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DELACOMMISSION
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DOCUMENTS "COM"
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Vol.1973/0361

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COMMISSION OFTHEEUROPEAN COMMUNITIES
COM(73)2030final
. Strasbourg,12December1973
. -ProposalforafirstCouncilDirective , >
.onthecoordination oflaws,regulationsand.....■.
administrative provisionsrelatingtothetaking-upandpursuit .
ofthebusinessofdirectlifeassurance ,: :"
(submittedtotheCouncilbytheCommission) -A
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XV/194/73-E
EXPLANATORY ■MEMORANDUM
Reasonsforandobjectionsofcoordination ■-
1.TheGeneralProgramme^fortheabolitionofrestrictionsonfreedom
ofestablishment ,adoptedbytheCouncilon18December1961pursuant
.toArticle54(l)of"theTreatyestablishingtheESC,stipulatesin
TitleIVthatthefollowingmeasuresofcoordination andliberalization
mustbeintroducedintheinsurancesectorintheordergivenbelow:
A.Inrespectofdirectinsuranceundertakings otherthanlifeassurance
undertalcings :
1-Coordination of.theconditionsforthetakingupandpursuit
thereof;
2-Removalofrestrictions ontheestablishment ofagenciesand
branches.
B.Inrespectofdirectlifeassuranceundertakings :
3-Coordination oftheconditionsforthetakingupandpursuit
thereof; 5
•4-Removalofrestrictions ontheestablishment ofagenciesand
branches.
TheCouncilputthefirstpartofthisprogrammeintoeffectbyadopting
2on24July1973thetwodirectives on,respectively ,thecoordination of
lawsandtheabolitionofrestrictionsinthefieldofindemnityinsurance.
Thepurposeofthisdirectiveistoinitiatethesameprocessasregards
thecoordination oflawsinthelifeassurancefield.15113explainsthe
manysimilarities betweenthetwotexts.–– ■./.
OJETo2,15January1962,p.36/62.
20JBo223,16August1973,P.3andp.20.

-2-
2.Thelegal "basis isthesame ,namely Article 57(2 )oftheEECTreaty ,
which lays down that theEuropean Parliament must beconsulted in
connection with adirective ofthis nature ,while consultation ofthe
Economic and Social Committee isoptional .Both these institutions
were consulted concerning thecoordinating directive ,onindemnity
1 • I
insurance , ..
3.Theaimisthe same ,namely toachieve aninitial coordination ofthe
provisions governing thevarious classes ofdirect insurance ,inthis
case life assurance ,inorder tomake possible theremoval ofrestrictions
onthefreedom ofestablishment oflife assurance undertakings .Asecond
draft directive isbeing submitted totheCouncil onthis subject .
4.Theobjective ofcoordination isthe same ,namely toestablish acommon
market ininsurance ,this time inlife assurance .Anyinsurance under­
taking having itshead office within theCommunity may setupanagency
orabranch inanyother State oftheCommunity under conditions of
admission which areidentical inthenine States .Moreover ,identical
conditions fortheexercise ofthis business arealso provided forboth
inrespect ofhead offices andinrespect ofagencies andbranches .
Many rules identical tothose forindemnity insurance have been laid
down .Control ofamainly financial nature isexercised bythesuper­
visory authority ofthecountry where thehead office issituated ,with
theassistance ofthesupervisory authority ofthecountry orcountries
where theagencies andbranches aresituated .Allinsurance undertakings ,
apart from several clearly defined exceptions ,aresubject tothis super­
vision ,which extends totheundertaking 'sentire business . ,
5.This directive differs from thecorresponding directive onindemnity
insurance intwomain respects .Firstly ,itsettles theproblem ,which
wasleft open bythepreceding directive ,ofwhether anundertaking may
handle both life assurance andindemnity insurance and ,secondly ,it
; ■- -■ . . -.. ../.
Opinion ofEuropean Parliament delivered on13March 1968 andpublished
inOJNoC2?of28March 1968 andOpinion oftheEconomic andSocial
Committee delivered on28April 1967 andpublished inOJNo158of
18July 1967 .

-3-
introducesdifferentrulesforcalculation andconstitution ofthe
financialguaranteesrequiredofundertakings fromthoselaiddown
inrespectofindemnityinsurance.Thisisbecauseofthetechniques
peculiartoeachtypeofinsurance.
Thise:q?laiiatory memorandumdealsonlywiththoseaspectswhicharespecific
tolifeassuranceandinparticularwiththesetwoimportantquestions.

-4-
II.TitlesandArticlesoftheDirective
TITUII:Generalprovis^.ons
Art.1:Scopeofthedirective
Art.2:Classesofinsuranceandoperationsnotcovered
Art.3sMutualassociations notcovered
Art.4JBodynotcovered
Art.5!Definitions
TITLEII:Rulesapplicabletoundertakings whoseheadofficesare
situatedwithintheCommunity
SectionA:Conditions ofadmission
Art,6:Officiaiauthorization
Art.7'Scopeofauthorization
Art.8:Conditionsofauthorization inthecountrywherethehead
officeissituated
Art.95Schemeofoperationsinthecountrywheretheheadoffice
issituated
Art.10
Art.11
Art.12
Art.13
Art.14Art.10:Conditionsofauthorization inothercountries
Art,11:Schemeofoperationsinothercountries
Art.12:Principlesofspecialisation andseparatemanagement
Art.13iRulesonseparatemanagnnent
Art.14:Refusalofauthorization andrighttoapplytothecourts
SectionB:Conditionsforexerciseofbusiness
Art.15sPrincipleofsupervision -
Art.16:Supervisionofentirebusinessbythesupervisoryauthority
ofthecountryvrheretheheadofficeissituated
Art.17:Technicalreserves
Art.13:PrincipleaJidconstituentsofthesolvencymargin
Art,19:Sizeofthesolvencymargin
Art.20:Guaranteefund
Art.21:Freedisposalofassets
Art.22:Reinsurance
Art.23:Accounts
Art.24:Measurestorestorefinancialposition
Art.25:Assignuch -tr-ofportfolio ,•/.

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SectionC:Withdrawalofauthorization
Art.26:Conditionsandprocedure
TITLEIII
Art.27
Art,23
Art.29
Art,30
Art.31
Art.32:Rulesapplicabletoagenciesorbranchesestablishedwithin
theCommunityandbelongingtoundertakings whoseheadoffices
areoutsidetheCommunity
:Conditionsofauthorisation
:Technicalreserves
:Solvencymarginandguaranteefund
:Specialrulesinthecaseofbusinesscarriedoninseveral
MemberStates
:AnalogywithcertainrulesinTitleII
:Agreementsvriththirdcountries
TITLEIV:Transitional andotherprovisions
Art.33*InrespectofCommunityundertakings
Art,34!Inrespectofnon-Community -undertakings
Art.35'Intheframeworkofagreementswiththirdcountries
TÏTLEvÎFinalprovisions
Art.3o
Art.37
Art.38
Art.39
Art.40
Art.41:Cooperation betweentheCommissionandnationalauthorities
:Reviewclause
:Timetableforimplementing thedirective
:Communication ofchangesinnationallegislation
:Classification ofrisksaccordingtoclassesofinsurance
:Addressees
AMI3X sClassification ofrisksaccordingtoclassesofinsurance

-6-
III .Uotes ontheTitles andprincipal articles
Title I-General provisions (Artide 1to5)
Article 1.Scope ofthe directive
Thenational supervisor ;1-legislation atpresent existing inMember States
varies considerably inscope .Although life assurance issubject to
supervision inallMember States ,theclasses ofinsurance which are
subject tosupervision differ andaredefined differently ,indifferent
countries .
Article 1defines inprecise terms thefield ofapplication ofthe
directive inorder ,firstly ,toguarantee equal protection forall
policyholders andbeneficiaries whichever country they areinand ,
secondly ,toavoid adistortion ofcompetition infavour ofbodies "hich
might evade therequirements ofthedirective while engaging inoperations
similar tothose itcovers .
Article 2,Classes ofinsurance andoperations not covered
Social security insurance isexcluded from thefield ofapplication of
thedirective because itisusually subject topublic lawandinvolves
adifferent financial technique from life assurance .
Title II-Rules applicable toundertakings whose head offices are
situated within theCommunity (articles 6to26)
Section A:Conditions ofadmission
Theprovisions inthis section laydown that thetalcing upofthebusiness
oflife assurance issubject toanofficial authorization similar tothat
provided forinthecoordinating directive onindemnity insurance ,They
laydown theconditions forthis authorization ,organize thesupervision
exercised bytheadministrative authorities over authorized undertakings
andregulate thewithdrawal ofauthorization .
/

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Articles 12and 13.Specialization and separate management
Germany ,i^rance ,Ireland andtheNetherlands apply thespecialization
system .Under this system ,undertakings dealing inlife assurance are
forbj dden tohandle indemnity insurance .These twoclasses ofbusiness
mayonly hecarried onbyseparate legal persons .Danish lawandItalian
regulations encourage undertakings toadopt this system ,but donot
expressly require ercisting undertakings handling more than oneclass of
business tosplit up.
TheUnited Kingdom ,Eelgium andLuxemburg donothave this system and
undertakings arefree either tospecialize ortodeal inmore than one
class ofinsurance .Inthelatter case ,however ,they aresubject to
rules onaccounting andmanagement which aredesigned tosafeguard the
rights oflife policyholders .
Thesolution adopted inthis directive naybesummarized asfollows :
1.Undertakings setupafter theentry into force ofthedirective will
berequired tospecialize .Specialization isconsidered tooffer the
best protection tolife policyholders byensuring that theassets of
the life assurer andthose oftheindemnity insurer arelegally separate
andthus preventing life policyholders from suffering asaresult of
losses inindemnity business .
2.Existing undertakings which deal inmore than onekind ofinsurance
vxill beable tocontinue todoso,oncondition that they adopt strict
rules onseparate management andaccounting .Provision ismade ,in
particular ,fortheassets oftheinsurer tobedivided into a"life "
portion andan"indemnity "portion ,inorder toprovide life policy­
holders with guarantees which ,ifnotidentical ,areatleast as
nearly asequivalent aspossible tothose enjoyed under thespecialization
system .

-3-
Byadoptingthissolution,theCommissionshowsitspreferenceforthe
specialization system,whileprovingitsconcernnottoupsetthe
statusquo.
Moreover,thesolutionproposedisinlinewiththeresolution
(Doc.I325/61/E323of26October196l)issuedbytheCouncilofMinisters
whenthegeneralprograi^imesfortheabolitionofrestrictions onfreedom
ofestablishment andfreedomtoprovideserviceswereadopted.TheCouncil
calledupontheCommissiontofindasolutiontotheproblemofthe
differencebetweenthesystemsinforcebyencouragingundertakings
handlingmorethanoneclassofbusinesstokeepapartasfaraspossible
everythingrelatingtolifeassuranceontheonehandandtoindemnity
insuranceontheotherbyestablishing aseparateaccountcomprising,
generallyspeaking,alltheassetsrelatingtolifeassurancetransactions .
SectionE:Conditionsforexerciseofbusiness
Article18.Principleandconstituents ofthesolvencymargin
Thepi^cvisionsconcerningthesolvencymarginarethemostimportantin
thedirective.Onthemisbasedthewholesystemwhichthedirectiveis
designedtointroduceintothelegislationofMemberStates.Anunder-
talcingmustprovethatitpossesses,inadditiontotechnicalreserves,
asupplementary reservecalledasolvencymargin,whichisintendedto
enabletheundertakingtomeetitsliabilitiesifthetechnicalreserves
provetobeinsufficient .
Althoughtheprincipleisthes?jiieasinthedirectiveonindemnity
insurance,theconstituents ofthesolvencymarginaredifferent.They
maybeeitherexplicitorimplicit.
Theexplicititemsappearinthebalancesheetandarethesubjectof
Articlel8(l)and(2).Theycomprisetheundertaking'sassets,freeof
allforeseeableliabilities ,inparticularthepaidupsharecapital.
Theimplicititemsarenotshowninthebalancesheet.Theyarelisted
inArticle18(3).
/.

Article 19.Size ofthe solvency margi n
Theliabilities contracted ,bylife assurance undertakings vis-a-vis
policyholders andbeneficiaries areusually onalong-term basis andthe
undertakings areobliged toevaluate their future liabilities bymeans
ofextrapolation onthebasis ofmore orless recent data .Business success
therefore depends ontheassumptions made andontheability oftheunder­
takings tomeet theinsured risks .Forthis reason themathematical
reserves ,which correspond totheassessment ofliabilities inrespect
ofcurrent contracts ,must beevaluated byreference totheforeseeable
trend ofthevarious factors which form thebasis forcalculating premiums
andmathematical reserves ,namely ,thedeath rate ,thereturn oninvestments
and overheads .
Infixing thesolvency margin itisnecessary totake into accoxmt the
effect ofanyvariations ineach ofthese factors .
Themargin must notbetoolarge ,forthis would lead either directly or
indirectly toanunwarranted increase intheamount ofthepremiums required
ofpolicyholders .
Inthemain classes oflife assurance the so?.vency margin iscalculated by
reference ,firstly ,tothemathematical reserves against investment risks
and ,secondly ,tothecapital atrisk against therisk ofdeath andthe
operating risk .This isdealt with inArticle 19(a ).
Ontheother hand ,intheclasses ofinsurance andoperations dealt with
inArticle 19(c ),where themain risk isaninvestment risk ,thesolvency
margin depends solely onthe reserves .
Intheclasses ofinsurance andoperations covered byArticle 19(d )the
operating risk predominates andthemargin depends solely onthecapital
administered .

-10-
ThesupplementaryclassescoveredinArticle19vh)employthesane
techniqueasindemnityinsuranceand,asinthelattercase,thesolvercy
margindependsontheamountofthepremiums,whichrepresentthebest
criterionforassessingtheriskincurredbytheinsurer.Themarginis
calculatedinthesamewayfortemporaryassuranceforaperiodnot
exceeding5yearsondeath(Article19(b)).
Article20.Guaranteefund
TheprovisionsofthisArticlemeettherequirements ofundertakings
tohaveattheirdisposal:
1.atthetimewhentheyaresetup,guaranteesamountingtoaminimum
of600000unitsofaccount,whichmustbeconstitutedsolelyof
explicititems,
2.duringtheiroperation,aminimumcfguarrmteesproportional totheir
volrjneofbusiness.Thisminimumrepresentsathirdofthesolvency
marginandatleast50f°dustbecomposedofexplicititems.
TitleIII-Rulesapplicabletoagenciesorbranchesestablishedwithin
theCommunityandbelongingtoundertakings whoseheadoffices
areoutsidetheComratnity(Articles27to32)
TitleIV-Transitional andotherprovisions (Articles33to35)
/.

-11-
TitleV-Einalprovisions (Articles36to41)
TheprovisionsofthesethreeTitlesarealmostidenticalwiththoseof
thecorresponding directiveonindemnityinsurance.
However,attentionshouldhedrawntoArticle33(5)»underwhichunder­
takingshandlingbothlifeassuranceandindemnityinsurancehave5years
fromnotification ofthedirectivetocomplywiththerulesonseparate
managonont.

-12-
TinsC0UI7CIL07THEEUROPEANCOMMUNITIES ,
HavingregardtotheTreatyestablishing theEuropeanEconomicCommunity,
andinparticularArticle57(2)thereof,
HavingregardtotheGeneralProgramme(l)fortheabolitionofrestrictions
onfreedomofestablishment ,andinparticularTitle'IVDthereof,
HavingregardtotheproposalfromtheCommission,
Having-regardtotheOpinionoftheEuropeanParliament ,
HavingregardtotheOpinionoftheEconomicandSocialCommittee,
WhereasundertheGeneralProgrammetheremovalofrestrictions onthe
establishment ofagenciesandbranchesis,inthecaseofdirectlife
insurance •undertakings ,dependenton'thecoordination oftheconditions
forthetakingupandpursuitthereof;whereassuchcoordination 'should
beeffectedafterthatrelatingtodirectinsuranceotherthanlifeassurance,
whichwasthesubjectofaDirective(2)adoptedbytheCouncilon
24July1973:
VJhereasinordertofacilitatethetakingupandpursuitofthebusinessof
insurance,itisessentialtoeliminatecertaindivergences whichexist
betweennationalsupervisorylegislation ;whereas,inordertoachievethis
objectiveandatthesametimeensureadequateprotectionforinsuredpersons
andbeneficiaries inallMemberStates,itisdesirabletocoordinate,in
particular ,theprovisionsrelatingtothefinancialguaranteesrequiredof
lifeassuranceundertakings ;
: ./•
(l)O.J.No2,15January1962,p.36/62.
(2)Directive73/239/EEC.O.J.NoL228,16August1973,p.3.

-13-
Whereasaclassification ofrisksinthedifferentclassesofinsurrmeis
necessaryinordertodetermine,inparticular ,theactivitiessubjectto
compulsoryauthorization ;
WhereasitisdesirabletoexcludefromtheapplicationofthisDirective
mutualassociations which,byvirtueoftheirlegalstatus,fulfilappropriate
conditionsastosecurityandfinancialguarantees ;
WhereastheMemberStateshavedifferentregulations andpracticesastothe
simultaneous handlingoflifeassuranceandindemnityinsurance ;whereas
newundertakings shouldnotbeallowedtohandlethesetwoclassesof
businesssimultaneously butexistingundertakings whicharehandlingthese
twoclassesofbusinesssimultaneously at.thetimeofentryintoforceof.
theDirectiveshouldbeallowedtocontinuetodosobothinthecountry
inwhichtheirhead,officeissituatedandinotherMemberStates,on
conditionthateachcla,ssofbusinessiscontrolledbyaseparatemangement ;
whereasspecialrulesarelaiddoxvninthisDirectiveasregardsseparate
managements soasnottoplacetheinsuredpersonsinalessfavourable
positionthaniftheywereinsuredwithanundertakingdealingexclusively
inlifeassvirance;v?hereastheseruleswillbeincorporated andeuppleraented
inaDirectiveonthecoordination oflegislationrelatingtothewinding
upofdirectinsuranceundertakings ;
WhereaslifeassuranceissubjectineachMemberStatetoofficialauthorization
andsupervision ,butitisnecessarytodefinetheconditionsforthegranting
orwithdrawalofsuchauthorization ;whereasprovisionmustbemadefora
righttoapplytothecourtsshouldan.authorization berefusedorwithdrawn ;
Whereas,asregardstechnicalreserves,thesamerulesmaybeadoptedasin
thecaseofindemnityinsurance,namely,theymustbelocatedinthecountry
wherebusinessiscarriedonandtherulesofthatcountryshallgovernthe
methodofcalculation ,thedetermination ofinvestmentcategoriesandthe
valuationofassets;xfhereas,althoughitisdesirablethatthesevarious
subjectssouldbecoordinated ,itisnotessentialforthepurposesofthis
Directiveandmaycarriedoutsubsequently ;
./•

-14-
tHicreasitisnecessarythatinsuranceundertakings shouldpossess,over
andabovetechnicalreservesofsufficient amounttomeettheirunder­
writingcommitments ,asupplementary reserve,toheknownasthesolvency
margin,andrepresented "byfreeassetsand-byotherfirmsecurities ,in
ordertoprovideagainstbvisinessfluctuations ;whereas,inorderto
ensurethattherequirements imposedforsuchpurposesaredetermined
accordingtoobjectivecriteriabywhichundertakings ofthesamesize:
willbeplacedonanequalfootingasregardscompetition ,itisdesirable
toprovidethatsuchmarginshallberelatedtotheoverallvolumeof
businessoftheundertaking andtothenatureandgravityoftherisks
presentedbuthevariousactivitiesfallingwithinthescopeofthe
Directive ;whereasthismarginshouldvaryaccordingtowhethertherisks
concerninvestments ,deathormanagementonly;whereasitshouldbe
determinedeitherintermsofmathematical reservesandofthecapital
whichanundertaking hasatrisk,orofpremiumsorcontributions received,
orintermsofreservesonly,orofcapitalmanagedbytheundertaking ;
Whereasitisdesirabletorequireaminimumguaranteefund,inorderto
ensureboththatundertakings possessadequateresourceswhentheyare
setupandthatinthesubsequentcourseofbusinessthesolvencymargin
shallinnoeventfallbelowaminimumofsecurity;
IJhereasitisnecessarytomakeprovisionforthecasewherethefinancial
condition -oftheundertaking becomessuchthatisdifficultforittomeet
itsunderwriting commitments ;
Whereasthecoordinatedrulesconcerningthetaking-upandpursuitofthe
businessofdirectinsurancewithintheCommunityshould,inprinciple,
applytoallundertakings enteringthemarketand,consequently ,alsoto
agenciesandbrancheswheretheheadofficeoftheundertakingissituated
outsidetheCommunity ;whereasitis,nevertheless ,desirableasregards
themethodsofsupervisiontomakespecialprovisionwithrespecttosuch

agenciesorbranches,inviewofthefactthattheassetsoftheunder­
takingstowhichthey"belongaresituatedoutsidetheConmunity ;
Whereasitisdesirabletoprovidefortheconclusionofreciprocal
agreementswithoneormorenon-membercountriesinordertopemitthe
relaxationofsuch-specialconditions,whiloobservingtheprinciplethat
suchagenciesandbranchesshouldnotobtainmorefavourabletreatment .than
undertakings withintheCommunity ?
Whereascertaintransitional provisions axerequiredinorder,inparticular ,
topermitsms.llandmedium-sized undertakings alreactyinexistencetoadapt
themselvestotherequirements which,subjecttoArticle53oftheTreaty,
aretobeintroducedbytheMemberStatesinpursuanceofthisDirectiva ;
Whereasitisimportanttoguaranteetheuniformapplication ofthe
coordinatedrulesandtoprovide,inthisrespect,forclosecollaboration
betwsrentheCommission andtheMemberStatesinthisfield:
HASADOPTEDTHISDIRECTIVE:

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T"t?.e I:General Provisions
Article 1
This Directive concerns thetaking-up oftheself-employed activity
ofdirect insurance carried onbyinsurance undertaking established ina
Member State orwhich wish tobecome established there ,andthepursuit
thereof inthe form ofthe activities defined below .
1.The falloiring kinds ofinsurance where they areonacontractual basis :
(a)Life assurance ,that istosay ,thebranch ofinsurance which comprises ,
inparticular ,assurance onsurvival toastipulated ageen:.7,assurance
ondeath only ,assurance onsurvival toastipulated agecranearlier
death ,life assurance with return ofpremiums ,marriage arsuronce ,and
birth assurance ; . i
(b)Annuities ?
(c)Supplementary insurance carried onbylife-assurance undertakings ,that
istosay ,inparticular ,insurance against personal injury ,including
incapacity foremployment ,insurance against death resulting from an
accident ,andinsurance against disability resulting from anaccident
orsickness ,where these various kinds ofinsurance areunderwritten
inaddition tolife assurance ;
(d)Thetype ofinsurance existing inIreland andtheUnited Kingdom known ;
as"permanent health insurance not ,subject tocancellation ".
2.The follo~.ri.ng operations ,where they areonacontractual basis ,aresubject
tosupervision bythecompetent admini strati veauthorities ,forthe super­
vision ofprivate insurance andareauthorised inthecountry concerned :
(a)Tontines ,that istosay,operations based onactual mortality whereby
thewhole ofthefund accumulated oranannuity isdistributed among the
survivors orpaid tothelast survivor ofagroup ofpersons ;

-17-
(b)Capitalredemptionoperations,thatistosay,operationsbasedon
actuarialcalculation whereby,inreturnforsingleorperiodic
paymentsagreedinadvance,commitmentsofspecifieddurationand
amountareundertaken ;includedintheseoperationsare"pr<?tshypo-
thecatesparintervention".
(c)Managementofgrouppensionfunds,thatistosay,operationsthe
purposeofwhichisthemakingofpaymentonsurvivalwhicharenot
atalltimeswhollycoveredbymathematical reserves,andoperations
whichconsistinassuranceundertakings' managingtheinvestments and
capitalising thereservesofthebodiestliateffectthepayments
.aforesaid.
3.WherethenationallawofaMemberStatesoallows,operationsrelatingto
humanlifewhichareprescribedbyorprovidedforinthatState'3social-
insurancelegislation ,whentheseareeffectedbyassuranceundertakings ,
exceptwheretheyconcerncompulsoryinsurancecover.
Article2
ThisDirectivedoesnotapplyto:
'1».Subjectto-the.applicationofArticle1(l)(c)ofthisDirective,the
■--classesdesignatedintheAnnextothefirstDirectiveforcoordinating
•Λ
thelairs,regulations andadministrative provisionsconcerningthetaking
upandpursuitofactivitiesindirectinsuranceothorthanlifeassurance,
adoptedbytheCouncilon24July1973»hereinafterreferredtoas"tho
firstcoordinatingdirective(indemnityinsurance)",(l)
2.Theoperationsofprovidentandmutual-benefitinstitutions whichprovide
benefitsvaryingwiththeresourcesavailableandrequiretheirmembers
tocontributeataflatrate.
' •/-
(l)O.J.oftheEuropeanCommunities NoL223,16August1973.p.3.

-1&-
3.Subjectto-furthercoordination ,operations,otherthanthosereferredto
inparagraph4below,forthepurposeofprovidingbenefitsinrespectof
paidemployeesorself-employed personsbelongingtoanundertakingor
groupofundertakings ,oratradeorgroupoftrades,intheeventof
deathorofdiscontinuance orcurtailment ofactivity.
4.Operationsrelatingtoconplusorycoverunderamembershipschemewhether
compulsory (includingbenefitsprovidedinrespectofoptionalorvoluntary
membershipofsuchscheme)oroptionalaccordingtotheprovisionsofthe
lawonsocialinsurance,otherthantheoperationsreferredtoinArticlel(3).
Article3.
TiiisDirectivedoesnotapplyto:
1.Institutions whichundertaketoprovidebenefitsinthe.eventofdeath
only,wheretheamountofsuchbenefitsislessthan300u.a.
2.Mutualassociations ,where
-theirstatutespermitthemtocallupadditionalcontributions ,orto
reducetheirbenefitsortoclaimassistancefromotherpersonswhohave
undertakentoprovideit;and
-thoannualamountofthesubscription collectedinrespectofactivities
coveredbythisDirectivedoesnotexceed500.000unitsofaccount.
r

-19-
Article4
ThisDirectiveshallnotapplytothe"Versor^ungsverband deutscher
Wirtschaftsorganisationen "unlesstheirstatutesareamendedasregards
capacity.!
Article5
,ForthepurposesofthisDirective }
(a)"Unitofaccount"meansthatunitwhichisdefinedinArticle4ofthe
StatuteoftheEuropeanInvestmentBank;
(b)"Matchingassets"meanstherepresentation ofunderwritingliabilities
expressedinaparticularcurrencybyassetsexpressedorrealizable
inthesamecurrency;
(c)"Localizationofassets"meanstheexistenceofassets,whethermovable
ofimmovable ,,withinaMemberStatebutshallnotbeconstruedas
involvingarequirementthatmovablepropert^rbedepositedorth?.t
immovablepropertybesubjectedtorestrictive measuressuchasthe
registration ofmortgages.Assetsrepresented byclaimsagainstdebtors
shallberegardeda.ssituatedintheMemberStatewheretheyaretobe
liquidated.
(d)"Capitalatrisk"meanstheamountpayableondeathlossthemathematical
reservedefinedinthemaincontract..

-20-
TitleII:Rulesapplicabletoundertakings vhoseheadofficesaresituated
withintheCommunity
SectionA:Conditions ofadmission
Article6
1.EachMemberStateshallmakethetaking-upoftheactivitiesreferredto
inthisDirectiveinitsterritorysubjecttoofficialauthorization .
2.Suchauthorization shallbesoughtfromthecompetentauthorityofthe
MemberStateinquestionby:
(a)Anyundertakingwhichestablishesitsheadofficeintheterritory
ofsuchstate;
(b)AnyundertakingwhoseheadofficeissituatedinanotherMemberState
andwhichopensabranchoragencyintheterritoryoftheMemberState
inquestion; .7
(c)Anyundertakingwhich,havingreceivedtheauthorization requiredunder
(a)or(b)above,extendsitsbusinessintheterritoryofsuchState
tootherclasses;
(d)Anyundertakingwhich,havingobtainedinaccordancewithArticle7(l)
anauthorization forapartofthenationalterritory,extendsits
businessbeyondsuchpart.
3.MemberStatesshallnotmakeanauthorization subjecttothe,lodgingofa
depositortheprovisionofsecurity.
Article7
1.Anauthorization shallbevalidfortheentirenationalterritoryunless,
andinsofarasthenationallegislationpermits,theapplicantseeks
pernissiontocarryouthisbusinessonlyinapartofthenationalterritory.

Anauthorinationshallbegivenforaparticularclassofinsurance.
Itshallcovertheentireclass,unlesstheapplicantdesirestocover
onlypartoftheriskspertainingtosuchclass.
ItshallbeopentoeachMemberStatetoauthorizetwoormoreofthe
classeslistedintheAnnex,wherethenationallawpermitssuchclasses
tobedea.ltinsimultaneously .
Article8
EachMemberStateshallrequirethatanyundertakingsetupinits
territoryforwhichanauthorization issoughtshall:
(a)Adoptoneof,thefollowingforms:
-inthecaseoftheKingdomofBelgium:
"sociétéaJionyiiie/iiaamiozevennootschap","scciêtéencommanditepar
actions/vennootschapbijwijzevangeldschieting opaandelen",
"associationd'assurancemutuelle/onderlingeverzekeringsmaatschapp
"sociétécoopérative/cooperativevennootschap";
-inthecaseofDenmark:
"Aktieselskaber "Qointstockcompanies),"gensidigeselskaber"
(mutuals);
-inthecaseoftheFederalRepublicoxGermany:
"AJrtiengesellschait ","Versicherungsverein aufGegenseitigkeit ",
"Öffentlich-rechtliches Wettbewerbs-Versicherungsunternehmen ";
-mthecaseoftheFrenchRepublic:
forclassesI,II,III,VandVIoftheAnnex,"sociétéanonyme",
"sociétéàformemutuelleàcotisationsfixes",andforclassIV
oftheAnnex,"sociétéàformetontinière";
-inthecaseofIreland:
"incorporated companieslimitedbysharesorbyguaranteeor
unlimited":

-22-
-inthecase oftheItalian Republic :
"societa perazioni ","societa cooperativa ","mutua diassicurazione ";
andpublic-law institutions within themeaning ofArticle 1883 of
the Civil Code ;
-inthecase ofthe Grand Duchy ofLuxembourg :
"société anonyme ","société encommandite paractions ","association
d'assurances mutuelles ","société coopérative "; ■
-inthecase oftheKingdom oftheNetherlands :
"naamloze vennootschap ","onderlinge waarborgmaatschappij ",
"coöperatieve vereniging ";
-inthecase oftheUnited Kingdom :
"incorporated companies limited byshares orbyguarantee or
unlimited ","societies registered under theIndustrial andProvident
Societies Acts ","societies registered under theFriendly Societies
Act",Lloyd 'sunderwriters .
Furthermore ,Member States may setup,where appropriate ,undertakings
inanyform available under public lawprovided that such institutions
have astheir object insurance operations inconditions equivalent to
those undertakings under private lav;;
(b)Limit itsbusiness activities totheactivities referred tointhis
Directive andoperations directly arising therefrom totheexclusion
ofallother commercial business ;
(c)Submit ascheme ofoperations inaccordance with theprovisions of
Article 9°
(d)Possess theminimum guarantee fund provided forinArticle 20(2).
2.Anundertaking seeking anauthorization .toertend itsbusiness toother
classes or,inthecase referred toinArticle 6(2)(d),toanother part
oftheterritory ,shall berequired tosubmit ascheme ofoperations in
accordance with theprovisions ofArticle 9asregards such other classes
orother part oftheterritory .

Itshall,furthermore ,berequiredtosnow'proofthatitpossessesthe
solvencymarginprovidedforinArticle19andtheminimumguarantee
fundreferredtoinArticle20(2)(a)i
Thesecoordinating measuresdonotpreventMemberStatesfromapplying
provisionsrequiringdirectorsandmanagerstohavetechnicalquali­
ficationsorfromrequiringtheapprovaloftheMemorandumorarticles
ofassociation ,generalandspecialpolicyconditions ,technicalbases
forcalculatinginparticular premiumsendmathematical reservesand
anyotherdocumentsnecessaryforthenormalexerciseofsupervision .
Theabovementioned provisions maynotrequirethatanyapplicationforan
authorization shallbedealtwithinthelightoftheeconomicrequirements
ofthemarket.
Article9
TheschemeofoperationsreferredtoinArticle8(l)(c)shallcontain
thefollowingparticularsorproofconcerning :
(a)Thenatureoftheriskswhichtheundertakingproposestccover;the
generalandspecialpolicyconditionswhichitproposestouse;
(b)Thetechnicalbasesthattheundertakingproposestoemployforeach
typeoftransaction ,includingthedataneededtocalculatepremiums
andmathematical reserves;
(c)Theguidingprinciplesastcreinsurance ;
(d)Theitemsconstitutingtheminimumguaranteefund;
(e)Estimatesrelatingtotheexpensesofinstallingtheadministrative
servicesandtheorganization ,forsecuringbusiness;.thefinancial •
resourcesintendedtocoverthem:
(f)Forecastannualbalance-sheetsuptothepointwheretheresultsof
eachyear'soperationsceasetoshowadeficit;
and,furthermore ,forthefirstfour,financialyears:

(g)Theestimated ,annual ,debitandcredititemsintheprofitandloss
account,netoftransfersandretrocessions forreinsurance "but
includingacceptancesforreinsurance andallowingforannual
variationsintheintangibleassetitens;
(h)theestimatedfundstocovercommitmentsandthesolvencymargin.
Artr.de10
EachMemberStateshallrequirethatanundertalcinghavingitsheadoffice
intheterritoryofanotherMemberStateandseekinganauthorization to
openanagencyorbranchshall;
(a)Submititsmemorandumandarticlesofassociationandalistofits
directorsandmanagers;
(b)Produceacertificateissuedbythecompetentauthoritiesofthehead
officecountry,attestingtheclassesofinsurancewhichtheunder-
talcingisentitledtocarryonandthatit'possessestheminimum
guaranteefundor,ifhigher,theminimua .solvencymargincalculated
inaccordancewithArticle19,andstatingthenatureoftherisks
whichitactuallycoversandthefinancialresourcesreferredtoin
Article11(l)(9);
(c)SubmitaschemeofoperationsinaccordancewithArticle11;
(d)Designateanauthorizedagenthavinglispermanentresidenceandabode
inthehostcountry,andpossessingsufficientpowerstobindthe
undertakinginrelationtothirdpartiesandtorepresentitin.::
relationswiththeauthorities and.courtsofthehostcountry;if
theagenthasalegalpersonality ,itmusthaveitsheadofficein-
thehostcountryanditmustinitsturndesignateanindividualto
representitwhocomplieswiththeaboveconditions.Thedesignated
agentshallnotberefusedbytheMemberStateexceptongrounds
relatingtoreputeortechnicalqualifications suchasapplyto
directorsofundertakings whoseheadofficesaresituatedinthe
territoryoftheStateinquestion.

-25-
WithregardtoLloyd's,intheeventofanylitigationinthehost
countryresultingfromunderwritten commitments ,assuredpersons
mustnotbemoreunfavourablytreatedthanifthelitigationhad
beenbroughtagainstbusinessesofamoreconventional type.The
authorizedagentiaust,therefore,possesssufficientpowerstoenable
proceedings tobeinstituted'againsthimandmustinthatcapacity
beabletobindtheLloyd'sunderwritersconcerned,
2.EachMemberStateshallrequirethatforthepurposeofextendingthe
businessoftheagencyorbranch,eithertootherclassesortoother
partsofthenationalterritoryinthecaseprovidedforinArticle6
(2)(d),theapplicantfortheauthorization shallsubmitaschemeof
operationsinaccordancewithArticle11andcomplywiththeconditions
containedin(l)(b)above.
3.Thesecoordinating measuresdonotpreventMemberStatesfromenforcing
provisionsrequiring,forallinsuranceundertakings ,approvalofthe
generalandspecialpolicyconditions,technicalbasesforcalculating
premiumsandmathematical reservesinparticular ,andbyotherdocuments
necessaryforthenormalexerciseofsupervision .
4.Theabovementioned provisions maynotrequirethatanyapplicationforan
authorization shallbeexaminedinthelightoftheeconomicrequirements
ofthemarket.
Article11
1.TheschemeofoperationsoftheagencyorbranchreferredtoinArticle10(l)(c
andin10(2)shallcontainthefollowingparticularsorproofsconcerning:
(a)Thenatureofthecommitmentswhichtheundertakingproposesto
undertakeinthehostcountry;thegeneralandspecialpolicyconditions
whichitproposestouse;
(b)Thetechnicalbaseswhichtheundertalcingproposestoemployforeach
typeoftransactionincludingthedataneededtocalculatepremiums
andmathematical reserves;
•/.

(c)Theguidingprinciplesastoreinsurance ;
(d)Thestateofthesolvencymarginofthe-undertaking ,referred
toinArticles18to20;
(e)Estimatesrelatingtotheexpensesofinstallingtheadministrative
servicesandtheorganisation forsecuringbusinessandthe
financialresourcesintendedtocoverthem;
(f)Theannualforecastbalancesheetuntiltheresultsofeach
years'operationsceasetoshowadeficit;
(g)and,furthermore,forthefirstfourfinancialyears,theestimated
annualdebitandcredititemsintheproftandlossacoount,net
oftransfersandretrocessions forreinsurance butincluding
acceptancesforreinsurance and'allowingforannualvariations
intheintangibleassetitems.
Theschemeofoperationsshallbe.accompanied bythebalancesheetand
•profitandlossaccoitntoftheundertakingforeachofthepastthree
financialyears.If,however,ithasnotyetbeeninbusinessforthree
financialyearsitshallberequiredtofurnishthemonlyforthefinancial
yearscompleted.
Withregard,toLloyd's,thepublicationofthebalancesheetandthe
profitandlossaccountshallbereplacedbythecompulsorypresentation
ofannualtradingaccountscoveringtheinsuranceoperations,and
•accompanied byan:affidavit 'certifyingthatauditors'certificates have
beensuppliedinrespectofeachinsurerandshowingthattheresponsibi­
litiesincurredasaresultoftheseoperationsarewhollycoveredbythe
assets.Thesedocumentsmustallowauthorities toformaviewofthestate
ofsolvencyoftheAssociation .
Theschemeofoperations,togetherwiththeobservations oftheauthorities
competenttoissueauthorizations ,shallbeforxvardedtothecompetent
authoritiesoftheheadofficecountry.Thelatterauthoritiesshall
communicatetheirOpiniontotheformerwithinthreemonthsfromthereceipt
ofthedocuments ;iftheirOpinionh~snotbeencommunicated uponthe
expirj1-ofthistime,itshallbedeemedtobefavourable.

-27-
Article12
1.Anundertaking whichsetsupinaMemberStatemaynotcarryonsimul­
taneouslytheactivitiesreferredtointheAnnextothefirstdirective
onthecoordination ofindemnityinsuranceandtheactivitieslistedin
theAnnextothisDirective. 1
2.Anyundertaking which,atthetimeoftheentryintoforceofthis
Directive,ishandlingbothlifeassuranceandindemnityinsurancemust,
wherethoseactivitiesarebeingcarriedoutwithintheCommunity,provide
separatemanagementforeachclassofinsuranceinaccordancewith
Article13.
3.Suchanundertaking mayextenditsactivities,withinthemeaningof
Article10,whilehandling .bothclassesofinsurance,onconditionthat
itcomplieswithArticle13.
Article13
.\. '1 1
1,The.separatemanagementreferredtoinArticle12(2)mustbeorganized
sothat: ,
-thesimultaneous handlingoflifeassuranceandindemnity .insurance
...doesnot.prejudice ,the,interestsofthelifepolicyholders ;
•profitonthelifeassurancesideaccruetothebenefitofthelife
policyholders totheextentprovidedforinthememorandumandarticles
ofassociation ,thegeneralandspecialpolicyconditionsandthescheme
ofoperations. ... ,..
2.Separateaccountsshallbekeptinrespectoflifeassuranceandother
insurancebusiness,and,particularly ,separatebalancesheetsandseparate
profitandlossaccountssothatthecoverfortheundertaking'scommitments
toitslifepolicyholders isreadilydistinguishable .

-28-
Profits ,commission forintermediaries andexpenditure incurred bythe
undertaking shall bebroken down according totheclass ofbusiness to
which they areattributable anditems common toboth classes ofbusiness
shall beentered inaccordance with ,rules forapportionment tobeapproved
bythecompetent supervisory authority .
3.(a)Theassets oftheundertaking shall bedivided into twoportions ,the
life portion andtheindemnity portion ,each comprising theassets
representing therespective technical reserves ,solvency margin and
guarantee fund .
(b)Tlieassets representing thelife portion shall beentered daily ina
register which shall besubject tosupervision bythecompetent
authorities .These assets maybereplaced byothers ofequal value .
Each transfer ofassets from the -life portion totheindemnity portion
must beapproved aposteriori bythesupervisory authority .
(c)Intheevent ofexecution being levied atthesuit ofoneormore
individual creditors toenforce claims arising outoflife assurance
business ,the assets representing thelife portion shall beapplied
exclusively insatisfaction ofthose creditors ,andintheevent of
a-.winding-up these assets shall beapplied inpriority toallother
claims insatisfaction ofallcreditors whose claims arise outoflife
assurance business .
Article 1A
Anydecision torefuse anauthorization shall beaccompanied bythe
precise grounds fordoing soandnotified totheundertaking inquestion .
Each Member State shall make provision foraright toapply tothecourts
should there beanyrefusal .
Such provision shall also bemade with regard tocases where thecompetent
authorities have notdealt with anapplication foranauthorization upon the
expiry ofaperiod ofsixmonths from thedate ofitsreceipt .
/.

-29-
SectionB:Conditionsforexerciseof"business
Articl315
MemberStatesshallcollaboratecloselywithoneanotherinsupervising
thefinancialpositionofauthorizedundertakings .
Article 16
ThesupervisoryauthorityoftheMemberStateinwhoseterritorythehead
officeoftheundertakingissituatedmustverifythestateofsolvencyof
theundertakingwithrespecttoitsentirebusiness.Thesupervisory
authoritiesoftheotherMemberStatesshallprovid.etheformerwithallthe
information necessarytoenablesuchverification tobeeffected.
Article17
1.EachMemberStateinwhoseterritorybusinessiscarriedonshallrequire
theundertaking toestablishsufficenttechnicalreserves,including
mathematical reserves.
Theamourltofsuchreservesshallbedeterminedaccordingtotherules
fixedbytheState,or,intheabsencoofsuchrules,accordingtothe
establishedpracticesinsuchState. .
2.Technicalreserves,includingmathematical reserves,shallberequired
tobecoveredbyequivalentandmatchingassetslocalisedineachcountry
wherebusinessiscarriedon.MemberStatesmay,however,permit
relaxationsintherulesastomatchingassetsandthelocalization of
assets.
Havingregardtoitsspecialposition,theGrandDuchyofLuxemburgmay,
pendingcoordination oflegislation onthewinding-upofundertakings ,
retainthesystemofguaranteesfortechnicalreservesincludingmathe­
maticalreservesexistingatthetimeofentryintoforteofthis
Directive .

-30-
Theregulationsofthecountrywherethebusinessiscarriedonshall
determinethenatureofsuchr.ssetsand,whereappropriate ,theextentto
whichtheymaybeusedforthepurposeofcoveringthetechnicalreserves,
includingmathematical reserves,andshallalsodeterminetherulesfor
valuingcuchassets.
3.IfaMemberStateallowsanytechnicalreserves,includingmathematical
reserves,tobecoveredbyclaimsagainstreinsurers,itshallfixthe
percentage soallowed.-Insuchcase,itmaynot'requiretheassetsrep­
resentingsuchclaimstobelocalizedinitsterritory,notwithstanding
theprovisionsofparagraph 2.
4«ThesupervisoryauthorityoftheMemberStateinwhoseterritorythehead
officeofanundertakingissituatedshallverifythatitsbalancesheet
showsinrespectofthetechnicalreserves,includingmathematical reserves,
assetsequivalenttoth'iunderwritingliabilities assumedinallthe
countrieswhereitundertakes business,
Article18
EachliemberStateshallrequireeveryundertaking whoseheadofficeis
situatedinitsterritorytoestablishanadequatesolvencymargininrespect
ofitsentirebusiness.
Thesolvencymarginshallcorrespond :
1.totheassetsoftheundertaking,freeofallforeseeableliabilities ,less
anyintangibleitems.Inparticularthefollowingshallbeconsidered :
-thepaidupsharecapitalor,inthecaseofamutualconcern,the
effectiveinitialfund,
-onehalfofthesharecapitalortheinitialfundwhichisnotyetpaid
up,oncethepaiduppartreaches25$ofthiscapitalorfund,
-reserves,statutoryreservesandfreereserves,notcorresponding to
underwritingliabilities ,
-anycarry-forward ofprofits;
2.toprofitreservesappearinginthebalancesheetinsofarasthesereserves
maybeusedtocoveranylosseswhichmayarise;
•••/•••

uponapplication,withappropriatesupportingevidencebytheunclertaking:
a)wherethemathematicalreservesarecalculatedonthebasisofmargins
which,allovdngforfutureprospects,arehigherthanthoseconsidered
neoessary,toanamountequaltothedifferencebetweenthemathematical
reservescalculatedonthehigherbs.sisandonthebafcisofmargins
consideredtobenecessary ;thelattershallbeuniformlyfixedby
thesupervisoryauthorityforallundertakings carryingonbusinessin
itsterritory;itshallcommunicate themtothesupervisoryauthorities
ofotherMemberStates;
b)toanamountequalto5&?°ofthecurrentvalueoffutureprofitsofthe
.undertaking ;thecurrentvalueoffuture'profitsisobtainedbymulti­
plyingtheestimatedannualprofitbyafactorwhichrepresentsthe
averageresidualdurationofthecontractdandtakesaccountoftheir
importance 5theestimatedannualprofitistheaverageoftheprofits
forthelastfiveyears;
c)whereZillmerizingisnotpractisedorwhoreZillmerizingfallsto
reachthecostofwritingpolicies -includedinthepremium,tothe
differencebetweenthemathematical reservewhereZillmerising is
eithernotpractisedoronlypartiallypractisedandamathematical
reserveZillmerizedatarateequaltothecostofwritingpolicies
includedinthepremium;however,thisdifferencemaynotexceed
3.5$whereZillmerization isnotpractised,or3«5$lesstherateof
Zillmerization used,wherethereispartialZillmerization ,ofcapital
atriskanditshallbereduced,shouldtheoccasionarise,bythe
amountoftheundepreciated costsofwritingpoliciesappearinginthe
balancesheet;
d)toanyhiddenappreciationresultingfromunder-valuatioh ofasset
itemsandover-valuation ofliabilityitemsotherthanmathematical
reservesinsofarassuchappreciationisnotexceptionalincharacter.

Article 19
Subject totheprovisions ofArticle 20thesolvency margin shall bedeter­
mined .asshown below according totheclass ofinsurance practised .
a)forinsurance inClass IoftheAnnex tothis Directive ,other than that
referred toinsubparagraphs b)andc)below ,itshall beequal tothe
sumofthefollowing tworesults :
-first result :
t$oofthematheistical reserves relating totdirect business and
reinsurance .acceptances ;
-second resuit :
thefigure representing y'oofthecapital atrisk forwhichtheunder -
talcing isresponsible multiplied bytheratio existing inrespect of
thelast financial yerr between the amount ofcapital atrisk forwhich
theundertaking remains responsible a,fter transfers andretrocessions for
reinsurance andtheamount ofcapital atrisk without deducting reinsuranc
this ratio may innocase beless them 50/&»
b)Forassurance ondeath ,which istemporary orforaperiod notexceeding
five years ,referred toinClass IoftheAnnexe tothis ^Directive and
forsupplementary insurance referred toinClass III ,itshall beequal
totheresult ofthefollowing calculation :
-thepremiums orcontributions (inclusive ofcharges ancillary topremiums
orcontributions )dueinrespect ofalldirect business inthelast fin­
ancial year forallfinancial years ,shall beaggregated ,
-tothis aggregate there shall beadded the amount ofpremiums accepted
forallreinsurance inthelast financial year ,
-from this sumthere shall then bededucted thetotal amount ofpremiums
orcontributions cancelled inthe last financial year ,aswell asthe
total amount oftaxes andlevies pertaining tothepremiums orcontri­
butions entering into theaggregate .

Theamountsoobtainedshallbedividedintotwoportions,thefirst
portionextendingupto10millioounitsofaccount,thesecondcomprising
theexcessj18$and16fooftheseportionsrespectivelyshallbecalculated
andaddedtogether.
Thesumsocalculatedshallbemultipliedbytheratioexistinginrespect
ofthelastfinancialyearbetweentheamountofclaimsremainingtobe
bornebytheundertakingafterdeductionoftransfersandretrocessions
forreinsurance andthegrossanountofclaims;thisratiomayinnocase
belessthan50
o)Forpermanenthealthinsurancenotsubjecttocancellationexistinginthe
UnitedKingdomandIreland,referredtoinClassIoftheAnnextothis
Directive,andforcapitalredemptionoperationsinClassV,itshallbe
equalto4-f°ofthemathematicalreservesrelatingtothistypeofinsurance
oroperation.
d)ForinsuranceconnectedwithinvestmentfundsreferredtoinClassII,
tontinesreferredtoinClassIVandgrouppensionfundsreferredtoin
ClassVI,itshallbeequalto1joofthecapitalmanaged.
Article20
1.Onethirdofthesolvencymarginshallconstitutetheguaranteefund.•.Itshall
consist,totheextentofatleast5C$j-ofitemsliftedinArticle18(l)and
(2). .
2.a)Theguaranteefundmaynot,however,b3lesstha5&j600,000unitsofaccount
inthecasewhereallorsomeoftherisksareincludedinoneofthe
classeslistedintheAnnex.
b)Theminimumguaranteefundreferredtoina)shouldconsistoftheitems
listedinArticle18(l)and(2).

-34-
Article21
1.MemberStatesshallnotprescribeanyrulesastothechoiceoftheassets
inexcessofthoserepresenting thetechnicalreservesreferredtoin
Article17.
2.SubjecttotheprovisionsofJlrticle17(2),Article24(1)and(3)and
Article25(l)lastsubparagraph ,Member .Statesshallnotrestrainthe
freedisposaloftheassets,whethermovableorimmovableproperty,forming
partoftheassetsofauthorizedbusinesses .
TheFederalRepublicofGermanyandtheKingdomshallmakeallnecessary
provisionstopreventtheexistenceof"Treuh'indor"intheformercountry
and"Tillibmand"inthelatterfromrestrictingtheeffectoftheafore­
mentionedsubparagraph .
3.TheseprovisionsshallnotprecludeanymeasureswhichMemberStates,
whileobservingtherulesprevailinginthecountrywherethebusinessis
carriedon,asrequiredunderArticle17(2),andwhilesafeguardingthe
interestsoftheinsured,areentitledtotakeasownersormembersor
associates oftheundertakings inquestion.
Article22
1.MemberStatesshallgraduallyreducethescopeoftheobligationimposed
onundertakings toeffectpartialreinsurance ,inrespectcfbusiness
coveredbyArticle 1,withoneormoreoftheagenciesdesignatedby
nationalrules,soastobringaboutthecompletedisappearance ofsuch
obligationattheendofthetransitional "periodreferredtoinArticle33.
•••jm»m

-35-
2.Theratiocurrentlyinforceshall"bereducedby25%forthwith.
3.Moreover,where,forthepurposeofdeterminingtheproportionof"business
tobecompulsorily reinsured,accountistakenoftheperiodoftimefor
whichtheagencyorbranchhasbeenestablishedinthehostcountry,
accountshallalsobetakenofthefinancialyearsduringwhichtheunder-
talcinghasbeencarryingontheclassesofinsurancereferredtoinArticle 1
intheMemberStateini/hichtheheadofficeissituated.Thesupervisory
authorityinthatStateshallthenissueacertificate ,ofthesamekind;
asthatreferredtoinArticle10(1)b),inrespectoftheentireperiod
duringwhichtheundertaking hascarriedontheclassesofinsurance
concerned.
■Article23
1.EachMemberStateshallrecfuireeveryundertaking whoseneadofficeis
sitxiatedinitsterritorytoproduceanannualaccount,coveringalltypes
ofoperation,ofitsfinancialsituationandsolvency.
2.KemberStatesshallrequireundertakings operatingintheirterritoryto
renderperiodically thereturns,togetherwithstatistical documents,which
arenecessaryforthepurposesofsupervision .Thecompetentsupervisory
authorities shallfurnisheachotherwiththedocumentsandinformation
necessaryforexercisingsupervision .
Article24
1.Ifanundertaking doesnotcomplywiththeprovisionsofArticle17,the
supervisoryauthorityofthecountrywhereitcarriesonitsbusinessmay
prohibitthefreedisposalofassetsinthatcountryafterhavinginformed
thesupervisoryauthoritiesofthecountrywheretheheadofficeissituated
ofitsintention.
•••/*•

-36·-
2.Forthepurposesofrestoringthefin?.ncialsituationofanundertiking
whosesolvencyraarginhasfallenbelowtheminimum'requiredunderArticle19»
thesupervisoryauthorityofthehead-office countryshallrequireaplan
fortherestorationofasoundfinancialpositiontobesubmittedforits
approval.
3.Ifthesolvencymarginfallsbelowtheguaranteefundasdefinedin
Article20,thesupervisoryauthorityofthehead-o:?ficecountryr-i^all
requiretheundertakingtosubuitashort-termfinanceschemeforxts
approval.
Itmayalsorestrictorprohibitthafreedisposaloftheassetsofthe
undentaking.ItshallinformtlieauthoritiesofotherMemberS;.rtosin
.wlicaeterritories .the.undertakingisautlw.riz'xl cfa:iyasa3?:;Pt^id-tho
1avborshall,attherequestoftheformer,t?kethesamemeasures.
4.Thecompetentsuperscryauthorities mayfurthertakealln^as'ires
n3ces-3axytosafeguardtheinterestsoftheinsuredinthecasesprovided
forin(1)and(3).
5.Thesupervisoryauthorities ofotherMemberStatesinwhosoterritorythe
undertakinginqurs5:;onhasalsobeenauthorizedshallcol]aooruteforthe
purposeofimplementingtheprovisionsreferred ,toin(l)to(4)>
AvfcT.le25
'1."EachMemberStateshallmakeitpossibleforanur/lsrtaking
toassignallorpartofitsportfolioofpoliciesiftheassigneespossess
thenecessarysolvencymargin,dueaccountbeingtakenoftheassignment .
Thesupervisoryauthorities concernedshall,consulteachotherbefore
approvingsuchassignment .
2.Onceapprovedbythecompetentnationalauthority,suchassignment may
automatically berelieduponagainstthesubscribers concerned.
•«•/•a

-3.7-
3.Whereanundertakingissimultaneously handlinglifeassuranceand
indemnityinsuran.ee,eachMemberStateshallensurethat,intheevent
ofanassignmentofallorpartofitsportfolio,suchassignmentdoes
notprejudicetheinterestsofthelifepolicy-holders andthatin
particulartheassetsandliabilitiesbetransferredseparatelyforeach
oftheclassesofinsuranceconcerned.
SectionC:Withdrawalofauthorization
Article26
1.Hieauthorization grantedbythecompetentauthorityoftheMemberState
inwhoseterritorytheheadofficeissituatedmaybewithdrawnbysuch
authorityiftheundertaking :
a)nolongerfulfilstheconditionsofadmission •
b)hasbeenunable*withinthetimeallowed,totakethemeasurescontained
intherestorationplsnorfinanceschemereferredtoinArticle24;
c)failsseriouslyinitsobligationsunderthenationalregulations.
Intheeventofthewithdrawaloftheauthorization ,thesupervisory
authorityofthehead-office countryshallnotifysuohwithdrawalto
thesupervisoryauthoritiesofotherMemberStateswhichhaveissuedan
authorization totheundertaking ;thoyshall,thereupon,alsowithdraw
theirauthorizations .Thesupervisoryauthorityofthehead-office
countryshall,inconjunctionwithsuchotherauthorities ,takeall
necessarymeasurestosafeguardtheinterestsoftheinsuredand,in
particular ,shallrestrictthefreedisposaloftheassetsoftheunder­
takingifsuchrestriction hasnotbeenalreadyimposedinaccordance
withtheprovisionsofArticle24(l)and(3)>subparagraph 2,

-38-
2.Anauthorization gran-todtoanagencyorbranchofanunlertaldng vmo'Je
headofficeissituatedinanotherMemberStatemay"bewithdraws ...ifthe
agencyorbranch:
a)no.-longerfulfilstheconditionsforadmission;
b)failsseriouslyinitsobligationsundertheregulationsofthecountry
whereitcarriesonitsbusiness,withrespectir,particulartothe
establishment oftechnicalreservesasdefinedinArticle17•
Beforewithdrawingtheauthorization thesupervisoryauthoritiesofthe
coimtrywherebusinessiscaxricdonshallconsultthesupervisory
authorityofthe'countrywheretheheadofficeissituated.Ifthey
deemitnecessarytosuspendthebusinessofsuchagencyorbranchbefore
consultationisconcluded,theyshallimmediately advisethesupervisory
authorityofthecountrywheretheheadofficeissitua/ted.
3.Anydecisiontowithdrawanauthorization orsuspendbusinessshallbe
'supportedbyprecisereasonsrndnotifiedtotheundertakinginquestion.
EachEemberStateshallmokeprovisionforarighttoapplytothecourts
againstsuchadecision.

-39-
TitleIII:Rulesapplicabletoagenciesorbranchesestablishedwithinthe
Communityandbelongingtoundertakings whoseheadofficesare
outsidetheCommunity
Article27
1.EachMemberStateshallmakeacoesstothebusinessesreferredtoin
Article 1byanyundertaking whoseheadofficeisoutsidetheCommunity
subjecttoanofficialauthorization .
2.AMemberStatemaygrantanauthorizationiftheundertakingfulfilsat
leastthefollowingconditions ;
a)Itisentitledtoundertakeinsurancebusinessunderitsnationallawj
b)ItestablishesanagencyorbranchintheterritoryofsuchMember
State;
c)Itundertakestoestablishattheplaceofmanagementoftheagency
orbranchaccountsspecifictothebusinesswhichitundertakesthere,
andtokeeptherealltherecordsrelatingtothebusinesstransacted ;
d)Itdesignatesanauthorized .agent,tobeapprovedbythecompetent
authorities :
e)Itpossessesinthecountrywhereitcarriesonitsbusinessassetsof
anamountequaltoatleastonehalfoftheminimumcmountprescribed
inArticle20(2),inrespectoftheguaranteefund,anddeposits
one-fourthoftheminimumamount,assecurity;
f)Itundertakestokeepamarginofsolvencyinaccordancewiththe
,requirements referredtoinArticle29;
g)Itsubmitsaschemeofoperationsinaccordancewiththeprovisions
ofArticle11(l)and(2).
I4•/*a«

-40-
Article28.
MemberStatesshallrequireundertakings toestablishadequatetechnical
reservestocovertheunderwritingliabilities assumedintheirterri­
tories.MemberStatesshallseethattheagency,orbranchcoverssuch
technicalreserves,includingmathematical reserves,bymeansofassets
whichareequivalenttosuchreserves ?jidare,totheextentfixedbythe
Stateinquestion,matchingassets.
ThelawoftheMember'States'shallbeapplicabletothecalculationof
technicalreserves,thedetermination ofcategoriesofinvestments ,and
thevaluationofassets.
TheI-IemberStateinquestionshallrequirethattheassetsrepresenting
thetechnicalreservesshallbelocalizedinitsterritory.
Article29
1.EachMemberStateshallrequireforagenciesorbranchesestablished
initsterritoryasolvencymarginconsistingofassetsfreeofall
foreseeableliabilities ,lessanyintangibleitems.Thesolvency
marginshallbecalculatedinaccordancewiththeprovisionsof
Article19°However,forthe.purposeofcalculatingthismargin,
accountshallbetakenonlyofthepremiumsorcontributions ,mathe­
maticalreservesandcapitalatriskpertainingtothebusiness
effectedbytheagencyorbranchconcerned.
2.One-thirdofthesolvencymarginshallconstitutetheguaranteefund.
Theguaranteefundmaynotbelessthanonehalfoftheminimum
requiredunderArticle20(2)a).Theinitialdepositlodgedin
accordancewithArticle27(2)e)shallbecountedtowardssuch
guaranteefund.'
••«I«a•

Theassetsrepresentingthesolvencymarginmustbekeptwithinthe
countrywhorethebusinessiscarriedonuptotheamountofthe
guaranteefund,andtheexcess,withintheCoMiiunity.
Article30'
Anyundertaking which,havingobtainedanauthorization fromone
MemberState,obtainsanauthorization fromoneormoreotherMember
Statedtoestablishotheragenciesorbranchesthereinmayapplyfor
oneormoreofthefollowingadvantages :
a)ThatthosolvencymarginreferredtoinArticlo29becalculated
inrelationtotheentirebusinesswhichitundertakeswithinthe
Community;insuchcase,accountshallbetakenofthepremiums
orcontributions ,mathematical reservesandcapitalatrisk
relatingtothebusinesseffectedbyalltheagenciesorbranches
establishedwithintheCommunity;
b)Th?,titbedispensedfromlodgingthedepositrequiredunder
Article27(2)e),insuchStatesalso;,
c)Thattheassetsrepresentingtheguaranteefundbekeptinany
oneoftheMemberStatesinwhichitcarriesoutbusiness.
ShouldatleasttwoofthoMemberStatesinquestionapprovethe
applicationinwholeorinpart,thecompetentauthorityofthe
MemberStateinwhoseterritorytheoldestestablishment ofthe
applicantissituatedshallverify ,thestateofsolvencyofthe
undertakingwithrespectto.theentirebusinesscarriedonbyit
withintheMemberStateswhichapprovetheapplication .However,
attherequestoftheundertaking andwiththeunanimousapproval

-42-
oftheMemberStatesconcerned,suchverification maybecarriedoutby
thecompetentauthorityofanotherMemberState.Theauthoritycarrying
outtheverification shallobtainfromtheotherMemberStatesth<3
necessaryinformationregaraingtheagenciesorbranchesestablishedin
theirterritories .
3.TlieadvantagesconferredbythisArticlemaybewithdraw!uponthe
initiativeofoneormoreoftheMemberStatesconcerned .
Article31
1.Agenciesandbranchesofundertakings referredtointhisTitlewhichare
establishedintheterritoryofaMemberStateaftertheentryintoforce
ofthisDirectiveinthatMemberState,shalllimittheirbusinesseither
tolifeassuranceortoindemnityinsurance.
However,agenciesandbrancheswhich,atthetimeofentryintoforceof
thisDirective,arehandlingbothclassesofbusinesssimultaneously ,may
continuetodosobutmustcomplywithArticle13«
2.TheprovisionsofArticles23and24shallalsoapplyinrelationto
agenciesandbranchesofundertakings towhichthisTitleapplies.
AsregardstheapplicationofArticle24,thesupervisoryauthorityof
theoldestestablishment ortheonethatcarriesoutinitsplacethe
verification oftheoverallsolvencyofbranchesoragenciesshallbe
assimilatedtotheauthorityoftheterritoryinwhichtheheadoffice
ofaCommunityundertakingissituated.
«•t/a•«

3.Inthecaseofawithdraw?!ofauthorization bytheauthorityrcforrodto
inArticle30(2),thisauthorityshallnotifytheauthoritiesoftheother
MemberStateswheretheundertakingoperatesandthelattersupervisor;/
authorities shcvlltaketheappropriate measures -Ifthereasonforthj
withdrawaloftheauthorization istheinadequacyoftheoverallstate
ofsolvencyasfixed "bytheMemberStateswhichagreedtotherequest
referredtoinArticle30,theMemberStateswhichgavetheirapprovjJ.
shallalsowithdrawtheirauthorizations .
Article32
TheCommunitynay,bymeansofagreementsconcludedpursuanttotheTreaty
withoneormorethirdcountries,agreetotheapplicationofprovisions
differenttothoseprovidedforinthisTitle,forthepurposeofensuring,
underconditionsofreciprocity ,adequateprotectionforinsuredpersonsin
theMemberStates.
TitleIV:Transitional eJidotherprovisions
Article33
1.MemberStatesshq.llallowundertakings referredtoinTitleIIwhichat
theentryintoforceoftheimplementing measurestothisI&rective
,provideinsuranceintheirterritoriesinoneormoreoftheclasses
referredtoinArticle 1aperiodoffiveyears,commencingwiththe
dateofnotification ofthisJOirective,inordertocomplywiththe
requirements ofArticles18to20.
2.Furthermore ,MemberStatesmay:
a)allowanyundertakingsreferredtoin(l),whichupontheexpiryof
thefive-yearperiodhavenotfullyestablishedthemarginofsolvency,
afurtherperiodnotexceedingtwoyearsinwhichtodosoprovided
.thatsuchundertakings have,inaccordancewithArticle24,submitted
fortheapprovalofthesupervisoryauthoritythemeasureswhichthey
proposetotakeforsuchpurpose?
...fa*.

n44^
b)e::emptundertakingsreferredtoin(l)whoseannualpremiumorcont­
ributionincomeupontheexpiryoftheperiodoffiveyearsfallsshort
ofsixtimestheamountoftheminimumguaranteefundrequiredunder
Article20(2)a),fromtherequirementtoestablishsuchminimum
guaranteefundbeforetheendofthefinancialyearinrespectof
whichthepremiumorcontribution incomeisasmuchassixtimessuch
'-minimumguaranteefund.
Themaximumperiodthusgrantedtotheseundertakingstoestablish
a.minimumguar<?nteefundshallinnocaseexceedtenyearsfromthe
dateofnotification ofthisDirective.
3.Undertakings desiringtoextendtheiroperationswithinthemeaningof
Article8(2)orArticle10(2)maynotdosounlesstheycomply
immediately withtherulesofthisDirective.
4*Acompanyhavingastructuredifferentfromanyofthoselistedin
Article8maycontinue,foraperiodofthreeyearsfromthenotification
ofthisDirective,tocarryonitspresentbusinessinthelegalform
inwhichitisconstitutedatthetimeofsuchnotification .Undertakings
sotupintheUnitedKingdom'byRoyalCharter'or'byprivateAct'or
•byspecialpublicAct'maycontinuetocarryontheirbusinessintheir
presentformforanunlimitedperiod.
,Undertakings inBelgiumwhich,inaccordancewiththeirobjects,carry
onthebusinessoflifeassurance,intervention mortgageloansorsavings
.operationsinaccordancewith!To.4ofArticle15oftheprovisions
relatingtothesupervisionofprivatesavingsbanks,coordinated by
the'arreteroyal1of23June1967>maycontinuetoundertakesuch
business,excludingsavingsoperationswhichmustceasenolaterthan
throej'-earsfromthedateofnotification ofthisDirective.
••*/•■•

TheMemberStatesinquestionshalldrawupali~.tofsuchundertakings
andcommunicateittotheotherMemberStatesendthe.Commission ,
.»
•t
5.TheinsuranceundertakingsreferredtoinArticle12(2)shallhavefive
yearsfromthedateofnotificationofthisDirectiveinwhichtocomply
withArticle13.
6.Attherequestofundertakings whichfulfiltheobligationscontainedin
Articles17to20,MemberStatesshallabolishrestrictive measuressuch
asmortgages,depositsorsecuritiesestablished underthecurrentrules.
MemberStatesshallallowagenciesorbranchesreferredtoinTitlenwhich,
attheentryintoforceoftheimplementing measurestothisDirective,are
undertaking oneormoreclassesreferredtoinArticle 1anddonotextend
theirbusinesswithinthemeaningofArticle10(2)a,maximumperiodoffive
years,fromthedateofnotification ofthisDirective,inordertocomply
withtheconditionsofArticle29. :'•
Article35
IXiringaperiodwhichterminatesatthetimeoftheentryintoforceofan
agreementconcludedwithathirdcountrypursuanttoArticle32andatthe
latest .upontheexpiryofaperiodoffouryearsafterthenotification of
thisDirective,eachMemberStatemayretaininfavourofundertakings of
thatcountryestablishedinitsterritorytherulesappliedtothemon
1January1973inrespectofmatchingassetsandthelocalization oftech­
nicalreserves,providedthatnotificationisgiventotheotherMember
StatesandtheCommission and,thatthelimitsofrelaxations granted
pursuanttoArticle17(2)infavouroftheundertakingsofMemberStates
establishedinitsterritoryarenotexceeded.

•ττ46τ
TitleV;ilnalprovisions
Article36
TheCommissionandthecompetentauthoritiesoftheMemberStatesshall
collaboratecloselyforthepurposeoffacilitating thesupervisionof
directinsurancewithintheCommunity o*idofexamininganydifficulties
whichmayaricsintheapplicationofthisDirective.
Article37
1.TheCommissionshallsubmittotheCouncil,withinsixyearsfromtha
dateofnotification ofthisDirective,areportontheeffectsofthe
financialrequirements imposedbythisDirectiveonthesituationonthe
insurancemarketsoftheMemberStates.
2.TheCommissionshall,asandwhennecessary,submitinterimreportsto
theCouncilbeforetheendofthetransitional periodprovidedforin
Article33(l)-
Article33
MemberStatesshallciaendtheirnationalprovisionstocomply/withthis
Directivewithin16monthsofitsnotification andshallforthwithinform
theCommissionthereof.
Thoprovisionsthusamendedshall,subjecttoArticles33to35>heapplied
within30monthsfromthedateofnotification .

Article39
Uponnotification ofthicDirective,MemberStatesshallensurethatthe
textsofthemainprovisionsofalegislative ,regulatoryoradministrative
naturewhichtheyadoptinthefieldcoveredbythisDirectivearecommuni­
catedtotheCommission .
Article40
TheAnnexshallformanintegralpartofthisDirective.
Article41
ThisDirectiveisaddressedtotheMemberStates.
DoneatBrussels,
FortheCouncil
ThePresident

AITRRsx
Classification oxrisks according to
classes ofinsurance
I. Life
II.Insurance connected with investment funds
III .Supplementary insurance
IV.Tontines
V.Capital redemption operations
VI»I-Ianagemont ofgroup pension funds