Bosnia and Herzegovina (BiH) consists of two separate and distinct administrative entities: the Federation of Bosnia and Herzegovina (FBiH) and the Republic of Srpska (RS). Formally, Brčko District is a unique administrative unit of local government under the sovereignty of BiH. The two entities and the Brčko District have their own governmental structures as well as legislation and regulations, which means that insurance, as well as some other areas of law, are subject to legal regulations at entity level and relevant state legislation, depending on applicable law.
Insurance activity in BiH can be undertaken by insurance companies established in the form of joint-stock companies. The minimum share capital requirement in FBIH ranges from BAM 4m to BAM 6m depending on the type of risk insured, and the minimum share capital requirement in RS ranges from BAM 2m to BAM 3m depending on the type of risk insured. The business of insurance is generally conducted by standard-type joint-stock companies. However, the business of insurance can be performed jointly by two or more insurance companies (co-insurance).
Co-insurance exists when two or more insurance companies jointly guarantee the financing and compensation for an agreed insured event on the basis of the ‘principle of mutuality’.
The most important prerequisite imposed on insurance companies is to obtain prior approval from the Insurance Supervisory Agency of FBiH (in the case of companies established in the territory of FBiH) or the Insurance Agency of RS (in the case of companies established in the territory of RS) (the ‘Agency’ or ‘Agencies’). An insurance company can be established by a domestic or foreign natural person or legal entity. The Agencies will review the application within 60 days from the date the application is submitted and issue a resolution approving, rejecting or requesting a change or amendment of the application. If the Agency issues an approval, the insurance company is obliged to pay them a fee for performing this business activity.
It is important to note that approval from the Agencies is a pre-condition for entering an insurance company in the Register of Business Entities. This approval becomes effective only upon the conclusion of the registration procedure for a newly-founded insurance company. Another requirement that insurance companies must meet is the obligation imposed on every insurance company to determine a solvency margin in respect of its entire operation corresponding to the total company assets. Moreover, insurance companies have to establish a guarantee fund which constitutes one third of the solvency margin. The guarantee fund in FBIH ranges from BAM 2m to BAM 6m, while in RS it ranges from BAM 1m to BAM 3m. However, the amount of the guarantee fund depends on the types of insurance offered by the insurance company. The Agencies also request companies to submit financial reports and other documents necessary to exercise detailed supervision over companies throughout the course of their business dealings and to audit them.
The legislation allows insurance companies with a corporate seat in one entity to establish a branch office in the other entity. This can be done on the condition that the Agency supervising insurance business in one entity forwards the submitted request and the relevant documents (mainly concerning the insurance company’s business operation, business plan, membership in the relevant institutions as well as its liquidity) to the Agency of the other entity which will ensure that the branch office is duly established and operates in accordance with the relevant state and entity legislation.
Current legislation provides that companies with a corporate seat outside BiH can perform insurance business activities in the form of a branch office if they obtain the approval of the Agency. In order to establish a branch office for conducting insurance business, the companies with a corporate seat outside BiH must ensure that the branch office is operated by two persons authorized by the founding foreign company, while the branch office must be properly equipped with the competent personnel and technical features required to conduct the business of insurance. Furthermore, the branch must have deposited funds amounting to one and a half times the founding capital at its disposal and must own property amounting to at least half of the guarantee fund.