An insurance company is a company that protects the policyholder, and more widely, the insured persons, against the cost of potential loss or financial hardship. The policyholder, the insured persons and the insurance company are bound by a contract called insurance policy. The policyholder commits to pay to the insurance company a certain amount of money, known as the premium, to gain access to the services of the company. The insurance company commits to compensate the financial loss incurred by the insured and/or offers certain type of services in case the insured persons face certain specific situations set out in advance in the insurance policy (see article 1 of the law of 27 July 1997 on the insurance contract for a full definition).
In Luxembourg, the law distinguishes between life insurance business and non-life insurance business. These businesses must not be exercised simultaneously by one legal entity.
Before starting its operations, a Luxembourg insurance company must be authorised by the Minister of Finance via the local supervisory authority (see below).
The Commissariat aux Assurances (CAA) is in charge of the prudential supervision of Luxembourg based insurance companies. Any substantial modification to the action plan, change to the Articles of incorporation or other alteration to the information communicated at the time authorisation was requested, must be brought to the prior attention of the supervisory authority (article 49 (2) of the law on the insurance sector).
The legal framework of insurance companies is governed by:
As well as by implementing regulations:
All insurance related regulations are available on the website of the CAA: www.caa.lu
Article 47 of the law of 7 December 2015, as modified, identifies the legal forms that can be adopted by an insurance company.
A Luxembourg domiciled insurance company must have its central administration in the Grand Duchy (article 51 of the law of 7 December 2015). In addition, it must comply with robust administrative and accounting organisation and adequate internal auditing procedures (articles 44 et seq. of the law of 7 December 2015).
The suitability of shareholders, both direct and indirect, who hold a qualifying holding or who are in a position to exercise a significant influence over the conduct of business, must be satisfactory, taken into consideration the need to ensure the sound and prudent management of the company (articles 53, 87, 89 & 91 of the law on the insurance sector).
In the case of a change in the shareholder structure, information relating to the proposed shareholders must be submitted to the CAA, such as (see articles 87 and 89 of the law on the insurance sector for the full list of information to provide):
The company must be managed by a board of directors. The proficiency and professional standing of the members of the board are established by means of a curriculum vitae and a copy of their police record (articles 274 et seq. of the law on the insurance sector). There is no requirement for the members of the Board of Directors to be Luxembourg residents, even though the presence of at least one Luxembourg resident director can be helpful in dealings with local authorities.
The day to day management of an insurance company is undertaken by a natural person who has been appointed to the role of dirigeant agréé (approved manager). The approved manager must receive prior approval from the Minister of Finance (article 273 of the law on the insurance sector).
In order to be authorised as approved manager of an insurance company, a person must have the required professional knowledge, professional morality and integrity and must be domiciled in or near the Grand Duchy of Luxembourg (see articles 274 et sec. of the law on the insurance sector).
Assets covering the technical provisions of the insurance undertaking must be deposited with a custodian bank approved by the CAA (Article 117 (2) of the law on the insurance sector and Circular letter 16/9). These assets are pledged in favour of the policyholders and other beneficiaries of insurance contracts who benefit from an absolute priority on these assets (Article 118 of the law on the insurance sector).
The annual accounts must be submitted for auditing by an independent auditor. The auditor must be selected from a list authorised by the CAA (articles 94 & 95 of the law on the insurance sector).
Prior to starting activities, an application must be submitted to the CAA for examination and approval (see articles 44 et seq. of the law on the insurance sector and Regulation 15/3 of the CAA).
The application should include a number of documents, such as:
A business plan containing, in particular, the following:
In order to obtain authorisation an insurance company must have a fully paid up capital computed in accordance with the requirements of Regulation (UE) 2015/35. This minimum capital requirement should not be less than EUR 2,500,000 for non-life businesses, and EUR 3,700,000 for life businesses (articles 49 & 112 of the law on the insurance sector; article 52 of the CAA Regulation of 7 December 2015).