of the MEF. Besides regulations, this strategic plan is comprised of many steps as ambitious as:a full compliance with the ICPs of the International Association of Insurance
Supervisors by 2020; b setting up a dispute resolution office; c establishing associations of life insurance companies, brokers and agents by 2016; d establishing an independent insurance commission by 2020; e putting in place a cooperation with the National Bank of Cambodia to formulate
the policy and guidelines on cross-sector insurance operations by 2016; f expanding the promotion of insurance in Cambodia; g establishing an insurance institute to offer specialised training on insurance by
2016 and to become an insurance research and development centre by 2020; and h implementing an IT system to respond to the need to control the insurance
market, which will be fully operational by 2020.
Thanks to the new law and its upcoming implementing regulations, and the implementation of the Insurance Sector Strategic Plan 2011–2020, Cambodia will become one of the insurance markets to watch out for, and one of the most active in ASEAN in the next few years.
However many concerns remain, especially the following:a the lack of human resources and of intermediaries, especially agents, loss adjusters
and actuaries;b the low use of insurance among the population;c the tax system, especially the one applicable to life insurance activities; andd the ways to invest as an insurance company. An insurance company must use
at least 75 per cent of their reserve funds created from insurance premiums for reinvestment in the Kingdom of Cambodia. There are very limited options
Cambodia
100
for investing in Cambodia. The stock exchange does not really perform well; investment in real estate is generally forbidden to foreign entities; investment in state bonds is not currently available; and investment in the private sector is not sufficiently reliable. Therefore, insurance companies try to repatriate the premium through a reinsurance scheme or else make a deposit into a bank which provides a relatively good interest rate.
455
Appendix 1
ABOUT THE AUTHORS
ANTOINE FONTAINEBun & AssociatesAntoine is Bun & Associate’s practice leader for the insurance, labour, tax and regulatory reform practice groups. Holding a PhD in insurance law, he has developed unmatched expertise in Cambodia’s insurance sector and provides comprehensive advice to multinational companies on their insurance portfolio; and counsels foreign insurance companies on their market entry. He notably advised the first insurance broker, the first insurance agent, the first fully privately owned life insurance company, and the first three micro-insurance companies in their market entry.
Antoine has worked in Cambodia for 15 years. He co-founded Bun & Associates after working for AXA Insurance as legal research expert, the French Embassy in Cambodia and leading French law firm Gide Loyrette Nouel. Since 1999, Antoine has been lecturing in universities around South East Asia and has published several articles on South East Asian legal systems. He is still lecturing in insurance law at the Royal University of Law and Economics in Phnom Penh.
He is described by Chambers & Partners’ Asia Pacific 2015 as having ‘in-depth knowledge in insurance law’. Antoine is a member of the Paris Bar, former chairman of the French Cambodian Chamber of Commerce and has been appointed as French Foreign Trade Advisor by the French Prime Minister. Antoine is fluent in French and English and conversant in Khmer.
About the Authors
456
BUN & ASSOCIATES29 Street 294Phnom PenhCambodiaTel: +855 23 999 567Fax: +855 23 999 [email protected]
