Mandatory membership of Danish Insurance Guarantee Fund for foreign insurers
Many insurance companies around Europe, which through branches or cross-border services provide (or wish to provide) non-life insurance in Denmark, have recently received information from the Danish Guarantee Fund for non-life insurance, that they - in accordance with the newly enacted revision of The Danish Guarantee Fund for non-life insurance Act - are obliged to be members of the Guarantee Fund and, therefore, have to pay a an entrance fee of DKK 100.000 (“Membership-fee”) no later than 1 March 2019.
Until 1. January 2019 membership of the Fund was voluntary for foreign insurers operating in Denmark under the Freedom of Establishment (FoE) or the Freedom of Service (FoS)principle. However, after a revision of the Act membership has become mandatory for foreign insurers.
The notification to insurers has come as an unwelcome surprise to many insurers around Europe, who does not presently underwrite risks in Denmark, and – in many instances – never has underwritten risks in Denmark. However, in accordance with the legislative history of the revised act it is indeed the purpose of the act to impose the obligation for membership on all non-life insurance undertakings that are “notified to carry out non- life insurance business in Denmark”.
In accordance with article 189 of directive 2009/138/EC (Solvency II) host Member States may require non-life insurance undertakings to join and participate, on the same terms as non-life insurance undertakings authorized in their territories, in any scheme designed to guarantee the payment of insurance claims to insured persons and injured third parties.
The Danish legislators have interpreted this article to allow for the compulsory membership of the Guarantee Fund, and the EU Commission have – according to the Danish Ministry of Justice - approved this interpretation.
As the obligation to be a member of the Guarantee Fund is – solely – based on the insurers notification in respect of being able to (potentially) carry out insurance business in Denmark (on the FoS principle), the obligation to be a member of the Guarantee Fund cannot be avoided by notifying the FSA of the insurers intention to discontinue the possibility of doing cross-border insurance business in the territory of Denmark under the FoS principle. The insurer must in fact specifically unregister with the FSA with regard to the option of carrying out cross-border insurance business for the territory of Denmark.
However, in accordance with the Danish Order nr. 1437 regarding payments to the Guarantee Fund, the obligation to pay the entry fee is established, when the Danish FSA have registered the company as notified (in their own member state) to carry out cross-border non-life insurance business in Denmark (including insurers, who were already registered, when the revised Act came into effect on 1 January 2019).
According to the order the obligation to pay the entry fee to the Guarantee Fund is established in the first annual quarter after which the insurer is registered by the FSA as notified to carry out cross-border non-life insurance business in Denmark. Therefore, the obligation to pay contributions (including the one-time entry fee of DKK 100,000) starts in the first quarter of 2019. The obligation end
s at the end of the financial year, where the FSA has registered that the company/the insurer no longer has given notification within their own member state to carry out cross-border insurance services in Denmark.
This, therefore, means, that the insurer is obligated to pay the contributions until the end of 2019 (which for most insurers “only” will mean payment of the entry fee of DKK 100,000), even if the insurer already at this time cancels the notification with the FSA.