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Insurance in the Republic of Moldova
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Recently the Parliament passed the Law on the Modification and Completion of the Law on Insurance. So far no studies or analysis have been undertaken in the relevant field.
The Law on Insurance was adopted on June 15, 1993 and has undergone a number of modifications and completions due to the social and economic conditions. The most significant modifications were operated via the Law no. 886 of June 20, 1996 and were determined by a series of problems in the insurance market. Numerous insurance companies used to accrue the savings of legal and natural entities, however refrained from investing the money into risk-free ventures. As a result a number of insurance companies allegedly went bankrupt and in such a manner embezzled population’s savings. Albeit delayed, the Parliament managed to operate some modifications, which refer in particular to:
- Establishing the quota of foreign capital (up to 49%) in the registered capital of the insurance company;
- Defining the notions of insurable risk;
- Defining the notion of insurance premium;
- Establishing the minimal quota of insurance company registered capital — at least 300,000 MDL (around 67,000 USD). Under the modifications, insurance companies are due to adjust their registered capital to the legal provisions within 1 year;
- Guaranteeing insurance company solvency, via observing the correlation between the company assets (registered capital, insured reserves and funds) and the insured amount. In this respect, the law provides that solvency reserve for life and pension insurance formed out of the registered capital, reserve fund and premium reserve should amount 8% of the insured amount; whereas solvency reserve for other types of insurance formed out of the registered capital, reserve fund and reserve fund for other types of insurance shall be at least 1% of the insured amount, plus (less) the total of obligations assumed for reinsurance. Under the law, insurance companies that assumed obligations beyond their actual capacity to execute them shall make the necessary adjustments within 3 months;
- Restraints in the insurance activity: — manufacturing activity, trade, brokering, etc;
- Obligation of the insurance company to make public in the first quarter of the year the balance sheet and income statement authenticated by an audit report.
The main accomplishment of the 1996 law was the liquidation of insurance companies, which failed to increase the registered capital to the quota required. As a result several big insurance companies survived, including “ASITO” company which is currently dominating the insurance market in the Republic of Moldova.
As for the recently passed law, it includes provisions on:
- Foreign capital quota in the insurance company. This time the Parliament decided to exclude the provision allowing foreign investors to hold no more than 49% share of the insurance company registered capital;
- Minimal quota of insurance company registered capital in cash. This quota has increased from 300,000 MDL to 2 million MDL (around 138,000 USD), twice the amount established under 1996 modifications. Again the insurance companies shall make the appropriate adjustments within a year and a half;
- Restraints to conduct financial and trade activities.
A special consideration should be given to the transitional provisions of the law providing that insurance companies failing to comply with the requirements within 1 year and a half shall be excluded from the Companies’ State Register, at the request of the State Department overseeing insurance companies. Until that date, the said companies shall comply with their contractual obligations or “transfer their insurance portfolio to other insurance companies”.
The amendments were intended to adjust the legal provisions to the current economic realities, lure foreign investments, etc. However, some experts claim the amendments marked a new stage in the redistribution of interests and dominance on the insurance market.
For instance, it is expected that by excluding the provisions limiting the quota of foreign capital, Moldovan insurance market would seem more attractive to the foreign companies, in particular Russian ones, which already expressed their interest in investing. The increase in the required registered capital would not stop those companies, as 138,000 USD is not a significant amount for a Russian company.
On the other hand, the new provisions would allow legalization of the domestic business savings illegally kept either in foreign bank accounts or in joint ventures. Noteworthy, under the Law on Fighting Money Laundering big money may not be invested in new ventures, however under the recent amendments to the Law on Insurance this money may end up in insurance companies under the form of “foreign investments”, without raising any suspicions of the state bodies.
Later on the insurance company may be liquidated at any time, whereas the investments would become the legalized property of the investor.
Last but not least, by obliging insurance companies failing to comply with the registered capital requirements to transfer their portfolio to other insurance companies operating on the market, authorities aimed for nothing but a disguised redistribution of spheres of interest.