Draft

Draft Official translation REPUBLIC OF LITHUANIA LAW ON INSURANCE 18 September 2003 No.IX-1737 Vilnius CHAPTER I GENERAL PROVISIONS Article 1. Objective of the Law 1. The objective of this Law is to regulate the insurance and insurance mediation activity with a view to making the insurance system credible, efficient, safe and stable. 2. The Law shall specify persons who have the right to engage in the business of insurance and reinsurance as well as insurance and reinsurance mediation in the Republic of Lithuania, determine the main principles of state regulation of these activity, regulate these activity and its characteristic features which a public company, a private company or a European company (Societas Europaea) engaged in insurance or independent insurance mediation activity must conform to. This Law shall also regulate characteristic features of pre-contractual relations between parties to the contract, the terms and conditions of the insurance contract, the relations arising from insurance contracts and relating to them as well as other relations set out in this Law. 3. The provisions of this Law shall not apply to: 1) state social insurance relations; 2) relations regulated by the Law on Insurance of Deposits and Liabilities to Investors. 4. Specific features of the establishment, licensing, activity, winding-up, bankruptcy and state supervision of entities having the right to engage in the business of accumulation of a portion of the state social insurance contribution, shall be established by other laws. 5. Specific features of insurance activity of certain insurance companies may be established by other laws. 6. The activity related to pension accumulation which is set out in subparagraph 5, paragraph 2, Article 7 of this Law shall be regulated by other laws of the Republic of Lithuania. 7. The provisions of the Law on Companies shall apply to the relations regulated by this Law to the extent this Law does not provide otherwise. Article 2. Definitions 1. Insured person - in life and health insurance - the natural person specified in the insurance contract to whom, upon occurrence of an insured event in his life, the insurer must pay a benefit; in insurance against civil liability - the person specified in the insurance contract whose property interests related to civil liability are covered by insurance; in property insurance - the person specified in the insurance contract whose property interests are covered by insurance. 2. Required solvency margin - the amount of solvency margin calculated according to the procedures prescribed by legal acts which must be commensurate with the scope and character of the insurer’s activity. 3. Civil liability insurance - the insurance of property interests related to civil liability for the damage caused to the injured party or its property where the amount of the benefit paid by the insurer depends on the amount of the indemnity which the insured person must pay to the third party for the damage, which, however, must be within the limits of the insurance sum if it specified in the contract. 4. Participating undertaking: 1) a parent undertaking; 2) an undertaking holding participation in any other undertaking in any of the forms set out in paragraph 5 of this Article; 3) an undertaking which, though not related to any another undertaking or undertakings referred to in paragraphs 28 and 48 of this Article, is managed in conjunction with these companies under the contracts or provisions of the memorandums or articles of association; 4) an undertaking which, though not related to any other undertaking or undertakings referred to in paragraphs 28 and 48 of this Article, but in which the majority of members of its administration, management or supervisory bodies have been the same as in another company or other undertakings throughout the financial year until the drafting of consolidated financial accounts. 5. Participation - a direct or indirect holding of 20% or more voting rights at the meeting of the highest managing body or 20% or more of the share/member share capital of the undertaking, as well as any other real and long-term possibility to exercise influence over the decisions related to the activity of the undertaking both as a shareholder/participant and a holder of any other rights related to the share/member share capital. 6. Large insurance risk – insurance risk under the criteria set out in Article 10 of this Law. 7. Policyholder - a person who has applied to the insurer in order to conclude an insurance contract, or who has received an offer from the insurer to conclude an insurance contract, or who has concluded an insurance contract with the insurer. 8. Insurer - a person authorised under law to engage in insurance activity. 9. Insurer’s surplus share/bonus - the amount of the insurer’s earnings due to a policyholder/beneficiary in the cases provided in a capital accumulation life assurance contract, calculated and paid according to the procedure provided in the contract. 10. Insurers’ Bureau - an association of insurers who are engaged in the activity of the insurance class specified in subparagraph 10, paragraph 3, Article 7 of this Law in the Republic of Lithuania other than carriers liability insurance, established according to the procedure provided by laws, or an analogous association of any another European Union Member State. 11. Insured event - an event specified in the insurance contract upon occurrence of which the insurer is obliged to pay the benefit. 12. Cover - the commitment of the insurer to pay a benefit upon occurrence of an insured event. 13. Premium - the amount of money specified in the insurance contract which the policyholder pays to the insurer for the coverage. 14. Insurance undertaking – an undertaking which, according to the procedure prescribed by this Law, has been granted a licence to engage in insurance activity. 15. Insurable interest – a loss that the policyholder, the insured person, or the beneficiary may incur upon occurrence of an insured event. 16. Benefit - an amount of money which the insurer must pay, according to the procedure specified in the insurance contract, to the policyholder or another person who is entitled to the insurance benefit upon occurrence of an insured event, or any other form of payment of benefit provided in the insurance contract.8 17. Insurance holding company - a parent undertaking which is not a mixed-activity holding company yet the main business of which is to acquire and hold participations in subsidiary undertakings, where those subsidiary undertakings are exclusively or mainly insurance undertakings, insurance, reinsurance undertakings of any other European Union Member State or non-member-country insurance undertakings, one at least of such subsidiary undertakings being an insurance undertaking of another EU Member State or a non-member country. 18. Insurance period - the time interval from the beginning until the end of insurance coverage, which does not necessarily coincide with the term of the insurance contract. 19. Insurance policy - the document issued by the insurer certifying conclusion of the insurance contract. 20. Insurance object - property interests related to a person’s life, health, property, or liability. 21. Insurance risk - a peril threatening to the insurance object. 22. Sum insured - the sum of money specified in the insurance contract or the sum of money which is calculated by the method specified in the insurance contract, which, except for the cases provided in the contract, shall be equal to the maximum benefit which may be paid under the insurance contract. 23. Insurance policy conditions - standard insurance contract conditions drafted by the insurer. 24. Insurance intermediary - a person performing insurance mediation activity for a certain payment 25. Insurance mediation - the commercial economic activity of introducing, proposing or carrying out other work preparatory to the conclusion of contracts of insurance, or of concluding such contracts, or of assisting in the administration and performance of such contracts, in particular in the event of a claim. This activity when undertaken by an insurance undertaking or an employee of an insurance undertaking shall not be considered as insurance mediation. The provision of information on an incidental basis in another professional activity, provided that the purpose of the activity is not to assist the customer in concluding or performing an insurance contract, the management of claims of an insurance undertaking on the basis of a contract with the insurer, loss adjusting and expert appraisal of claims shall not be considered as insurance mediation. . 26. Technical provisions – insurer’s obligations arising from insurance and/or reinsurance contracts or relating to them which are calculated following the procedure set out by legal acts. 27. Insurance activity - economic-commercial activity whereby the risk of the losses of other persons is assumed in the form of the insurance contract or it is sought to protect property interests of these persons in any other way upon occurrence of insured events, by using for the security of those interests, the insurer’s assets covering technical provisions and other assets. For the purposes of this Law, insurance activity shall also be the activity set out in subparagraph 5, paragraph 2, Article 7 of this Law. The concept “insurance activity” in this Law shall not include reinsurance. 28. Subsidiary - an undertaking which meets at least one of the criteria listed bellow: 1) an undertaking in which another undertaking has a majority of voting rights of its shareholders or other participants; 2) an undertaking in which another undertaking, a shareholder/participant of the first, has the right to appoint and recall the majority of members of the administration, management or supervisory body of the first undertaking; 3) an undertaking over which, under the provisions of its memorandum, articles of association or contracts concluded with another company, an undertaking may exercise a dominant influence; 4) an undertaking in which another undertaking, under contracts concluded with its shareholders/participants, controls the majority of its shareholders’/participants’ voting rights; 5) an undertaking over which, in the opinion of the competent authority, another undertaking is exercising a dominant influence; 6) an undertaking which, under the criteria of paragraphs 1 - 5, is a subsidiary of a subsidiary. In this case, it shall be considered a subsidiary of the parent undertaking whose subsidiary has a subsidiary.        29. European Union Member State - the Republic of Lithuania or any other state that is a member of the European Union. For the purposes of this Law, the concept of the Member State of the European Union shall also include states of the European Economic Area. 30. European Union Member State where the risk is situated – a Member State of the European Union, where: 1) property is situated when an insurance contract relates to buildings or buildings together with property in them, if this property is insured under the same insurance contract; 2) a vehicle of any type related to an insurance contract is registered; 3) the policyholder has concluded an insurance contract for not longer than four months for travel or holiday risks, irrespective of the insurance class these risks might belong; 4) the policyholder’s permanent place of residence, his head office, a branch or agency that are related to the insurance contract is located only in all other cases except which have not been specified in subparagraphs 1-3 of this paragraph. 31. European Union Member State of provision of services - a Member State of the European Union where the risk is situated or a European Union Member State of commitment under a life insurance contract, if the insurance contract regarding that risk or commitment is concluded not by an insurance undertaking of this European Union Member State, or a branch of an insurance undertaking established in this European Union Member State, or a branch of an insurance undertaking of another European Union Member State. 32. Guarantee fund - the reserve of an association of insurers engaged in the insurance class specified in subparagraph 10, paragraph 3, Article 7 of this Law, except carriers’ liability insurance, in the Republic of Lithuania, or any other analogous formation provided by legislation of any other European Union Member State. 33. Life assurance - the insurance of property interests related to life and/or capital accumulation of a natural person where due to insured events, such as death of the insured, maturity of the insurance term established in the insurance contract or other insured event, insurance benefits are paid in lump sum or in instalments. 34. Close link - a situation in which persons are linked by control or participation. If one person controls two or more persons it is considered that there is a close link between these persons. 35. Group of companies - a group of undertakings which consists a parent undertaking, its subsidiaries and undertakings in which the parent undertaking or its subsidiaries hold a participation in the manner specified in the manner specified in paragraph 4 of this Article. 36. Measures involving intervention - measures applied by the court or the Insurance Supervisory Commission of the Republic of Lithuania (hereinafter – “the Supervisory Commission” in order to preserve or restore the financial position of an insurance undertaking or a subsidiary of a non-member-country insurance undertaking and the interests of policyholders, the insured persons, beneficiaries, the injured party or other creditors or to implement the objectives established in Article 2.124 of the Civil Code, and which due to their nature have an effect on the rights and obligations of the persons of undertakings other than the insurance undertaking itself or a branch of a non-member-country insurance undertaking. 37. European Union Member State of the commitment under a life insurance contract - a Member State of the European Union, where a permanent place of residence or the head office of the policyholder related to the life assurance contract is situated. 38. Surrender value - the sum calculated by actuarial/mathematical methods with regard to part of paid insurance premiums intended for capital accumulation, the interest accrued during the contract term, the part of the insurer’s profit due to the policyholder under the contract and other elements specified in the insurance contract. 39. Another European Union Member State - a European Union Member State other than the Republic of Lithuania. 40. Insurance undertaking of another European Union Member State – an undertaking that has a right to carry out insurance activity under legal acts of the said Member State. 41. Competent authority – the authority which supervises insurance, insurance or reinsurance mediation activity. The Insurance Supervisory Commission of the Republic of Lithuania shall be the competent authority of the Republic of Lithuania. 42. Control – the relationship between a parent undertaking and a subsidiary, as defined in paragraphs 28 – 48 of this Article, or a similar relationship between any natural or legal person and an undertaking. Control may be direct and indirect. 43. Mixed-activity insurance holding company – a parent undertaking other than an insurance undertaking, an insurance undertaking of another European Union Member State, an insurance undertaking of a non-member country, a reinsurance undertaking, an insurance holding company or a mixed-activity financial holding company, under condition that at least one of its subsidiaries is an insurance undertaking of another European Union Member State or an insurance undertaking of a non-member country. 44. Solvency margin– the insurer’s assets which exceed obligations arising from insurance and/or reinsurance contracts. 45. Beneficiary - the person specified in the insurance contract or the person appointed by the policyholder and, in the cases specified in the contract, also the person appointed by the insured who is entitled to the benefit upon occurrence of the insured event. 46. Irrevocable beneficiary - the beneficiary who may not be revoked or replaced unilaterally, at the discretion of the policyholder or, in the cases specified in the insurance contract - of the insured person, without prior consent of the beneficiary. 47. Injured party - in civil liability insurance - the person who has been caused damage or injury by the policyholder or the insured person. 48. Parent undertaking – an undertaking which meets at least one of the criteria listed below: 1) it has the majority of shareholders’ or other participating votes in another undertaking; 2) as a shareholder/participant of another undertaking, it has the right to appoint and recall the majority of members of administration, managing and supervisory bodies of that undertaking; 3) it may exercise a significant influence over another undertaking because of the contracts concluded with that undertaking, the provisions of the incorporation instrument or of the articles of association of that undertaking; 4) under the contracts concluded with the shareholders/participants of another undertaking, it has control over the majority of votes of that undertaking’s shareholders/participants; 5) in the opinion of a competent authority the undertaking exercises an effective influence over another undertaking. 49. Reinsurance – a type of insurance, where, for an insurance premium, insurer’s anticipated risk of claims payment or other loss conditioned by its activity is accepted. 50. Reinsurance undertaking - an undertaking, other than that indicated in paragraphs 14, 40 or 61 of this Article, whose principal activity is claims payment or acceptance of other loss of insurance activity risk, or acceptance of other reinsurance loss risk when engaged in reinsurance of these risks in respect of insurance undertakings, insurance undertakings of other European Union Member States, and non-member country insurance undertakings. 51. Reinsurance intermediary - a person engaged in reinsurance mediation activity for payment. 52. Reinsurance mediation - the economic commercial activity of introducing, proposing or carrying out other work preparatory to the conclusion of contracts of reinsurance, or of concluding such contracts, or of assisting in the administration and performance of such contracts, in particular in the event of a claim. These activity when undertaken by an insurance undertaking or an employee of a reinsurance undertaking who is acting under the responsibility of the reinsurance undertaking are not considered as reinsurance mediation. The provision of information on an incidental basis in the context of another professional activity provided that the purpose of the activity is not to assist the customer in concluding or performing as reinsurance contract, the management of claims of a reinsurance undertaking on the basis of a contract with the insurer, and loss adjusting and expert appraisal of claims shall also not be considered as reinsurance mediation. 53. Dependent insurance intermediary – any person who carries on the activity of insurance mediation for and on behalf of one or more insurance undertakings and their interests. Any person who carries on the activity of insurance mediation for and on behalf of one or more insurance undertakings and in their interests, in addition to his principal professional activity, is also considered a dependent insurance intermediary if the insurance is complementary to the goods and services supplied within the framework of this professional activity 54. Right of establishment - the right to establish in another European Union Member State a subsidiary or a branch of an insurance undertaking, a subsidiary or a branch of an undertaking of insurance intermediaries, or the right to establish in the Republic of Lithuania a subsidiary or a branch of an insurance undertaking of another European Union Member State, a subsidiary or a branch of an undertaking of insurance intermediaries of another European Union Member State. 55. Related undertaking – a subsidiary or other undertaking in which a participation is held by another undertaking in the manner specified in paragraph 4 of this Article. 56. Health insurance - insurance of property interests related to health of a natural person where due to insured events related to health of the person a benefit is paid in the amount of the sum insured or its part, or in the amount of the loss resulting from an insured event. Health insurance shall include accident insurance and sickness insurance. 57. Right to provide services – the right of an insurance undertaking to engage in insurance activity in another European Union Member State without establishing a subsidiary or a branch, the right of insurance intermediaries to engage in insurance mediation activity in another European Union Member State without establishing a subsidiary or a branch of insurance intermediaries, or the right of an insurance undertaking of another European Union Member State to engage in insurance activity in the Republic of Lithuania without establishing a subsidiary or a branch of an insurance undertaking, and the right of insurance intermediaries of another European Union Member State to engage in insurance mediation activity in the Republic of Lithuania without establishing a subsidiary or a branch of insurance intermediaries. 58. Available solvency margin – the amount of the insurer’s assets in excess of his obligations, arising from insurance and/or reinsurance contracts and calculated in accordance with the procedure set out in legal acts. 59. Property insurance - insurance of a person’s property interests where the amount of the benefit depends, within the limits of the sum insured, on the amount of the loss and other expenses incurred by the person. 60.non-member country - a country which is not a Member State of the European Union or of the European Economic Area. 61. Insurance undertaking of a non-member country – an undertaking engaged in insurance activity, registered in a non-member country, which, according to the nature of its activity should have to obtain a licence to engage in insurance activity as set out in this Law or an equivalent authorisation if it were registered in the Republic of Lithuania or any other European Union Member State.             Article 3. Insurance Activity 1. The following shall have the right to engage in insurance activity in the Republic of Lithuania: 1) insurance undertakings - public companies, private companies, and European companies (Societas Europaea) established in the manner prescribed by laws of the Republic of Lithuania and which have obtained a licence to engage in insurance activity according to the procedures set out in this Law; 2) insurance undertakings of other European Union Member States, exercising  the right of establishment and/or the right to provide services. 3) branches of insurance undertakings of foreign countries established in the Republic of Lithuania having a licence to carry on insurance activity as branches according to the procedure prescribed by this Law. 2. The entities referred to in paragraph 1 of this Article may not engage in the Republic of Lithuania in any other commercial economic activity other than insurance, reinsurance and related activity - management of insured and reinsured events, insurance and reinsurance mediation, consulting on questions relating to insurance and reinsurance, mediation in concluding pension accumulation contracts save supplementary voluntary accumulation, training insurance and reinsurance specialists, in-service training, as well as leasing of immovable property and valuation of property to be insured. 3. Persons referred to in paragraph 1 of this Article may engage in insurance-related insurance mediation activity only as dependent insurance intermediaries. 4. All other persons not named in this Law shall be prohibited from carrying on insurance activity in the Republic of Lithuania, except in the cases established by the Supervisory Commission, where the insurance coverage by a branch of a non-member- country insurance undertaking established in the Republic of Lithuania or a branch of an insurance undertaking of another Member State of the European Union is not recognised due to compulsory insurance in a  non-member country. Article 4. Reinsurance Activity In the Republic of Lithuania, only entities referred to in paragraph 1 of Article 3 of this Law as well as those listed below shall have the right to engage in reinsurance activity: 1) reinsurance companies of the Republic of Lithuania; 2) reinsurance companies of other European Union Member States both those which have established a branch in the Republic of Lithuania and those which have not; 3) non-member country reinsurance companies both those which have established a branch in the Republic of Lithuania and those which have not. Article 5. Insurance and Reinsurance Mediation Activity 1. In the Republic of Lithuania, only the following shall have the right to engage in mediation activity: 1) undertakings (insurance agents undertakings) of any legal form established according to the laws of the Republic of Lithuania and natural persons, who are engaged in insurance mediation activity (insurance agents) according to the procedures established by laws of the Republic of Lithuania. Insurance agents companies and insurance agents shall be dependent insurance intermediaries; 2) insurance brokers undertakings established according to the procedures prescribed by laws of the Republic of Lithuania, such as public companies, private companies and European companies which have obtained a licence to engage in insurance brokers activity according to the procedure set out in this Law. Insurance brokers undertakings shall be independent insurance intermediaries;                                                                   3) insurance intermediaries of other European Union Member States which carry on insurance mediation activity in the Republic of Lithuania, exercising the right of establishment and/or the right to provide services; 4) branches of insurance intermediaries of foreign countries established in the Republic of Lithuania. 2. In the Republic of Lithuania, only persons referred to paragraph 1 of Article 3 and paragraph 1 of Article 5 of this Law as well as the persons listed below shall have the right to engage in reinsurance mediation: 1) insurance brokers undertakings; 2) reinsurance intermediaries of other European Union Member States which are engaged in reinsurance mediation activity in the Republic of Lithuania both those which have established a branch and those which have not; 3) reinsurance intermediaries of foreign states, which have not established a branch in the Republic of Lithuania, or branches of insurance intermediaries and/or reinsurance intermediaries of foreign countries established in the Republic of Lithuania. 3. Insurance undertakings or branches of insurance undertakings of foreign countries, insurance companies of other European Union Member States exercising the of establishment and/or the right to provide services shall be prohibited from using the services of persons who do not have the right to be engaged in insurance or reinsurance mediation activity. Article 6. Agencies The procedures set out in this Law regarding establishment of branches, their activity and supervision of the activity shall be applicable to the agencies or any other offices managed by the employees and persons of the founding undertaking, who have a permanent or a long-term authorisation to operate on behalf of the undertaking they represent, where: 1) the agency or office is being founded in another Member State of the European Union by an insurance undertaking or an undertaking of insurance intermediaries of the Republic of Lithuania; 2) the agency or office in the Republic of Lithuania is being founded by an insurance undertaking or an undertaking of insurance intermediaries of another Member State of the European Union. Article 7. Branches and Classes of Insurance 1. Insurance branches shall be life assurance and non-life insurance. 2. Life assurance shall comprise the following assurance classes: 1) life assurance other than provided in classes 2 - 5; 2) marriage and birth insurance; 3) life assurance related to investment funds (when the investment risk is borne by the policyholder); 4) tontines; 5) accumulation of pensions activity. 3. Non-life insurance shall comprise the following insurance classes: 1) accident insurance; 2) sickness insurance; 3) land vehicles (other than railway rolling stock)insurance; 4) railway rolling stock insurance; 5) aircraft insurance; 6) ships (sea and internal waters) insurance; 7) goods in transit insurance; 8) property (other than in subparagraphs 3, 4, 5, 6 and 7) insurance against fire and natural forces; 9) property insurance against other risks (other than in subparagraph 8); 10) liability arising out of the use of motor vehicles operating on the land;; 11) liability arising out of the use of aircraft; 12) liability arising out of the use of ships (sea and internal waters); 13) general liability insurance; 14) credit insurance; 15) suretyship insurance; 16) financial loss insurance; 17) legal expenses insurance; 18) assistance insurance. 4. Where the licence for insurance activity or the authorisation for the activity of a branch of a non-member-country insurance undertaking simultaneously covers: 1) insurance classes in subparagraphs 1 and 2, paragraph 3 of this Article, it shall be named accident and sickness insurance (health insurance); 2) insurance class in subparagraph 1, paragraph 3 of this Article covering passenger injury insurance and insurance classes in subparagraphs 3, 7 and 10, paragraph 3 of this Article shall be named motor insurance; 3) insurance class in subparagraph 1, paragraph 3 of this Article covering passenger injury insurance and classes in subparagraphs 4, 6, 7 and 12, paragraph 3 of this Article shall be named marine and transport insurance; 4) insurance class in subparagraph 1, paragraph 3 of this Article covering passenger injury insurance and classes in subparagraphs 5, 7, and 11, paragraph 3 of this Article shall be named aviation insurance; 5) insurance classes in subparagraphs 8 and 9, paragraph 3 of this Article shall be named fire and other damage to (destruction of) property; 6) insurance classes in subparagraphs 10, 11, 12 and 13, paragraph 3 of this Article shall be named liability insurance; 7) insurance classes in subparagraphs 14 and 15, paragraph 3 of this Article shall be named credit and suretyship insurance; 8) all insurance classes in paragraph 3 of this Article shall be named non-life insurance risks insurance. 5. The Supervisory Commission shall approve the description of life assurance and non-life insurance classes which shall be observed by insurance undertakings and branches of foreign insurance undertakings. Article 8. Difference Between Life and Non-Life Insurance Activity in the Republic of Lithuania 1. None of the entities specified in paragraph 1 Article 3 of this Law, shall have the right to engage in both life and non-life insurance, save for the cases and exceptions referred to in paragraph 2 of this Article, and paragraph 3, Article 224 of this Law, where the legislation of a Member State of the European Union authorises an insurance undertaking of another European Union Member State to carry on both life and non-life insurance activity. 2. The entities referred to in paragraph 1, Article 3 of this Law, which are engaged in life insurance shall also have the right to engage only in the activity of non life insurance classes indicated in subparagraphs 1 and 2, paragraph 3, Article 7 of this Law following the procedure established by laws. 3. Insurance undertakings and branches of insurance undertakings of foreign countries must follow the rules of life-assurance activity and the rules of separate administration of non-life insurance classes listed in subparagraphs 1 and 2, paragraph 3, Article 7 of this Law, approved by the Supervisory Commission Article 9. Ancillary Insurance Risks of Non-Life Insurance 1. An insurance undertaking which has a licence to engage in insurance activity, or a branch of a non-member-country insurance undertaking having an authorisation for insurance activity of a branch granted for carrying on the insurance activity of the principal risk belonging to the non-life insurance class or a group of classes, shall have the right, without changing the licence for insurance activity or the authorisation for the insurance activity of the branch, to conclude insurance contracts for ancillary insurance risks belonging to other insurance classes of non-life insurance provided that the following conditions are met: 1) ancillary insurance risk is connected with the principal insurance risk; 2) ancillary insurance risk concerns the object which is covered against the principal risk; 3) ancillary risk is covered by the insurance contract insuring the principal risk. 2. The risks of insurance classes listed in subparagraphs 14, 15, and 17, paragraph 3, Article 7 of this Law may not be regarded as risks ancillary to other classes, with the exception of cases indicated in paragraphs 3 and 4 of this Article. 3. Insurance risk belonging to the insurance class in subparagraph 17, paragraph 3 of Article 7 of this Law may be considered as ancillary to the risks of insurance class referred to in subparagraph 18, paragraph 3, Article 7 of this Law only when the conditions specified in paragraph 1 of this Article are fulfilled, and when the principal risk is exclusively related to providing assistance to persons who encounter difficulties while travelling, while away from home or from their permanent place of residence. 4. Insurance risk belonging to the insurance class referred to in subparagraph 17, paragraph 3, Article 7 of this Law, may also be considered ancillary insurance risk only when the conditions specified in paragraph 1 of this Article are fulfilled and when it is related to arguments or risks which arise out of or are related to the use of sea vessels. Article 10. Large Insurance Risk 1. Insurance risk shall be considered large if it belongs to the following: 1) insurance classes specified in subparagraphs 4, 5, 6, 7, 11, and 12, paragraph 3, Article 7 of this Law; 2) insurance classes referred to in subparagraphs 14 and 15, paragraph 3, Article 7 of this Law, where the policyholder is involved in commercial activity or is a self-employed professional, and the insurance risks are related to this activity. 2. An insurance risk shall also be considered large if it belongs to the insurance class referred to in subparagraphs 3, 8, 9, 10, 13, and 16, paragraph 3, Article 7 of this Law, and the insurer of the risk of this group exceeds at least two of the following values: 1) the amount of assets indicated in the balance sheet of the policyholder is at least EUR 6 200 000; 2) the net assets of the policyholder totals or exceeds EUR 12 800 000; 3) the average number of personnel employed by the policyholder is at least 250 during the accounting year. 3. If the policyholder belongs to a group of persons the consolidated accounts of which are made in compliance with the requirements set forth in the Law on Consolidated Accounts of Enterprises or in an equivalent legal act of another Member State of the European Union, the values referred to in paragraph 2 of this Article shall be established on the basis of the values set out in the consolidated accounts. Article 11. Evaluation of Good Repute, Professional Qualifications and Experience 1.   A natural person shall not be considered of good repute if: 1) he has been convicted for any premeditated criminal acts, has previous convictions for administrative offences relating to property, commerce, finance, accounting and statistics; 2) a disciplinary sanction to dismiss this person from his position or an official sanction to dismiss him from office is still effective; 3) the person abuses narcotic, toxic, psychotropic substances or alcohol; 4) there are other important reasons why the person may not be considered of good repute. 2. A legal person shall not be considered of good repute where: 1) he has incurred criminal or administrative liability; 2) members of the managing bodies of this person and natural persons supervising this legal person are not of good repute, and the legal person supervising this legal person has incurred criminal or administrative liability; 3) there are other important reasons why this person may not be considered of good repute. 3. When evaluating professional qualifications and experience of a natural person, the entities provided for in this Law shall take into consideration the person’s educational background, the positions held, length of service and other factors which may have influence on the professional qualifications and experience of the person. 4. When good repute, professional qualifications and experience is evaluated by the Supervisory Commission, the information about the person’s good repute, professional qualifications and experience shall be submitted in special forms set by the Supervisory Commission. When verification of the data provided in the forms is needed, the Supervisory Commission must have the right to request the person to provide additional documentation and information essential for the assessment of good repute, professional qualifications and experience as well as the right to seek that information from the persons specified in Article 196 of this Law. CHAPTER II INSURANCE UNDERTAKINGS OF THE REPUBLIC OF LITHUANIA SECTION ONE LICENCE TO ENGAGE IN INSURANCE ACTIVITY Article 12. Licence to Engage in Insurance Activity 1. An insurance undertaking shall have the right to engage in insurance activity in the Republic of Lithuania subject to a licence to engage in insurance activity granted by the Supervisory Commission. The Supervisory Commission shall establish the rules of licensing of insurance activity. 2.   A licence for insurance activity shall be granted: 1) to a public company, private company or a European company which is being incorporated; 2) to a new public company, private company, or a European company to be operated upon the reorganisation of legal persons; 3) to a public company, private company or European company which is changing its type of business into insurance activity. 3. A licence for insurance activity shall also be effective in all the other European Union Member States, providing the right to engage in insurance activity through exercising the right of establishment and/or the right to provide services under the conditions specified in this Section V of this Chapter. 4. A licence for insurance activity shall be issued to engage in insurance activity of the entire insurance class or several groups, belonging to branches of life assurance or non-life insurance, except for the cases when the applicant is willing to engage in insurance of only some risks belonging to the insurance class/classes. 5. A licence to engage in insurance activity shall be issued for an indefinite period of time. 6. A licence to engage in insurance activity shall be issued only for a particular insurance undertaking and may not be transferred to another person. 7. The form of a licence to engage in insurance activity shall be established by the Supervisory Commission. 8. An insurance undertaking which is to be incorporated may be registered in the Register of Legal Persons, and, where the licence for insurance activity is issued not to the undertaking about to be incorporated, appropriate changes in the Register of Legal Persons may be made only upon granting the licence for insurance activity. 9. The Supervisory Commission must inform the Register of Legal Persons about the granting, suspension or withdrawal of a licence according to the procedure set out in the regulations of the Register of Legal Persons. 10. The insurance undertaking must, within 5 working days, inform the Supervisory Commission about the registration in the Register of Legal Persons. 11. The instruments of incorporation of the insurance undertaking shall become invalid if they are not submitted to the Register of Legal Persons within nine months from the date of their execution. Article 13. Name of the Insurance Undertaking The name of an insurance undertaking must contain the word “insurance”. No other legal person shall have the right to use in its name this word or the combination “insurance undertaking” or a similar phrase, save for the exceptions provided by law. Article 14. Application for Licence to Engage in Insurance Activity 1. Applicants must submit an application to the Supervisory Commission for a licence to engage in insurance activity. 2. The application for a licence shall be accompanied by the following documents and information in writing: 1) articles of association and the memorandum of association of the insurance undertaking; 2) a scheme of operations of the contents and form prescribed by the Supervisory Commission; 3) information in the form prescribed by the Supervisory Commission about the controlling persons of the insurance undertaking, the participating undertakings and all the other shareholders. Information shall also be submitted about the members of the controlling legal persons as well as of the supervisory and management bodies of the participating undertakings; 4) information in the form prescribed by the Supervisory Commission about the chairman and other members of the supervisory board, the chairman and other members of the board, and the head of administration of the insurance undertaking; 5) information in the form prescribed by the Supervisory Commission about the chief financier and chief actuary; 6) documents certifying the accumulation in currency of the organisational fund of the insurance undertaking, its use and balance; 7) documents certifying the payment in currency for shares of the insurance undertaking to be incorporated; 8) information about the origin of the organisational fund and the currency used to pay for the shares of the insurance undertaking to be incorporated or to form its authorised capital; 9) contracts concluded on behalf of the insurance undertaking as specified in paragraph 1, Article 27 of this Law; 10) documents attesting payment of the state charge for the licence to engage in insurance activity; 11) where the insurance undertaking intends to engage in the insurance class listed in subparagraph 10, paragraph 3 of Article 7, except carriers’ liability insurance, the documents attesting that the insurance undertaking has its representatives with adequate authorisations appointed in every European Union member state for settlement of claims. 3. Where the founder is a legal person, the following shall be submitted in addition: 1) a transcript of the registration certificate or any other equivalent document of the founder; 2) financial statements of the founder for the last year along with an auditor’s opinion. This provision shall not apply where the founder is neither a controlling nor a participating undertaking of the insurance undertaking to be incorporated. 4. Where the insurance undertaking or legal persons are reorganised into a new legal person – an insurance undertaking or where a public company, a private company or a European company change the type of their activity into insurance business, the documents listed in subparagraph 7, paragraph 2 of this Article need not be submitted, yet, the following must be submitted in addition: 1) terms and conditions of reorganisation, the decision on reorganisation or changing of the type of the activity of the legal person; 2) a transcript of the registration certificate or any other equivalent document of each legal person, description of their previous activity, financial statements for the last year along with an auditor’s opinion if the Supervisory Commission has no right to obtain financial statements from the Register of Legal Persons in accordance with the procedure prescribed by legal acts; 3) information about the controlling persons of each legal person, their participating undertakings and all other shareholders; 4) documents certifying that the funds of the insurance undertaking are not less than the organisational fund and the authorised capital as provided in this Law as well as the information about the origin of the funds; 5) proof of tax payment and debts to creditors of each legal person. 5. Where an insurance undertaking of a foreign state is the founder of a subsidiary, it must, in addition, submit: 1) a licence for insurance activity or any other equivalent document issued by competent authorities of the foreign state; 2) an authorisation for the establishment of the insurance undertaking in the Republic of Lithuania issued by competent authorities of the foreign state or the information that the institution does not object to the establishment of a subsidiary of an insurance undertaking in the Republic of Lithuania. 6. The minimum guarantee fund of an insurance undertaking seeking a licence to engage in insurance activity is to include, when calculating it, the funds received after the payment of shares, or the funds provided for the authorised capital of the insurance undertaking as specified in paragraph 4, subparagraph 4 of this Article, must be in the amounts specified in subparagraph 3 of Article 39, having regard to the insurance classes which are contemplated. The assets of the organisational fund shall not be included when determining the minimum guarantee fund. The applicants must submit the documents testifying that the guarantee fund has been formed in currency as well as the origin of the assets. Article 15. Issuance of a Licence to Engage in Insurance Activity 1. Within six months from the submission of the application and all relevant documents for the issue of a licence to engage in insurance activity the Supervisory Commission shall adopt a decision concerning the issue of a licence to engage in insurance activity and inform the applicant thereof in writing. 2. The Supervisory Commission shall refuse to issue a licence to engage in insurance activity where: 1) the documents prescribed by this Law or the documents required according to the procedure established by this Law have not been presented; or where the submitted documents do not meet the requirements set out in the legal acts of the Republic of Lithuania; 2) the founders of the insurance undertaking and/or the controlling persons and the participating undertakings are not in compliance with the criteria established in paragraph 3 of Article 20 of this Law, and/or, in view of their business results, legislative provisions and other significant circumstances their financial position is not stable and sound; 3) the chairman and other members of the Supervisory Board, the chairman and other members of the Management Board, the head of the administration, the chief financier and the chief actuary of the insurance undertaking do not meet the requirements set out in paragraph 4 of Article 20 of this Law; 4) it may be assumed from the presented scheme of operations that the interests of the policyholders, the insured, the beneficiaries, and the injured party will not be sufficiently protected, or there is a reasonable ground to assume that obligations of the insurance undertaking arising from insurance contracts will not be performed continuously; 5) the authorised capital has not been fully paid-up; 6) the organisational fund and/or the authorised capital of the undertaking have been paid up from financial resources of illegal origin; 7) the structure of the insurance undertaking or a group of undertakings to which the insurance undertaking belongs or other close links with natural or legal persons make effective supervision impossible; 8) legal acts of anon-member country which are applicable to members of a group of undertakings to which the insurance undertaking belongs, to natural or legal persons having close links with the insurance undertaking, or difficulties in the implementation of these legal acts make effective supervision impossible; 9) the insurance undertaking is a successor to the rights and obligations of a legal person or persons the performance of which would violate the provisions of paragraph 2 of Article 3 of this Law and/or would endanger the interests of the policyholder, the insured, the beneficiaries, and the injured party; 10) the chairman and other members of the supervisory board, the chairman and other members of the board, the head of the administration, the chief financier or the chief actuary of the insurance undertaking hold positions which they are prohibited to hold according to this and other laws; 11) the requirement specified in paragraph 6, Article 14 of this Law has not been complied with or the origin of the financial resources of the guarantee fund is illegal. 3. When there is a suspicion that the authorised capital and the organisational fund and/or the minimum guarantee fund may be formed from the financial resources of an illegal origin, the Supervisory Commission must apply to the State Security Department seeking a conclusion about the origin of the funds. In this case, the time periods specified in this paragraph 1 of this Article and paragraph 11 of Article 12 shall be suspended and shall be resumed upon receipt of the conclusion from the State Security Department. Article 16. Consultation with Other Institutions 1. Prior to issuance of the licence for insurance activity, the Supervisory Commission must consult competent authorities of another Member State of the European Union about the circumstances significant for issuing the licence for insurance activity, where the insurance undertaking is: 1) a subsidiary of an insurance undertaking of any other European Union Member State; 2) a subsidiary of the parent undertaking of an insurance undertaking of any other European Union Member State; 3) under the control of the same person who controls the insurance undertaking of any other European Union Member State. 2. Prior to issuance of the licence for insurance activity, the Supervisory Commission must consult the Bank of Lithuania and the Securities Commission about the circumstances significant for issuing the licence for insurance activity, where the undertaking is: 1) a subsidiary of a credit institution or a financial broker of a Member State of the European Union; 2) a subsidiary of the parent undertaking of a credit institution or a financial broker of a Member State of the European Union; 3) under the control of the same person who controls the credit institution or the financial broker of any other Member State of the European Union. 3. In evaluating the good repute of the persons controlling the insurance undertaking as well as the good repute, professional qualifications and experience of the members of its supervisory and management bodies, the Supervisory Commission shall consult the institutions referred to in paragraphs 1 and 2 of this Article about the circumstances significant for evaluation of good repute, professional qualifications and experience and must provide to other authority institutions the information about these persons necessary for the purposes of the functions performed of the above-mentioned authorities. Article 17. Information about Changes The insurance undertaking must, according to the licensing procedure established by the Supervisory Commission, inform the Supervisory Commission about changes in the information provided in the documentation submitted for issuance of the licence for insurance activity. Article 18. Change of a Licence to Engage in Insurance Activity The insurance undertaking intending to engage in insurance activity of yet another  insurance class or sub-classes belonging to the same insurance class or to expand the current activity to insurance of all the risks of the same insurance class, or a life assurance undertaking intending to engage in activity of non-life insurance classes referred to in subparagraphs 1 and 2, paragraph 3, Article 7 of this Law, must, according to the licensing procedure established by the Supervisory Commission, apply the Supervisory Commission seeking change of the licence. The Supervisory Commission shall make a decision concerning the change of the licence within one month of the submission of the required documentation as set out in the licensing procedure. Article 19. Suspension and Withdrawal of the Licence to Engage in Insurance Activity 1. On the grounds specified in paragraph 1, Article 198 of this Law, the Supervisory Commission shall have the right to suspend validity of the license to engage in insurance activity. 2. The Supervisory Commission shall have the right to withdraw the licence to engage in insurance activity where: 1) the insurance undertaking no longer meets the requirements under which the licence for insurance activity has been issued; 2) the insurance undertaking has committed a gross violation of legal acts; 3) the insurance undertaking has applied for revocation of the licence for insurance activity; 4) the insurance undertaking does not commence its engagement in insurance or related activity within 12 months following issuance of the licence for insurance activity; 5) the insurance undertaking has not been engaged in insurance or related activity for more than 6 months; 6) the insurance undertaking has failed to carry out the plans for the restoration of its financial position set out in Article 40 of this Law; 7) in the case specified in paragraph 12 Article 12 of this Law. 3. The Supervisory Commission shall notify other competent authorities of the other European Union Member States about its decision to withdraw the licence for insurance activity. 4. Having withdrawn the licence for engagement in insurance activity, the Supervisory Commission must take all possible measures to protect the interests of the policyholders, the insured, beneficiaries, and the injured party and shall have the right, after duly notifying the competent authorities of the European Union Member State where the insurance undertaking is carrying out insurance business, seize the assets from which technical provisions of the insurance undertaking are covered. The Supervisory Commission shall have the right to ask that the competent authorities of the European Union Member State where the insurance undertaking is carrying out its insurance business, impose analogous restrictions on the insurance undertaking in that European Union Member State. 5. The decision to withdraw the licence to engage in insurance activity must be fully substantiated. The Supervisory Commission shall, without delay, inform the insurance undertaking about the decision and its motivation in writing. SECTION TWO MANAGEMENT OF INSURANCE UNDERTAKING Article 20. General Provisions 1. Shareholders as well as the supervisory and managing bodies of an insurance undertaking must ensure a transparent, sound and prudent management of the insurance undertaking as well as the internal control of the activities of the insurance undertaking, while the head of the administration must ensure transparent, sound and prudent accounting procedures of the insurance undertaking. 2. An insurance undertaking must have a general shareholders’ meeting, the board, and the head of the administration. 3. Founders and persons controlling the insurance undertaking, the participating companies must be of good repute, while the members of the supervisory and management bodies as well as the head of administration of the insurance controlling/holding company must be of good repute, professionally qualified and experienced. Where one or several founders of the insurance undertaking decide to transfer shares to other persons prior to receipt of the licence for insurance activity, the transfer shall be subject to the provisions of Article 22 of this Law, and the term set out in paragraph 1, Article 15 of this Law shall be extended as specified in paragraph 4, Article 22 of this Law. 4. Members and the chairman of the supervisory board, members and the chairman of the board, the head of the administration, the chief financier, the chief actuary and other senior officers of the administration of the insurance undertaking as set out in the articles of association or internal regulations of the insurance undertaking must be of good repute, qualifications and experience. 5. Members and the chairman of the supervisory board if such has been formed, members and the chairman of the board, the head of the administration must be elected, while the persons who will hold the posts of the chief financier and the chief actuary of the insurance undertaking must be selected before the insurance undertaking is to be granted the licence for insurance activity. Article 21. Transparent, Sound and Prudent Management of the Insurance Undertaking 1. The organisational structure and the management system of an insurance undertaking must ensure a transparent, sound and prudent management of activity of the insurance undertaking. 2. In order to ensure a transparent, sound and prudent management, the articles of association or other internal regulations, the insurance undertaking must: 1) establish in a clear and transparent manner the internal structure of the insurance undertaking, procedures for selection of its employees, their functions, rights, obligations and responsibilities; 2) define and establish in a clear and transparent manner the functions, rights, obligations, responsibility, accountability, of the members of the supervisory board and the management board, the chairman of the board, the head of the administration, the chief actuary, the internal audit service/internal auditor, and senior officers of the administration, their decision making powers, relations, principles and rules of communication and co-operation. 3) clearly define the competence of the supervisory and managing bodies and senior administrative staff so as to ensure balance of functions, rights, and obligations in order to prevent unrestricted powers achieved by any single person in the decision making process; 4) must ensure that the board of the insurance undertaking is prevented from undue influence of the administration. Where the chairman of the board is also the head of administration, the insurance undertaking shall ensure that the administration is accountable to the board; 5) must ensure that the annual report of the insurance undertaking provides a transparent, sound and prudent compliance with the principles of management and is in line with the overall objectives of the undertaking; 6) must design, maintain, and use an efficient and comprehensive management information system so that relevant information is provided in due time to the board and the head of the administration and that prudent and sound management and control of the undertaking is ensured; 7) establish money laundering prevention measures as well as measure …