30. 11. 87 Official Journal of the European Communities No C 319/13 
Opinion on the proposal for a Council Directive on the annual accounts and consolidated 
accounts of insurance undertakings (*). 
(87/C 319/05) 
On 2 February 1987 the Council decided, in accordance with Article 54 of the Treaty 
establishing the European Economic Community, to ask the Economic and Social Committee 
for an Opinion on the abovementioned proposal. 
The Section for Industry, Commerce, Crafts and Services, which was responsible for the 
preparatory work, adopted its Opinion on 2 September 1987. The rapporteur was 
Mr Pelletier. 
On 23 September 1987, at its 248th plenary session, the Economic and Social Committee 
unanimously adopted the following Opinion: 
The Committee approves the proposed directive, subject to the following comments: 
1. General comments 
1.1. The Committee — like the Commission — 
thinks that insurance and reinsurance companies should 
have to provide their customers, shareholders and the 
public with relevant information about their activities. 
1.2. But the obligation laid down in the proposed 
rules of having to refer to two other Community Direc­
tives is a major complication for anyone concerned. 
This is likely to create confusion and may even lead to 
litigation in cases where the alignment of certain clauses 
in the three Directives gives rise to ambiguities or even 
contradictions. 
Moreover, any amendments to the IVth or Vllth Direc­
tives may in the future make the present proposed text 
inapplicable or difficult to interpret. 
The special features of insurance companies which led 
to them being excluded from the scope of the IVth and 
Vllth Directives remain. The Committee thinks they 
would justify the drafting of a complete set of rules 
embracing all the decisions adopted with respect to the 
insurance sector, even if this means repeating some of 
the clauses in the IVth and Vllth Directives. 
1.3. The Committee would prefer to see branches of 
foreign companies covered by the Directive, so as to 
ensure that equal conditions apply to them and to 
companies based in the Community. Provisions similar to those laid down by the Directive 
should, in any case, be adopted as soon as possible. 
1.4. The Committee considers that the present pro­
posed Directive must make it easier to compare pub­
lished accounts, so that competition between insurance 
companies can develop. For that, the solutions adopted 
for the various documents published (balance sheet, 
profit and loss account and notes on the accounts) 
should, as far as possible, be consistent, so as to make 
them easier to read. 
1.5. The present proposal is a compromise between 
different approaches to difficult technical problems. 
This is the case for the treatment of reinsurance, yields 
from investments and operating costs. The differences 
noted correspond to different technical realities due to 
the contractual or regulatory links in the Member States 
between policyholders and insurance companies. 
Accounting rules should have some flexibility, so that 
the methods of managing insurance business remain 
different, thus encouraging competition between the 
different markets. Member States must therefore be 
allowed a choice to enable the adjustments necessary 
in the light of market features to be made. 
But the long-term interests of customers must also be 
protected and every step must be taken to strengthen 
the solvency of insurance companies, which is the 
policyholder's real guarantee. 
(*) OJ No C 131, 18. 4. 1987, p. 1. 1.6. The Committee would point out that decisions 
concerning accounting practices can affect a firm's tax 
situation. It stresses that the Directive should not affect 
No C 319/14 Official Journal of the European Communities 30. 11. 87 
companies' tax burdens. Member States should amend 
their national tax legislation as appropriate. The 
accounting procedures adopted must nonetheless not 
prohibit coordination with each country's national tax 
laws when the proposed Directive is implemented by 
the Member States. 
2. Specific comments 
2.1. Article 3 
The Committee would stress the importance of the 
Directive being applicable to the association of under­
writers known as Lloyd's, whose role on the insurance 
market is vital. It regrets that a definite date has not 
been laid down for implementing the adaptations 
necessary. 
In the interests of equal competition, it is essential that 
comprehensive procedures for applying the Directive to 
Lloyd's be laid down rapidly. 
The Committee asks that, whatever happens, the date 
to be included in Article 3 (2) must be earlier than the 
deadline by which the Member States must bring into 
force the laws, regulations and administrative pro­
visions necessary for them to comply with the Directive, 
which is to be set out in Article 63 (1). 
2.2. Article 5 
a) — The specific features of the insurance sector do 
not justify the imposition of a single layout for 
the balance sheet, as a derogation from the 
IVth Directive. However, such a derogation is in 
keeping with the practices of a large majority of 
the Member States, and will make it easier to 
compare the accounts of different firms. 
— The only thing likely to create some difficulties 
over presentation is if an insurance company's 
accounts are consolidated into those of a group 
adopting a vertical layout for its balance sheet; 
these should be sorted out in Article 60. 
b) The different language versions of heading C IV on 
the 'assets' side should be carefully checked. 2.3. Article 8 
Article 8 spells out how Article 15 of the IVth Directive, 
which lays down that firms must show movements in 
their fixed assets, is to be adapted to the specific needs 
of the insurance sector. 
Investment companies switch their investments around 
a lot, and they are allowed to list assets at their current 
value; assessment of the historical cost of each of the 
movements on the 'assets' side is therefore a complex 
and costly process. 
The economic significance of this table is extremely 
small for insurance firms where different types of invest­
ment are more or less equal and assets are 
switched around daily. It would probably be desirable 
to drop this table completely as a logical follow-up to 
the Directive's abolition of the distinction between fixed 
and current assets. 
But if the table is kept, it should be drawn up on the 
basis of book values at the beginning of the financial 
year, rather than historical cost, so as not to introduce 
any additional discrimination between the insurance 
sector and other economic sectors. 
Provision is made for this, for fixed assets, in Article 
15 (3) (b) of the IVth Directive, if historical cost cannot 
be determined. 
The Committee therefore proposes that such a possi­
bility be authorized for all an insurance company's 
investments, and that the following be inserted as a 
third paragraph in Article 8: 
'3. Changes in items shall be determined according 
to the book value at the beginning of the financial 
year, in accordance with paragraph 3(b) of the 
Article referred to in paragraph 1.' 
2.4. Article 15 
Article 15 deals with deferred acquisition costs; these 
are considerable, especially in life insurance, because 
they are incurred immediately for the whole contract, 
whereas the corresponding revenue is spread out over 
time. 
However, in non-life insurance an identical situation 
exists on several markets, and no provision is made for 
such a case in the draft Directive. 
30. 11. 87 Official Journal of the European Communities No C 319/15 
It seems a good thing to treat an identical problem in life 
and non-life insurance in the same manner, wherever 
possible. 
The Committee would therefore like the worlds 'in life 
insurance business' in the last sentence of the first 
paragraph to be deleted. 
Moreover, for non-life insurance business the Com­
mittee thinks provision should be made for deducting 
deferred acquisition costs from unearned premiums, in 
accordance with normal market practice. This would 
be in keeping with the carrying-over of acquisition 
costs and unearned premiums, with both being listed in 
subsequent financial years. The Committee would therefore like the following two 
paragraphs to be added to Article 28: 
'4. The Member States may prescribe the use of the 
life business technical account for types of direct 
insurance business falling within the scope of Direc­
tive 73/239/CEE when such business is conducted 
using life business actuarial techniques. Indication 
of such a prescription shall be given in the notes on 
the accounts.' 
'5. The Member States may authorize use of the 
non-life business technical account when life 
insurance forms a very small part of the business of 
companies active in both life and non-life insurance 
or of reinsurance companies. Indication of the use 
of such a presentation and of the gross premiums 
written in life insurance business shall be given in 
the notes on the accounts.' 
2.5. Article 16 
The definition of 'subscribed capital' is not ideally 
suited to some insurance firms, which are not 
companies but mutuals, and which the proposed text 
plans to include within its scope. Some of the funds 
subscribed are not broken down into shares, have not 
been the subject of a call for subscription and do not 
confer rights of ownership on members or third parties. 
To avoid any risk of confusion, therefore, the Com­
mittee would like the words 'equity capital subscribed 
by the shareholders or other proprietors' to be replaced 
by: 
'Capital brought in by members or other providers 
of funds and treated as equity capital.' 2.7. Article 29 
a) — As the Commission states in its explanatory 
memorandum on Article 5, the main question 
of principle to be settled is that of the treatment 
to be given to the share of reinsurers in the 
obligations of insurers. Views on this matter 
vary, and the Commission felt it necessary to 
'do justice to the reasoning behind both points 
of view by disclosing the gross amount, the 
reinsurance share and the net amount'. 
2.6. Article 28 
The distinction drawn in this Article between the life 
business technical account and the non-life business 
technical account in the profit and loss account is wise 
and well-founded. 
But there may be some difficulties in application, either 
when non-life business is practised using life business 
actuarial techniques, as is the case in certain forms of 
sickness insurance in Germany, or when life business 
accounts for a very minor share of the business of 
companies active in several types of business or of 
reinsurance companies. In the latter case, a strict appli­
cation of the proposed layout for the profit and loss 
account would hamper the presentation of the accounts 
without providing any real additional information. The same approach was, logically enough, 
adopted for most of the technical items in the 
profit and loss account. Only the change in 
technical provisions is net of reinsurance with­
out additional details having to be provided. 
Such a position is neither clear nor consistent. 
It would be desirable for the same reasoning to 
be followed in all the accounts published so 
as to provide proper information for readers, 
especially as regards changes in technical pro­
visions; consequently, the terms 'net of rein­
surance' should be deleted in the appropriate 
lines (I lc; I 3c; I 4; II lc; II 10a; II 10b) and the 
words 'reinsurance share' inserted instead. 
This would enable changes in an insurance 
firm's obligations towards policyholders during 
the financial year to be followed without ambi­
guity, without being obliged to refer to two 
No C 319/16 Official Journal of the European Communities 30. 11. 87 
successive sets of accounts, and without business 
recorded during the financial year being affected 
by changes (particular in exchange rates) taking 
place between the closing date of the accounts 
on the preceding 31 December and the opening 
of the new set of accounts. 
— So as to simplify the main accounts, Member 
States could be authorized to permit companies 
to show gross figures and the reinsurance share 
in the notes to the accounts only in the case of 
all items other than premiums. 
b) — Investment income is treated differently in the 
technical accounts for life and non-life business. 
— The Commission argues that in life insurance, 
since the return on investment is used in calculat­
ing the surplus in which policyholders usually 
have a right to participate, it is preferable to 
include all investment income in the technical 
account. 
— But the Commission acknowledges that the wide 
variety of profit-sharing schemes make compari­
sons difficult. 
— Profit-sharing schemes for policyholders vary 
greatly. On some markets the assets set aside 
for policyholders and those set aside for share­
holders are clearly identified, as is the corre­
sponding income. It is therefore illogical for the 
income corresponding to the assets set aside 
for shareholders to be included in the technical 
account, which is only supposed to reflect deal­
ings with policyholders. 
— On other markets assets are not set aside, but 
shares in profits are calculated only on the basis 
of the income corresponding to the share of 
technical provisions in the overall heading 'tech­
nical provisions plus capital and reserves'. Here 
too, it is illogical for all income to be included 
in the technical account. 
— But on other markets, where mutuals are more 
important, almost all income is taken into 
account when working out shares in profits. — These three main approaches correspond to very 
different technical realities in product design and 
management. 
— They involve different responses to the problems 
of apportioning assets between policyholders 
and shareholders, because of insurer's obli­
gations towards their policyholders. 
Adopting a single solution is not in keeping 
with the principles of tax neutrality and non­
interference in accountancy rules and the techni­
cal side of markets, as referred to in the General 
Comments. 
— Moreover, the solution proposed would cause 
problems when it came to implementing it, as 
in companies active in several types of business 
and in reinsurance companies, a detailed break­
down of investment income between the techni­
cal account, for life insurance, and the non­
technical account, for non-life insurance busi­
ness, would make allocation difficult and pre­
vent accounts from being really comparable. 
— Similarly, when an insurance group was consoli­
dated, it would be necessary to apportion invest­
ment income between the technical account and 
the non-technical account, which would not 
make reading any easier. 
— But to enable all the Member States to choose 
the presentation which was most consistent with 
the contractual rules on profit-sharing, pro­
vision should be made in Article 29 for both 
•possibilities, i.e.: 
— Indication in the life business technical 
account of investment income in whole or 
in part, or 
— Indication of all investment income in the 
non-technical account. 
This could be achieved by a footnote in the life 
business technical account and in the non-technical 
account referring to the alternative solution. 
— The Member States should choose one presen­
tation or the other when incorporating the 
Directive into their national legislation, and they 
would be able, whatever happened, to regulate 
the procedures for transferring between the tech­
nical and non-technical account. 
30. 11. 87 Official Journal of the European Communities No C 319/17 
c) — Article 22 states that the amount provided for 
unexpired risks may be included either in the 
amount for 'other technical provisions' in 
. item C 6 of the liabilities side of the balance 
sheet or in item C 1 where national legislation 
so provides. It seems a good idea to maintain, at least at Member 
State level, the possibility of choosing either one system 
or the other. 
The Committee therefore asks that the following sub­
paragraph be inserted in Article 35: 
To ensure consistency between the balance sheet 
and the profit and loss account, Article 29 
should allow the same possibility in the profit 
and loss account. 'The amounts, if national legislation so provides, 
may be allocated according to their destination. In 
this case, the total amount of commissions must be 
indicated in the notes on the accounts.' 
At the very least, and to avoid disturbing the 
definition of the ratios based on premiums paid 
in, which are important when comparing 
accounts, it would be desirable if the separate 
indication of the change in the provision for 
unexpired risks in item I a was not required 
when national legislation allows grouping 
together with item C 1 on the liabilities side of 
the balance sheet. and in Article 36: 
'The amounts, if national legislation so provides, 
may be allocated according to their destination. The 
total amount of staff costs and expenses connected 
with such staff costs must be indicated in the notes 
on the accounts.' 
The Committee therefore wants a reference to 
Article 32 to be included opposite item I 4a in 
the non-life business technical account, and the 
following to be added to Article 32: 
'The change in the provision for unexpired 
risks shall be given in item I 4a of the non-
life technical account. Member States whose 
national legislation provides that the pro­
vision for unexpired risks shall be added to 
item C 1 in the balance sheet may authorize 
undertakings not to indicate the change in 
this provision separately when it is not signifi­
cant.' 2.9. Article 38 
In view of the comments earlier (Article 29 paragraph ii) 
concerning the Member States' option of either 
allowing investment income to be included in whole 
or in part in the life business technical account and 
regulating the procedures for transferring between the 
life business technical account and non-technical 
account, or of allowing all investment income to be 
included in the non-technical account, the following 
sub-paragraph should be inserted at the beginning of 
this Article: 
'Member States may lay down one of the following 
three provisions for undertakings carrying on only 
life insurance business.' 
2.8. Articles 35 and 36 1) Investment income and the profits and losses arising 
from the sale of investments shall be indicated in 
the life business technical account. 
The proposed Directive allows an allocation, in the 
settlement of claims and investment expenses, of direct 
and indirect costs incurred in connection with such 
activities. 
Other expenses or commissions are allocated according 
to their nature. 
The IVth Directive provides for two systems for allocat­
ing expenses, according either to their nature or their 
destination. The choice of a mixed system does not 
seem justified by the specific features of the insurance 
sector. 2) 
3) Where assets corresponding to obligations towards 
policyholders are assigned to individual funds, only 
the income and the profits and losses arising from 
the sale of investments corresponding to such assets 
shall be indicated in the life business technical 
account. 
All investment income and the profits and losses 
arising from the sale of investments shall be indi­
cated in the non-technical account. 
'Member States may lay down procedures for 
transferring between the life business technical 
account and the non-technical account.' 
No C 319/18 Official Journal of the European Communities 30. 11. 87 
2.10. Article 42 
By way of derogation to the IVth Directive, the present 
Directive provides that assets may be valued either at 
their acquisition price as laid down in the IVth Direc­
tive, or at their current value. So as to put these two 
methods on an equal footing* paragraph 3 stipulates 
that the notes to the accounts shall include a valuation 
of assets based on whichever method is not used in the 
main accounts. 
By pointing up the difference between the current value 
and the acquisition price of assets, the inclusion of this 
note will make it easier to compare accounts. It will 
also make it easier to assess the true solvency of 
companies. And this will bring accounts more closely 
into line with the principle of a true and fair view. 
In life insurance, however, there are many different 
methods of profit sharing. The publication of the cur­
rent value of assets by companies which have chosen 
to value assets at their acquisition price may give rise 
to misunderstanding as to such companies' real obli­
gations towards their clients. In some markets this may 
also intensify the pressure for changes to the conditions 
of insurance products and, to some extent, contribute 
to the destabilization of these markets. 
The Committee acknowledges the advantages of this 
provision, in making published accounts more meaning­
ful and improving competition between Community 
insurance companies. But it also wishes to stress the 
major difficulties which this may entail. The Committee 
would like to see a careful re-examination of the pros 
and cons so as to prevent any undesirable effect on the 
stability and liquidity of the markets. 
2.11. Article 43 
It would be useful to re-examine Article 43, with a view 
to preventing a false impression being given of an 
insurance company's financial position through unreal­
ized capital gains being excluded from the profit and 
loss account. 
2.12. Article 47 
The application of Article 35 of Directive 78/660/EEC 
on the procedures for assessing changes in the value of 
assets should be adapted more closely to the specific 
features of the insurance sector. It would appear desirable to boost companies' solvency, 
and thus the confidence which the public places in 
insurance companies, as solvency is the foundation of 
long-term relationships between the insurer and 
insured. 
Fixed asset revaluations of a durable nature, e.g. where 
the overall value of investments is affected, should be 
conducted prudently. 
Similarly, insurance firms should not be obliged, as in 
Article 35(l)(c)(dd) of the Fourth Directive, to correct 
their assessment to the lowest value attained when the 
reasons behind such corrections in value have ceased 
to exist. 
The financial markets fluctuate so much that the mini­
mum value recorded at a given moment may always be 
reached again at some future date. 
But an insurance firm must honour its commitments, 
whatever the vagaries of the financial markets, and 
avoid booking uncertain profits. 
The Committee therefore wants the following to be 
added to Article 47: 
'c) Permanence as provided for by Article 
35(l)(c)(bb) may be considered as obtaining when 
the total value of all 'financial fixed assets' is lower 
than that listed. 
In such a case the assets are required to be revalued. 
d) Paragraph 1(c) (dd) of the abovementioned 
Article 35 shall not apply to insurance undertakings.' 
Finally, the Committee would draw attention to the 
difficulty of applying Article 35 of the Vlth Directive, 
which establishes the principle of valuing assets at their 
acquisition price, to companies which use the current 
value method. The detailed procedures involved in 
accounting for the revaluation of assets and gains, 
realized upon sale or unrealized, need to be looked at 
more closely. 
2.13. Article 56 
In this Article the proposed text lays down that, in 
exceptional cases, a deduction calculated on an actu­
arial basis may be made on provisions for particular 
claims, in non-life insurance business. 
30. 11. 87 Official Journal of the European Communities No C 319/19 
As such a practice must remain quite exceptional, to 
avoid the risk of a firm having its capacity to honour 
its commitments called into question if its future invest­
ment income does not measure up to forecasts, such a 
deduction must be expressly authorized by the legis­
lation of the Member State concerned and the corre­
sponding effects and hypotheses explicitly described in 
the notes on the accounts. 
The Committee therefore wants the words 'and where 
the legislation of the Member State so authorizes' in­
serted between 'actuarially' and 'a deduction is excep­
tionally made' in the first sentence of Article 56(5). 
2.14. Article 58 
The proposed breakdown of premiums in the notes to 
the accounts presents no problems for providers of 
direct insurance. But it might be difficult for reinsurance 
companies, whose clients are insurance companies 
rather than policyholders, to fulfil this requirement. 
Done at Brussels, 23 September 1987. The geographical criterion used ought to be the head­
quarters of the ceding company rather than the location 
of the risk, as this is not always known. It would also 
be better to analyse premiums according to the type 
of contract, rather than the category of insurance, as 
follows: 
— proportional contract, where the reinsurer shares 
the insurer's risks and rewards; 
— non-proportional contract, where the reinsurer 
takes on specific risk tranches (e.g. major claims). 
2.15. Article 60 
In some groups, insurance and reinsurance are of some 
importance but are consolidated with other activities; 
in order that such groups should be able to present 
clear and readable accounts, the Committee feels that 
the scope of Article 60(3) and (4) should be limited to 
insurance business by adding the words 'as regards 
insurance and reinsurance business' after 'Directive 
78/660/EEC in both paragraphs. 
The Chairman 
of the Economic and Social Committee 
Alfons MARGOT