SWEDEN Law and Practice Contributed by: Viveka Classon, Karin Rättzén and Sara Stålebring, Advokatfirman Vinge KB
on a cross-border basis without applying for authori- sation or notifying its home supervisory authority. Undertakings domiciled within the EEA with branch- es in Sweden are subject to financial supervision (ie, where appropriate, supervision of solvency, technical provisions and assets covering technical provisions) from the competent supervisory authority of their home state. However, the Swedish FSA is respon- sible for overseeing in general (and for the general good) that, among other things, the undertakings fulfil their obligation to provide information to their policy- holders. The undertakings are therefore still liable for providing the Swedish FSA with certain information, although not on a continuous basis. In addition, the Swedish FSA monitors the organisation of compliance functions and claims adjustment and complaint pro- cedures of EEA branches in Sweden. Foreign Insurance and Reinsurance Undertakings Authorised and Established Outside the EEA Insurance and reinsurance undertakings domiciled outside the EEA (third-country undertakings) are sub- ject to stricter regulations in Sweden than EEA insur- ers. They may conduct business in Sweden if they have obtained a license from the Swedish FSA. Their business may be conducted through an agency or a branch, but only if a major deposit is made with a Swedish bank. Agreements between Switzerland and the European Union enable Swiss non-life insurance undertakings to be authorised to establish either an agency or a branch in Sweden without a deposit. Fur- ther, according to an agreement between the EU and the US, certain exemptions apply for US insurers and reinsurers. Insurers and reinsurers domiciled outside the EEA may provide cross-border services in Sweden through intermediation by an insurer licensed in Sweden and subject to a specific permit from the Swedish FSA. Further, non-EEA insurers are entitled to provide “pas- sive” insurance services with respect to risks situated in Sweden (ie, the provision of insurance services on the sole initiative of the client) without a licence. The main rule regarding Swedish agencies and branches of undertakings domiciled outside the EEA is that the entire activity in Sweden is to be supervised
by the Swedish FSA since they need a permit to carry on insurance operations in Sweden. 3.2 Fronting Fronting typically refers to a collaboration between two insurance companies where one company (the fronting insurer) issues an insurance policy to the policyholder and assumes the entire insured risk in its own name. However, the fronting insurer trans- fers most or all of the risk to another insurer (usually through a reinsurance agreement) and does not retain the risk on its own balance sheet. This arrangement can be disclosed or undisclosed to the policyholder, depending on the context. In early preparatory work, the legislator noted that fronting did not always align with good business eth- ics. However, this statement must be understood in the context of the fact that fronting, at that time, was rare in Sweden. Since then, reinsurance from abroad has become subject to the provisions of the FIAA, reducing the risk of circumventing authorisation requirements as the inquiry had feared. Additionally, fronting has become more common in Sweden over time, and the industry’s stance on the practice has evolved accordingly. A key condition for fronting to be considered permissible, however, is that there must be no ambiguity regarding the fronting insurer’s direct responsibility to policyholders. Consequently, front- ing cannot, in and of itself, be regarded as an activity devoid of insurance risk. In an opinion issued on 11 July 2017, in the context of Brexit, EIOPA raised concerns that UK undertakings might attempt to establish a foothold in the EU by set- ting up subsidiaries in member states in ways that hin- der effective regulatory oversight. EIOPA warned that such subsidiaries, through under-staffing, outsourcing and reinsurance, run the risk of functioning merely as empty shells. Regarding fronting through subsidiaries of insurers outside the EU, EIOPA has recommended that supervisory authorities require the subsidiaries to retain at least 10% of the risk on their own account, rather than reinsuring all of it.
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