Prevention of bankruptcies in insurance

The Federal Law № 87-FZ dated 23.04.2018 prescribes a package of measures for prevention of bankruptcies of insurance companies, similar to the procedure for financial recovery of banks.

Thus, the law prescribes the creation of the Insurance Sector Consolidation Fund — financed by the Central Bank of the RF and being not a legal entity.

The grounds for the financial recovery of insurance organizations by the Central Bank of the RF will be identified signs of an unstable financial position, threatening the stability of the insurance market as a whole, the interests of policy holders, beneficiaries or other interested persons, or the state.

In such cases, the Central Bank of the RF is entitled to suspend the licenses of insurance companies and appoint temporary administrations, implement measures to prevent bankruptcy, restrict the implementation of transactions aimed at the alienation of property.

The temporary administrations of insurance companies appointed by the Central Bank of the RF may impose moratorium on the satisfaction of creditor’s claims for up to three months from the approval date of the plan of the Central Bank on carrying out measures to prevent bankruptcies.

Insurance companies may be provided with financial assistance to restore their capital to a regulatory ratio of their own funds and liabilities.

In addition, the Central Bank of the RF may acquire shares or stakes in the authorized capital of insurance companies in the volume of more than 75% of shares or 3/4 of stakes in the authorized capital. Such operations are possible only after an increase in the authorized capital to a real value or up to one ruble, by a negative value of capital.

Insurance companies may be sold by the Central Bank of the RF to a new owner upon completion of the procedures of capital increase.

The Federal Law has come into force on June 8, 2018 with the exception of certain provisions, for which other dates of entry into force are specified.

For reference:
The Information and Analytical system Globas contains information on more than 30 000 insurance organizations in Russia. To get acquainted with their activity is possible by subscribing to provide access to the system.

The number of valid licenses for the activities of insurance organizations tends to increase (Picture 1).

Picture 1. The number of valid licenses for the activities of insurance organizations in 2013 — 2017. Source — the Central Bank of the RF as of 16.01.2018.