COMMISSION OF THE EUROPEAN COMMUNITIES 
C0MC90) 348 final - SYN 291 
Brussels, 31 August 1990 
Proposal for a 
THIRD COUNCIL DIRECTIVE 
on the coordination of laws, regulations and administrative 
provisions relating to direct insurance other than life 
assurance and amending Directives 73/239/EEC and 88/357/EEC 
(presented by the Commission) 
i. arjiawriuLzja - 2 -
EXPLANATORY MEMORANDUM 
»• {tcm/.a&vvif ^ 
A) The completion of the internal market in insurance is now one of the 
Commission's priority objectives given the Increasing importance of 
this boom industry and the work already done in other fields with a 
view to creating a single financial market. 
In the direct non-life Insurance sector, the Second Directive, 
Directive 88/357/EEC, has already made a significant contribution 
towards the formation of the internal market. That Directive lays 
down rules designed to facilitate freedom to provide services in 
respect of direct non-life insurance in the form of two separate sets 
of arrangements. The first, intended for large risks and based on the 
approach - as mapped out in the White Paper - of home country control, 
provides for application of the law of the country of establishment of 
the insurer covering the risk. The second set of arrangements 
concerns "mass risks" and is based on the application of the 
supervisory rules of the country in which the risk insured is located 
(host country control). 
When the Second Directive was adopted, the Commission formally 
undertook to present at the earliest opportunity proposals which would 
permit the application of the principle of home country control to all 
direct non-life insurance business and its subjection to a single set 
of legal arrangements. 
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For the achievement of this third stage, which will result in the full 
completion of the internal market, the strategy adopted is that 
provided for in the White Paper: 
(a) coordination of the essential rules on the prudential and 
financial supervision of direct non-life insurance business; 
(b) mutual recognition, on the basis of such harmonization at 
Community level, of the authorizations granted to insurance 
undertakings and of the prudential supervision systems of the 
different Member States; 
Co) the grant of a single authorization valid throughout the 
Community and supervision of an undertaking's entire business by 
its home Member State (home country control). 
This strategy has already been used to complete the internal market in 
other areas of financial services. Such is the case with UC1TS 
(Directive 85/611; OJ L 375, 31.12.1985), hanking (Seoond Directive 
89/646, OJ L 386, 30.12.1989) and Investment services (OJ C 43, 
22.2.1989), In which considerations of the protection of savers, 
investors and consumers are as much to the fore as they are in the 
insurance sector. It is therefore considered justified to apply to 
all financial institutions a regime based on the same principles. 
Qnoe this objective has been attained, the free movement of insurance 
products will be possible within the Community and it will afford 
every person seeking insurance the opportunity of turning to any 
Community insurer in order to find the cover best suited to his needs, 
while providing him with adequate protection. 
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One introduction of this regime into the direct non-life insurance 
sector involves substantial amendment of the rules currently in force 
under the First and Second Directives. Those Directives make no 
provision either for a single authorization system or for genuine home 
country oontrol. Nor has any coordination been carried out as yet as 
regards the essential harmonization of prudential supervision rules 
concerning insurance companies' technical provisions. 
This proposal for a Third Directive «Vlresses these matters and amends 
the first two Directives so as to produce a cohesive system applicable 
to all direct non-life insurance business, whether it be transacted 
under conditions of establishment or under conditions of provision of 
services. 
The structure of this proposal for a Directive is that already adopted 
by the Second Banking Directive and by the proposal for a Directive on 
investment services. It consists, therefore, of five titles: 
TITLE I: Definitions and scope 
(Articles 1-3) 
TITLE H: The taking-up of the business of insurance 
(Articles 4-7) 
TITLE m: Harmonization of conditions governing pursuit of 
business (Articles 8 - 27) 
TITLE IV: Provisions relating to freedom of establishment and 
freedom to provide services (Articles 28 - 41) 
TITLE V: Final provisions (Articles 42 - 46) 
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B) Hairnrml ration nf tfrp -rnlffl ooirernlng th* **y»in1ry».1 prnxHglnrtfg nf 
undertakings nftrrying on tfr* HVCHT*^ 0f flj-rfy>*T TYTTH1** iTypiTwrra 
The Introduction of a system of a single authorization and home 
oountry control calls for harmonization of Member States' rules on the 
definition and calculation of technical provisions and on the currency 
matching, valuation, diversification and localization of the assets 
covering the technical provisions. 
As regards the definition and calculation of technical provisions, the 
Commission considers that the provisions of the proposal for a Council 
Directive on the annual accounts and consolidated accounts of 
insurance undertakings (OJ C 131 of 18.5.1987) already achieve such 
harmonization as is essential and necessary to permit mutual 
recognition and home oountry control. 
As regards the assets covering the technical provisions, this proposal 
for a Directive lays down coordinated rules on their admissibility, 
diversification and valuation and on currency matching requirements. 
The requirement that assets be located in the Member State in which 
business is carried on is deleted to take account of the measures 
adopted in the field of the liberalization of capital movements. For 
the same reason, the requirement that a minimum of assets be invested 
in specific categories can no longer be maintained. 
- Law ajzplloahlft to remtaa/rto and policy oondltlonfi 
This proposal for a Directive does not undertake any harmonization of 
the substantive law applicable to contracts and policy conditions. 
The work carried out within the Council in this connection in recent 
years has shown that such harmonization is not essential to 
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achieve at this stage. The system proposed in this Directive is based 
on the rules laid down in the Second Directive on choice of law 
applicable to insurance contracts. This system makes it possible to 
ensure satisfactorily the requisite consumer protection because, in 
principle, the Member State in which the risk is situated can if it so 
wishes apply its own law to an insurance contract covering a mass 
risk. 
On the other hand, the Commission considers that all large risks must, 
owing to their specific characteristics, enjoy complete freedom of 
choice of law. This approach is in keeping with the case law of the 
Court of Justice, which has held that there is no need for special 
protection in respect of the insurance of large risks. What Is more, 
some Member States granted such freedom to all large risks when they 
incorporated the Second Directive Into their law. 
At the same time, the Commission considers that, in order that they 
might find the cover best suited to their specifio needs, it is of the 
utmost Importance that persons seeking insurance should have access to 
every insurance product lawfully marketed in the Community provided it 
does not conflict with legal provisions protecting the general good in 
force in the Member State in which the risk is situated. 
As regards the verification of Insurance policies and contract 
documents, the Commission considers that the systems to be used should 
be tailored to the requirements of a genuine single market. With this 
in mind, the Commission proposes that every system for the prior 
vetting of such documents should be abolished and replaced by 
ex post facto communioation systems, which also make it possible to 
afford policy-holders the requisite degree of protection. 
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- AbniAtinn nf ffa prohibition Of thlft fit 
hllfilnftSfi by way nf T»1fh*. nf ^^Hfi>nnpnt «rrf Vy taay Of frf**™i «n 
provide servioes 
The Second Directive authorized, in the interests of protecting 
policy-holders, Member States to prohibit the simultaneous pursuit in 
their territory of insurance business by way of establishment and by 
way of freedom of servioes as far as the covering of mass risks is 
concerned. This option was justified by the situation which 
prevailed, when the Second Directive was adopted, with regard to the 
harmonization of the essential rules on technical provisions and the 
law governing insurance contracts and policy conditions. 
This proposal for a Directive brings about the coordination considered 
necessary to afford policy-holders the requisite degree of protection. 
At the same time, and as with other financial servioes, it introduces 
into the insurance sector the system of a single authorization and 
prudential supervision of all business by the home Member State. The 
option is therefore abolished by this proposal for a Directive. 
- HftljfrtilfP* «fltll +ftlTl countries 
This proposal contains no provisions on the treatment to be granted to 
insurance undertakings from third countries seeking authorization to 
do business in the Community. The relevant arrangements have already 
been Introduced in the amenrled proposal for a Directive on freedom to 
provide servioes in motor insurance (OQM(90)278 of 20.06.1990), on 
which the Council adopted a common position on 20 June of this year. 
The arrangements provided for in that proposal for a Directive apply 
to the whole direct non-life insurance sector. 
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- Exercise of lafrlgragrvMiY prrore 
This proposal for a Directive is silent about the procedure to be 
followed for the exercise of the implementing powers it confers on the 
Commission. The question is dealt with in a separate proposal for a 
Directive which will apply to all directives concerning life and 
non-life Insurance providing for such implementing powers (CCM(90)344 
of 11.07.1990). 
C) Three factors help explain the urgency of action at CcmmTnlty level 
along the Unes of that proposed in this proposal for a Third 
Directive. 
The first is a major political factor, the Single European Act. When 
this was signed, Member States expressed their firm political will to 
take, before 1 January 1993, the decisions needed to create a genuine 
internal market. 
The second factor oonoerns the development of financial services and 
their increasing importance. Within the Community, this development 
has already led to adoption of the provisions needed to complete the 
internal market in the field of credit institutions and tXHTS. 
Such financial institutions will thus be able to propose throughout 
the Community products benefiting from a "European passport", thereby 
creating a distortion of competition to the detriment of those 
insurers with whom they enter, in the case of certain products, 
directly into competition. 
The insurance industry is currently at a disadvantage compared with 
other financial servioes when it comes to facing the challenge of the 
single market. Insurance undertakings are to a large extent still 
obliged to operate in twelve isolated markets subject to different 
rules and procedures as regards the taking-up and pursuit of fcusiness, 
whether it be by way of establishment or by way of freedom of 
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services. This involves a variable degree of intervention in relation 
to insurance products and the freedom of insurers and those seeking 
insurance to enter into insurance contracts. This state of affairs 
can no longer be tolerated if the Community's commitments as far as 
attaining the objectives of the EEC Treaty is oonoerned are to be 
fulfilled. 
The third factor is the judgments delivered by the Court of Justice on 
4 December 1986. While sanctioning the application to insurance of 
freedom to provide services as a fundamental principle of the Treaty, 
the Court sought to reconcile the exercise of that freedom with the 
requirements of the protection of persons seeking Insurance. It 
confirmed that, once the necessary coordination of insurance 
undertakings' technical provisions, the assets covering those 
provisions and policy conditions has been carried out, all 
seekers/consumers of insurance will enjoy an adequate and sufficient 
level of protection, and the entire business can then be made subject 
to a uniform regime based an the principle of home oountry control. 
II) raiMKMPAW CK TOW AOTTHTJg; 
TVyflnl^lopf? «rri scope 
Article 1 - Tftf^-MnnB 
This article contains definitions of pertain terms used in the proposal for 
a Directive, the aim being to clarify their meaning and hence contribute to 
a better understanding of the Directive. 
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Article 2 - Scope 
This article defines the scope of the proposal for a Directive. The scope 
coincides with that of the First Directive (Directive 73/239/EBC). In 
other words, it excludes life assurance in its entirety and the operations 
covered by Directive 79/267/EBC, mutuals with a clearly defined, restricted 
local basis which, by virtue of their legal status, fulfil speciflo 
conditions of security and offer specific financial guarantees, and bodies 
governed by public law enjoying a monopoly of the insurance of certain 
risks (Articles 2 - 4 of Directive 73/239/EBC). 
Artlrilft g - MflmhPT» States' JTtfmT^jw> mQpnrpnM ret 
This provision is designed to adapt the monopolies existing in certain 
Member States in respect of the insurance of pertain risks to the 
requirements of a genuine integrated market. 
It is inconceivable that, within the Community, part of its territory 
should escape, owing to the existence of exclusive rights in the 
transaction of pertain classes of insurance, from the full application of 
the Treaty's provisions on right of establishment and freedom to provide 
servioes. The monopoly enjoyed by certain bodies in this respect must 
therefore be abolished in order that persons seeking insurance in that part 
of the Community may also be free to choose from among the insurance 
products offered to them by any Community Insurer. 
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TITLE II 
The taklng-up of the business of insurance 
AUTffiRIZATICM QDMDITIC1TS 
Arttnlftg 4 «nd R - Thg «inglq fyit^rl^tln" 
These articles introduce the fundamental concept of the single insurance 
licence by amending Articles 6 and 7 of the First Directive. Article 6 as 
amended now specifies that the authorization to take up the business of 
direct insurance shall be granted by the competent authorities of the home 
Member State. This system still has as its premiss that an official 
authorization is a pre-condition for the taklng-up and pursuit of insurance 
business. Article 7 has been amended to specify that that authorization 
shall be valid throughout the Community. This extended territorial scope 
will apply both to establishment and the provision of insurance servioes on 
a cross-border basis (paragraph 1). The role of the competent authorities 
of the home Member State (which has been defined in Article 1 as the 
Member State of establishment of the head offioe of the insurance company 
covering the risk) is consistent with the principle of home oountry 
supervisory control of the financial position of the company, Including its 
Insurance activities In the Member States which are undertaken by way of 
branching or servioes (see Article 8). The task of supervising the 
company's entire business falls to the insurer's home authorities, which 
are those that granted the authorization. 
The authorization will continue to be given for a particular class of 
insurance as listed in point A of the Annex to the First Directive. The 
option for Member States to also grant authorization for a group of classes 
and auxiliary risks Included in classes other than that of the principal 
risk has been maintained in this proposal (paragraph 2). 
Also any undertaking seeking to extend its business to other classes will 
be required to request a new authorization in accordance with the procedure 
laid down in Article 6 of the First Directive (point b). 
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Article 5 of the proposal furthermore brings to an end the derogation for 
the Federal Republic of Germany which allowed it to prohibit the 
sumultaneous undertaking of health insurance with any other class of 
insurance. It is considered that this final specialization requirement is 
no longer justified in view of the fact that further coordination in the 
form of the insurance accounts Directive, the harmonization of technical 
provisions as set out in Title m, Chapter 2 of this proposal for a 
Directive and the coordinated standards on permissible assets, valuation, 
diversification and rules on currency matching will provide sufficient 
protection of insured persons. 
Furthermore, the possibility for Member States to apply their legal 
provisions justified by the general good constitutes sufficient guarantee 
for those Member States granting authorization to private insurers offering 
private health Insurance in substitution for the social health insurance 
system to require in pertain oases that the conditions of insurance offered 
are at least as good as those of the social health Insurance system 
(Artical 43a). 
Article 6 
The home Member State must require any company seeking authorization to 
fulfil the conditions laid down in Article 8 of the First Directive. That 
is to say to adopt a specific legal form, to which this proposal adds the 
legal form of the European Company, to limit its business activities to the 
business of insurance, submit a scheme of operations and possess a minimum 
guarantee fund. It is now proposed to bring the authorization requirements 
for undertakings engaging in mass risks into line with those for large 
risks as set out In the Second Directive. 
An additional mandatory condition, which was facultative in the First 
Directive, has been added to the requirements, concerning adequate 
technical qualifications and soumuess of the managers and directors of any 
company seeking authorization. These conditions are considered necessary 
to safeguard the general quality of business of an insurance company, as 
well as the day-to-day management running the company (paragraph 1). 
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An important step forward concerning authorization conditions is the 
proposal to abolish the possibility for Member States to require the prior 
approval or systematic notification of general and special policy 
conditions, scales of premiums, or forms and other printed documents which 
the undertaking uses in its dealings with policy-holders (paragraph 3). 
Member States may only require non-systematic notification of such 
information in exercising their supervisory tasks but this may not amount 
to a prior condition for an undertaking to be able to carry on its 
activities. Two exceptions to this system are allowed. Firstly for 
premium rates which function as part of a general price control system. In 
this exceptional case it is proposed that prior notification or approval of 
proposed increases in those States will be allowed. Secondly, the 
technical and quality checks on staff and equipment of undertakings active 
in the field of tourist assistance, as introduced in the Second Directive, 
will continue to apply. 
Article 6a 
This provision replaces Article 9 of the First Directive and sets out the 
requirements for the scheme of operations. In accordance with the amended 
Article 8 of the First Directive, insurance undertakings seeking 
authorization will no longer need to state in their scheme of operations 
the tariffs which they propose to apply for each category of business they 
engage in. 
Article 7 
The ownership and control of an insurance undertaking by non-insurance 
interests is an issue of concern for the Community supervisors, especially 
in a period when highly complex group structures are a widespread 
phenomenon. Thus the risks of cross-financing and conflicts of interest 
are particuarly evident in an environment of vast changes in the structure 
of financial systems. For these reasons the current proposal stimulates 
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that the competent authorities, before granting an authorization, should be 
informed of the indentity of shareholders and members holding a qualified 
participation in the proposed insurance undertaking as well as of the 
amount of such participations. This applies to direct or Indirect 
shareholders or members and irrespective of whether they are physical or 
legal persons. This procedure enables the competent authority to appraise 
the suitability of the shareholders and members and if necessary to reject 
any particular group structures as improper at the moment of the setting-up 
of the institution. Closely linked with this provision is Article 14 of 
the present proposal which provides for an information procedure regarding 
the prospective acquisition of an insurance undertaking which is already in 
operation. 
TTTTiB TTT 
Harmonization of conditions governing pursuit of basinets 
Chapter 1 
Article 8 - Supervision Of tfrfi Ving-i™*» nf in«nrMvv> 
The introduction of a system of a single official authorization granted by 
the competent authorities of the home Member State and valid throughout the 
Community calls for devolution of the power of supervision, and of the 
means to that end, on the competent authorities which granted the 
authorization so as to guarantee full compliance with the conditions 
governing the pursuit of business by 1fce insurance undertaking, whether it 
be by way of establishment or by way of freedom of servioes. 
Article 8 of this proposal for a Directive contains a new provision which 
replaces Article 13 of the First Directive. It specifies that the 
financial supervision of an insurance undertaking, Including that of the 
activities it carries on either through branches or by way of freedom of 
servioes, is to be the responsibility of the competent authorities of the 
home Member State, that is to say, the authorities which granted the 
authorization to the undertaking. 
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In addition, this provision specifies what the financial supervision of the 
undertaking consists of: it includes verification of (a) the undertaking's 
solvency, (b) the establishment of sufficient technical provisions for the 
undertaking's entire business and (o) the matching of assets in accordance 
with the provisions existing in that respect in the home Member State, 
which are coordinated in this proposal for a Directive, 
lastly, the existence of sound administrative and accounting procedures and 
adequate internal oontrol mechanisms is a guarantee of an orderly and 
healthy pursuit of insurance business. This proposal for a Directive 
therefore requires the home Member State to ensure that this need is 
satisfied. 
A-rMnlft Q - On--hly*-ppot monltp-HTig nf V^arinhgg 
This proposal for a Directive provides for the possibility for the 
authorities of the insurance undertaking's home Member State to carry out, 
after having first informed the authorities of the Member State of 
establishment, on-the-spot monitoring of the branches of the undertakings 
they have authorized, with a view to obtaining the information necessary to 
ensure the financial supervision of the undertakings whose entire business 
they supervise. 
This provision also meets a need for consistency in the approach adopted by 
the Community for the completion of the internal market In financial 
servioes. The Second Banking Directive contains a similar provision 
(Article 15). The same applies to the proposal for a Directive on 
investment servioes in the securities field (Article 19). 
Article 10 - Sanctions 
This article introduces into the First Directive the obligation on the part 
of the Member States to impose adequate penalties on insurance undertakings 
or their directors and managers where they infringe the rules on 
supervision. 
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Article 11 - Transfers of portfolios 
The Second Directive on direct insurance other than life assurance 
(88/357/EBC) contains a set of complex and detailed provisions on the 
transfer of portfolios tailored to the legal regimes introduced in respect 
of the taking-up and pursuit of the business of direct non-life insurance, 
both by way of establishment and by way of freedom of servioes. The 
introduction of a new, single legal regime for all insurance business, 
irrespective of the way in which it is pursued, means that the provisions 
on portfolio transfer have to be adjusted. 
A-rhinira ip. «3Yi ift - withdrawal of authorization wrrï firent al rftnrwgry 
Article 12 adapts to the system of a single official authorization and 
supervision of all insurance business by the authorities of the insurer's 
home Member State the provisions of Article 20 of the First Directive 
concerning the powers of the competent authorities to adopt measures to 
ensure the solvency of an insurance undertaking. 
This same aim of adaptation to the single official authorization system is 
pursued by Article 13, which amends Article 22 of the First Directive, on 
the conditions under which the authorization granted to the insurance 
undertaking may be withdrawn. 
Article 14 - Supervlglnn nf major shareholders or members 
This article introduces into the insurance sector spécifie provisions the 
purpose of which is to ensure that the prudent and sound management of an 
insurance undertaking is not nailed into question by the existence of major 
holdings. 
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TO that end, Article 14 lays down an obligation to furnish information in 
two sets of circumstances. First of all, shareholders or members who 
propose to acquire, directly or Indirectly, a qualifying holding in an 
insurance undertaking must first inform the competent authorities of the 
size of the intended holding. The same applies where natural or legal 
persons wish to Increase their qualifying holding so that it exceeds 
certain thresholds or the Insurance undertaking becomes their subsidiary 
(Article 14(1)). This obligation to furnish information is also provided 
for in the event of a reduction in or disposal of a qualifying holding 
causing it to fall below the thresholds laid down (Article 14(2)). 
Moreover, in order to ensure the effectiveness of supervision, insurance 
undertakings must, on becoming aware of them, inform the competent 
authorities of any acquisitions or disposals of holdings in their capital 
that cause holdings to exceed or fall below the thresholds laid down. They 
must also inform the competent authorities each year of the names of 
shareholders and members possessing qualifying holdings and the sizes of 
such holdings as shown by the information received at annual general 
meetings or as a result of compliance with the spécifie rules to which 
companies listed on stock exchanges are subject (Article 14(3)). 
If the competent authorities consider that the influence exercised by 
shareholders or members works to the detriment of the prudent and sound 
management of the insurance undertaking, the Member States may take a 
series of measures to put an end to that state of affairs (Article 14(4)). 
Those measures will also be taken where the obligation to furnish 
information in advance is not complied with or where the competent 
authorities have opposed the acquisition of the shareholding. 
Chapter H 
Article IP - flomft oountry control, Of tff^lOA1 pmv1«1nna rat* Inrastment 
Paragraph 1 of this article introduces the principle of home oountry 
control for the definition and calculation of technical provisions. 
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Technical provisions will be required to be defined, and calculated 
according to the rules laid down in Articles 21-26, 40 and 52-57 of Council 
Directive... on the annual accounts and consolidated accounts of insurance 
undertakings. 
For non-life insurance, these technical provisions are: 
(i) imearned premiums, 
(11) unexpired risks, 
(ill) life insurance provisions, 
(iv) provisions for outstanding claims (including combined provisions), 
(v) provision for bonuses and rebates, 
(vi) equalization provisions, if required by national law or regulation. 
At the meetings held with national experts in November 1989 and 
January 1990 there was broad agreement on the Commission proposal that the 
harmonization of national regulations concerning the definition and 
calculation of technical provisions included in the proposed insurance 
accounts Directive is sufficient to allow mutual recognition and home 
country control in this respect. 
This view is supported by the CEA. 
Paragraph 2 of this article introduces the principle of home oountry 
control for the investment of technical provisions. 
Technical provisions will be required to be invested aooording to the rules 
laid down in Articles 17-21 of this proposal for a Directive. 
- 19 -
Those rules cover: 
(i) a general principle for the investment of technical provisions, 
(11) the admissibility of investments, 
(iii) the diversification of investments, 
(iv) currency matching requirements. 
Furthermore, paragraph 2 of this article extends the requirement of 
localization of assets In the oountry where the business Is carried on to a 
localization within the European Community. This extension is to be seen 
both in the context of freedom of capital movements within the European 
Community, which is fully applicable to institutional investors, and in the 
context of the negative effects of national localization on the investment 
performance and regional diversification of Insurance companies' 
Investments. 
Article 16 
Article 23 of the Second Directive, which provides for home country control 
of technical provisions in the case of large risk business and host oountry 
control in the case of mass risk business, is deleted. 
Article 17 - Investment, nf -hftfihnl n*1 pmnrtglnnfi 
This article establishes a general principle for the investment of 
technical provisions, which is to be found in the current legislation of 
most Member States. 
Articles 18(2) and 19(3) of this proposal for a Directive provide that, 
under special circumstances and on a oase-by-oase basis, the home 
Member State may allow exceptions to the rules on the admissibility and 
diversification of investments. These exceptions may, however, only be 
allowed when the home Member State is satisfied that the general 
requirement of Article 17 is fulfilled. 
- 20 -
This article contains a list of assets in which the home Member State may 
allow insurance undertakings to invest their technical provisions. 
The list of admissible assets is to be regarded as a minimum requirement. 
This means that the home Member State is free to prohibit certain 
categories of investments Included on the list, but only for insurance 
undertakings having their head office in its territory. In order to 
provide the list with a sufficient degree of flexibility, paragraph 2 of 
this article allows Member States to permit other categories of investments 
on a oase-by-oase basis and subject to Article 17 of this proposal for a 
Directive. 
Article 19 - m versification of investments 
TMS article lays down a set of rules on the diversification of 
investanents. Again, the diversification rules laid down in paragraph 1 are 
to be regarded as a minimum. Home Member States are thus free to impose 
lower fwqgimmn percentages for certain or all categories of investments, hut 
only for Insurance undertakings whose head office is in their territory. 
For some categories of Investments, especially government bonds, there are 
no maximum percentages. For other categories, however, especially debt 
securities and other bonds 1sfg»fld by undertakings, secured loans to natural 
persons, transferable shares and other variable yield participations, units 
in UCITs, etc. paragraph 1 establishes a set of maximum percentages both 
for the category of investments and for units of any one undertaking, any 
one piece of real property, etc. 
Paragraph 2 provides that no Member State may require insurance 
undertakings to invest in particular categories of investments, which is 
still common supervisory practice in some Member States, especially as 
regards government bonds. 
The purpose of the final paragraph is to make the diversification rules 
sufficiently flexible by allowing the home Member State to permit higher 
percentages on a case-by-case basis and subject to Article 17. 
- 21 -
Article 20 - Valuation of investments 
This article states that, under certain conditions, Member States may allow 
hidden reserves resulting from the undervaluation of assets as cover for 
technical provisions. The purpose of this article is to allow 
Member States which currently require purchase price valuation of assets to 
pit their undertakings on an equal competitive footing with undertakings of 
those Member States which allow or require the valuation of investments on 
the basis of current values. 
Art.1ril.ft 21 - nivrrgrmy Tnfttrihlng 
This article amends the rules on currency matching laid down in the 
Second Directive by 
(i) leaving the choioe of covering technical provisions up to 20% by 
non-matching assets to insurance undertakings rather than to 
Member States (as provided in the Second Directive) 
(11) allowing Member States to provide that, when a commitment has to be 
covered by assets expressed in the currency of a Member State, the 
currency matching requirement is considered to be satisfied when 
the assets are expressed in ecus. The limit of 50% for 
ecu-denominated assets laid down in the Second Directive is 
deleted. 
Article 22 - SubordiTfttfti loan capital 
This article updates the list of assets reoognized for the purpose of 
covering the solvency margin by Including subordinated loan capital. The 
conditions under which subordinated loan capital may be recognized as own 
°unds are identical to those laid down in the Council Directive 89/299/CEE 
(JO L.124 of 5.5.1989) on the own funds of credit institutions. 
- 22 -
Article 23 
This article amends Article 18 of the First Directive in order to bring it 
into line with the principle of home oountry control. 
Chapter 3 
Article 24 - (Zoloft of law applicable to the oontraot 
In the Interests of protecting the consumer, Article 7 of the Second 
Directive restricted the freedom of choice of law applicable to the 
contract, leaving complete freedom of choice only in respect of "transport" 
risks. 
For want of harmonization of contract law, which would not, as the work 
carried out within the Council in this field in recent years has shown, be 
essential to achieve at this stage, it is desirable in order to protect 
policy-holders In need of special protection, that is to say mass risks, to 
permit those Member States which so wish to apply their law to contracts 
relating to mass risks located in their territory. 
On the other hand, the insurance of large risks concerns contracts linked 
to the international trade, the field in which the greatest freedom of 
choice must be left to the Member States. 
It is along these lines that Article 7 of the Second Directive, which lays 
down the rules governing the oholoe of law applicable to non-life insurance 
contracts, Is amended and simplified. 
Article 25 - Legal pmylfHpra* prn**y*.1 Tig -hhft gftnftra.1 gnnrt 
The measures taken by a Member State to protect its consumers must, 
according to the case law of the Court of Justice, be in proportion to the 
objective pursued. 
This article gives effect to that principle by specifying that any person 
seeking insurance can conclude a contract authorized by the law of a 
Member State provided the contract does not conflict with legal provisions 
protecting the general good in the Member State in which the risk is 
situated. 
- 23 -
Article 26 - Abolition of the prior approval of pgv»ni™nn fy*tiffl and priH<rlftg 
Consumer protection also Includes the right to the widest possible choice 
of innovative insurance products at the most reasonable prices. This right 
is given practical effect In regard to supervision by the abolition of any 
prior approval of premium scales and policies and by the replacement of 
such approval by a system better suited to the requirements of mutual 
recognition linked to the needs of the internal market. 
The prior authorization system is tantamount to Issuing a "quality label", 
and it is Inconsistent with the logic of the single market to confer on the 
supervisory authority of a Member State the right to give its endorsement 
to, or withhold its endorsement from, products developed and already 
distributed in other Member States. 
This holds true all the more in relation to the approval of premium scales: 
with the principle of the single licence, the supervisory authority of the 
home Member State vouches for the overall solvency of the undertaking and 
it is for that authority to ensure that the undertaking's financial policy 
does not jeopardize that solvency. This approach does not deny the 
supervisory authority of the State in which the risk is situated the right 
to protect its consumers: that authority can still prove ex post facto and 
non-systematically that such and such a clause of a contract freely entered 
into is not in keeping with a legal provision protecting the general good. 
This "shifting of the burden of proof" will have the effect of making 
insured persons more aware of their responsibilities vis-a-vis the products 
offered to them, and hence of Increasing the real level of their 
protection. 
Article 27 - nnmpnlg^ory flpttinwinft 
Compulsory insurance exists where the Member State imposing the obligation 
to take out insurance has a paramount Interest to safeguard. This is the 
case, for example, with certain civil liability Insurances, the insurance 
- 24 -
being then a guarantee that a third party who is the victim of an accident 
will be compensated for any Injury or damage sustained through no fault of 
his own. 
Such considerations of the general good justify, by way of derogation from 
the principle laid down in Article 26, Member States retaining the 
possibility of requiring systematic notification of policies relating to 
compulsory Insurance so that they may ascertain that products offered for 
sale in their territory Indeed correspond to the substance of the 
obligation they have imposed. 
HZLB-IY-
Provisians relating to freedom of establishment and 
freedom to provide servioes 
Mj-^riiftp pfi *HY? afl - Freedom o? «B^KHrihm«n+. 
Article 28 contains a set of detailed provisions amending Article 10 of the 
First Directive and organizing coopération between the competent 
authorities of the Member States, based on home country control, in the 
context of freedom of establishment. 
In this context it is stipulated that an insurance undertaking wishing to 
establish a branch in another Member State shall notify the authorities of 
its home oountry, providing at the same time the required information (e.g. 
scheme of operations, amount of the guarantee fund, state of the solvency 
margin, names and addresses of managers) (Article 10 paragraphs 1-3). 
After examining the notification the competent authority may, if it has 
reason to doubt the viability of a project or the adequacy of the 
structures of the insurance urdertaking, refuse to send the information to 
the prospective host authorities. In any case it should give reasons for 
its refusal to the institution within three months of receipt of the 
notification (Article 10(3)). 
- 25 -
Article 29 repeals Article 11 of the First Directive, thereby abolishing 
the detailed requirements the scheme of operations should fulfil for 
setting up a branch In another Member State. These requirements are now 
limited to, notably, the types of business the branch intends to carry on 
and information on the structural organization of the branch. 
Articles SQ - 52 - Frffirtom to provlflf? services 
These articles set out the procedure to be followed and coopération between 
the home and host oountry authorities with regard to freedom to provide 
servioes. The relevant provisions of the Second Directive are amended and 
extended to cover not only "large risks" but all non-life Insurance 
husiness and thus to set up a single regime for the whole business of 
insurance; those articles of the Second Directive which have become 
superfluous are to be deleted (Article 33). 
Thus any insurer wishing to pursue non-life business by way of cross-border 
servioes must indicate to the home authorities the Member State in which it 
is intended to provide servioes and the business that will be pursued there 
(Article 14 of the Second Directive, as amended). The host oountry 
authorities will be provided with Information regarding the undertaking's 
solvency margin, the classes of business the undertaking is allowed to 
transact and the nature of the risks it proposes to oover (Article 16 of 
the Second Directive as amended). 
Artlolft m - Trahirai «dfrghmPnts. abolition of the prohibition of the 
simultaneous pursuit of frif?1ness by way of establishment and by way of 
freedom of services 
This proposal for a Directive Is designed to achieve such coordination as 
is essential, necessary and sufficient to introduce a uniform system of 
supervision applicable to all direct non-Ufe insurance business, 
irrespective of the way in which it is transacted, be it by establishment 
or by freedom of servioes. This calls for repeal of the exceptions laid 
down in Article 12(2) and (3) of the Second Directive concerning the scope 
of the provisions on the taking-up and pursuit of business by way of 
freedom to provide servioes. 
26 -
For the same reasons, the option which Member States have of pcrohibiting 
the simultaneous pursuit of mass risk business by way of establishment and 
fcy way of freedom of servioes is also abolished (Article 13 of the 
Second Directive). 
Article 15 of the Second Directive, which lays down the prior authorization 
arrangements governing the pursuit of mass risk business on a servioes 
basis, must also be repealed on identical grounds. Henceforth the only 
legal regime applicable to the taklng-up of business under ooxxlitions of 
freedom to provide servioes, both for large risks and for mass risks, is 
that provided for in Articles 30 - 32 of this proposal. 
Article 34 - Approval of contract documents used by the insurer 
This article contains provisions oonoerning the means Member States may use 
to verify whether the policies and contract documents an insurer proposes 
to use in the course of his business comply with their legal provisions 
protecting the general good. The article takes up the principle laid down 
in Articles 8 and 28 of this proposal for a Directive. The Member State in 
which the risk is situated cannot, therefore, require prior approval of 
such documents as that would hinder considerably the free movement of 
products and the development of innovative products. For the purpose of 
monitoring compliance with those provisions, the Member State may require 
only non-systematio communioation of policies and contract documents. 
These arrangements are better suited to the requirements of the single 
market and ensure an effective level of protection of policy-holders. 
Article 35 - finnfrtlons 
Article 19 of the Second Directive Introduced rules on the adoption of 
measures A"* sanctions against insurance undertakings which infringe the 
provisions applicable to them when carrying on business by way of freedom 
to provide services. 
- 27 -
The rules are based on the principles of devolution of the general power to 
adopt measures and sanctions on the home Member State and on collaboration 
between the different Member States concerned. The host Member State 
retains, however, the possibility of adopting directly measures against an 
undertaking operating in its territory in order to prevent or punish 
irregularities committed by that undertaking in its territory. The same 
applies where the measures taken by the home Member State are insufficient 
or non-existent. 
Within the framework of a single authorization system steps must also be 
taken to ensure compliance with the rules applicable to insurance business, 
whether it be carried on by way of establishment or by way of freedom of 
servioes. It is therefore necessary to extend the arrangements provided 
for in Article 19 of the Second Directive to cover all business. 
Article 36 - Advert.isHiY 
This article allows any duly authorized Insurance undertaking full access 
to all the normal means of mass-advertising of its servioes and products 
within the Community. This is fully in accordance with the case law of the 
Court of Justice, as expressed, for instance, in Cases 352/85, flo^d, ran 
Article 3? - TfrpiAHty of trea-t^Pnt ,j^ th* event of the winding-up of an 
iTtfarrvmfiP mvtertalHng 
This provision establishes the principle of equality of treatment of all 
insurance creditors in the event of the winding-up of an insurance 
undertaking without any distinction being made on grounds of the 
nationality of insured persons or beneficiaries or on grounds of the way In 
which insurance contraots are underwritten. The principle has already been 
incorporated in other insurance directives, notably the Second Directive. 
- 28 -
Article 38 - Provision of information to the pel Icy-holder 
This article extends to contracts entered to into with a branch the 
arrangements for the provision of information to the policy-holder provided 
for in the Second Directive in respect of freedom to provide servioes. 
As a result, any policy-holder will have to be informed, before any 
commitment is entered into, of "Use Member State in which the head office 
and, where appropriate, the branch of the undertaking with which the 
contract is to be ooncluded is established. 
Article 39 - Statistical information 
This article provides that every undertaking will have to furnish the 
supervisory authority of its home Member State with information on its 
turnover in each Member State, whether it be achieved through an 
establishment or under conditions of freedom to provide servioes. 
The supervisory authorities of the Member States in whose territory the 
insurer in question operates may ask the supervisory authority of the home 
Member State to supply them with such Information, which is essential if 
they are to have proper knowledge of the relative size of the various 
markets. 
Article 40 - Participation In n1ai^-^**.lg*ngrvh «nhgmftg 
This article extends to business done by way of establishment the principle 
laid down in the Second Directive in respect of freedom of servioes 
according to which Member States retain the possibility of requiring any 
insurance undertaking operating in tfceir territory to participate, on a 
non-discriminatory basis, in schemes designed to guarantee the payment of 
insurance claims by an insurer. 
Article 41 - Taxation __ 
TMp article extends to the establishment regime the system provided for In 
the Second Directive In respect of freedom to provide servioes. 
- 29 -
This proposal for a Directive thus states that, subject to future 
harmonization, the principle to be applied in respect of Indirect taxes and 
parafiscal charges is that of the territoriality of the tax, that is to say 
the application of the system of taxation of the Member State In which the 
risk is situated and for the benefit of that State. 
Moreover, each State will apply to undertakings operating in its territory, 
whether by way of establishment or by way of freedom to provide servioes, 
its own national provisions canoerning measures to ensure the collection of 
such taxes. 
TITLE V 
FXHAL EHOVISICNS 
Artlrilft 4P. - TTT^IgmPfp-frtTg ppyers. Of tfllft ffrfnml fibrin 
This provision Indicates the articles of the First Directive and of this 
proposal for a Directive which may be adapted when the moment is right. 
The procedures for adapting those articles are set out in the Council 
Directive setting up a Committee on Insurance. 
Article 43 - Safeguard clauses 
This article contains a provision which states that this Directive does not 
affect rights acquired by authorized branches and in the field of freedom 
of servioes. 
Article 43a - Health Insurance as a substitute for social security 
In many Member States residents are allowed, under certain conditions, to 
conclude a health Insurance policy with a private Insurer Instead of being 
covered by the social health insurance system. Such private insurers not 
only seek to offer additional cover to the social system; In fact, their 
rôle constitutes an alternative to the social health Insurance system and 
their cover may be set out In non-life or life assurance contracts. 
- 30 -
The evident link between such contracts and the social health security 
system clearly Justifies Member States to require from private insurers 
that the oover they offer is a least equal to that offered by the social 
system, as laid down in legislation which may vary between Member States. 
For example, a non-termination clause prohibiting an insurer to end a 
contract for reasons of age of the insured person or deterioration of his 
health condition is a provision which is in the general good and is 
essential for the protection of those tftat are not eligible for cover by 
social health insurance. Member States oonoerned may require from the 
Insurer to create a special technical provision to counterbalance such a 
clause and meet its annuity character of oover based on constant premium or 
uniform appreciation. 
Although such a requirement limits the possibilities for an insurer to 
offer his products throughout the whole Community, it is already guaranteed 
in particular by article 25 of the present proposal of directive which 
states that In order to be able to be marketed in a Member State, insurance 
contracts may "not conflict with legal provisions protecting the general 
good in the Member State in which the risk is situated". 
However, taking into account the sensitivity and social repercussions of 
health insurance, it is necessary to allow Member States oonoerned specific 
means to verify that the guarantee offered by the social system is indeed 
respected by all insurance companies active in this field. 
To this end it is proposed to assimilate health insurance which substitutes 
a social health insurance system to obligatory insurance. This 
assimilation is Justified fcy the fact that in practice all residents of the 
Member States oonoerned are covered by health insurance, either via the 
social health system or through private insurance. In accordance with the 
provisons of article 27, concerning all obligatory Insurance, the Member 
States In which the risk is situated may require that the general and 
special contractual conditions substituting the social health insurance 
cover be subject to prior systematical oommunlcation. 
- 31 -
This possibility for supervisory authorities of a Member State to obtain on 
a systematical basis information on health insurance contracts marketed on 
their territory can be considered as limiting the freedom of establishment 
and provision of services. This limitation is necessary, having regard to 
its objective of protection of the insured persons, tut also sufficient to 
further apply to this branch of insurance the general regime of the present 
proposal of directive based on the logical requirements of the internal 
market. 
Consequently, supervisory authorities will have at their disposal on a 
systematic basis all the information necessary to verify that such 
contracts do not contain provisions providing the insured with a cover that 
does not at least equal the cover of the social security health system. It 
will also be possible to have avail, if necessary in case of urgency, to 
the measures provided for in article 35 of the directive. Under these 
conditions there is no longer any reason to submit insurers to a 
specialization requirement for health insurance or to general prior 
approval of contracts and to presume also that they are not themselves 
capable of respecting the rules of general good imposed upon them. 
Article 43b - Right of app^l, 
This article provides for a right to apply to the Courts in respect of 
decisions taken by competent authorities in the field covered by the 
Directive. 
Articles 44 - 46 - Implementation of the Directive 
These articles contain the final provisions. 
The date of entry into force should not be later than 31 December 1992. 
- 32 -
Proposal for a 
THIRD COUNCIL DIRECTIVE 
on the coordination of laws, regulations and administrative provisions 
relating to direct Insurance other than life assurance 
and amending Directives 73/239/EEC and 88/357/EEC 
THE COUNCIL OF THE EUROPEAN COMMUNITIES, 
Having regard to the Treaty establishing the European Economic Community, 
and In particular Articles 57(2) and 66 thereof, 
Having regard to the proposal from the Commission, 
In cooperation with the European Parliament, 
Having regard to the opinion of the Economic and Social Committee, 
1. Whereas It is necessary to complete the Internal market In direct 
Insurance other than life assurance, from the point of view of both freedom 
of establishment and freedom to provide services, so as to make it easier 
for Insurance undertakings whose head office is in the Community to cover 
risks situated In the Community-, 
2. Whereas the Second Council Directive 88/357/EEC of 22 June 1988 on the 
coordination of laws, regulations and administrative provisions relating to 
direct Insurance other than life assurance and laying down provisions to 
facilitate the effective exercise of freedom to provide services and 
amending Directive 73/239/EEC,1 hereinafter called the "Second Directive", 
has contributed substantially to the formation of the Internal market In 
direct Insurance other than life assurance by already granting 
policy-holders who, by virtue of their status, their size or the nature of 
the risk to be Insured, do not require special protection In the 
Member State In which the risk Is situated complete freedom to avail 
themselves of the widest possible Insurance market; 
(5) 1 OJ No L 172, 4.7.1988, p. 1. 
- 33 -
3. Whereas the Second Directive therefore represents an Important stage 
In the merging of national markets into a single, Integrated market; 
whereas It must be supplemented by other Community instruments with a view 
to enabling all policy-holders, irrespective of their status, their size or 
the nature of the risk to be insured, to have recourse to any Insurer 
having his head office In the Community and carrying on business there, 
whether he conducts business by way of freedom of establishment or by way 
of freedom to provide services, while guaranteeing them adequate 
protection; 
4. Whereas the approach adopted consists in bringing about such 
harmonization as is essential, necessary and sufficient to achieve mutual 
recognition of authorizations and prudential control systems, thereby 
making it possible to grant a single authorization valid throughout the 
Community and apply the principle of home country control; 
5. Whereas, as a result, the taking-up and pursuit of the business of 
insurance is henceforth to be subject to the grant of a single official 
authorization issued by the authorities of the Member State in which the 
insurance undertaking has its head office; whereas such authorization 
enables the undertaking to carry on business everywhere in the Community, 
whether under conditions of freedom of establishment or under conditions of 
freedom to provide services; whereas the host Member State may no longer 
require insurance undertakings which have already been authorized in the 
home Member State and which wish to carry on insurance business there to 
seek a fresh authorization; whereas the First and Second Directives should 
therefore be amended along those lines; 
6. Whereas responsibility for monitoring the financial health of the 
insurance undertaking, including its state of solvency, the establishment 
of sufficient technical provisions and the covering of those provisions by 
matching assets, henceforth lies with the competent authority of its home 
Member State; 
- 34 -
7. Whereas the home Member State may lay down stricter rules than those 
provided for In Articles 7, 14, 18, 19(1) and (3) and 20 In respect of 
Insurance undertakings authorized by its own competent authorities; 
8. Whereas this Directive fits into the pattern of Community legislation 
already set by the first Council Directive 73/239/EEC,2 as last amended by 
the Second Directive 88/357/EEC, and by Council Directive .../.../EEC 
of on the annual accounts and consolidated accounts of insurance 
undertakings3; 
9. Whereas the competent authorities must therefore have at their 
disposal such means of supervision as are necessary to ensure the orderly 
pursuit of business by the insurance undertaking throughout the Community, 
whether it be carried on by way of freedom of establishment or by way of 
freedom to provide services; whereas, In particular, they must be able to 
introduce appropriate safeguards or Impose sanctions aimed at preventing 
Irregularities and infringements of the provisions on Insurance 
supervision; 
10. Whereas the creation of a single market without Internal frontiers 
involves access to all insurance business other than life assurance 
throughout the Community and hence the possibility for any duly authorized 
insurer to cover any of the risks referred to In the Annex to the 
First Directive; whereas to that end it is necessary to abolish the 
monopoly enjoyed by certain bodies In certain Member States in respect of 
the coverage of certain risks; 
2 0J No L 228, 16.8.1973, p. 3. 
3 0J No L 
- 35 -
11. Whereas It Is necessary to adjust the provisions on transfers of 
portfolios to bring them into line with the single authorization system 
Introduced by this Directive; 
12. Whereas Directive [on the annual accounts and consolidated 
accounts of insurance undertakings] has already brought about the necessary 
harmonization of the Member States' provisions on the formation of the 
technical provisions insurers are required to establish in order to cover 
their commitments; whereas this makes It possible to grant the benefits of 
mutual recognition of those provisions; 
13. Whereas the rules concerning the valuation of the assets used to 
cover the technical provisions and their diversification, the rules on 
localization and currency matching rules must be coordinated In order to 
facilitate mutual recognition of Member States' provisions; whereas such 
coordination must take account of the measures adopted In the field of the 
liberalization of capital movements in Council Directive 88/361/EEC4 and 
the work undertaken by the Community with a view to achieving Economic and 
Monetary Union; 
14. Whereas, however, the home Member State may not require insurance 
undertakings to invest the assets covering their technical provisions in 
particular categories of assets, such a requirement being Incompatible with 
the free movement of capital measures provided for in Directive 88/361/EEC; 
15. Whereas owing to the coordination brought about by this Directive the 
opportunity given by Article 7(2)(c) of the First Directive to the 
Federal Republic of Germany to prohibit the simultaneous transaction of 
health Insurance and other classes is no longer justified and must 
therefore be abolished; 
4 OJ NO L 178, 8.7.1988 p. 5. 
- 36 -
16. Whereas the list of items of which the solvency margin required by 
the First Directive may be made up must be supplemented to take account of 
new financial instruments and of the facilities granted to other financial 
Institutions for the constitution of their own funds; 
17. Whereas within the framework of an integrated Insurance market 
policy-holders who, by virtue of their status, their size or the nature of 
the risk to be insured, do not require special protection in the 
Member State in which the risk is situated should be granted complete 
freedom of choice of law applicable to the Insurance contract; 
18. Whereas It Is neither necessary nor appropriate to harmonize contract 
law at present; whereas, for want of such harmonization, the opportunity 
afforded to the Member States of imposing the application of their law to 
insurance contracts covering risks situated in their territory is likely to 
provide sufficient safeguards for policy-holders who do require special 
protection; 
19. Whereas within the framework of an internal market it is In the 
policy-holder's Interest that he should have access to the widest possible 
range of Insurance products available in the Community so that he can 
choose that which Is best suited to his needs; whereas it Is therefore for 
the Member State In which the risk is situated to ensure that there Is 
nothing to prevent all the insurance products offered for sale In the 
Community from being marketed in its territory as long as they do not 
conflict with the legal provisions protecting the general good In force In 
that Member Statein which the risk is situated. 
- 37 -
20. Whereas Member States must ensure that the insurance products and 
contract documents used for covering, whether by way of establishment or by 
way of freedom to provide services, risks located In their territory comply 
with such specific legal provisions protecting the general good as are 
applicable; whereas the systems of supervision to be employed must be in 
keeping with the requirements of an integrated market; whereas their 
employment may not, however, constitute a prior condition for carrying on 
Insurance business; whereas from this standpoint systems of prior approval 
of policy conditions are unjustified; whereas it is necessary as a result 
to provide for other systems which are better suited to the requirements of 
a single market and which enable every Member State to guarantee 
policy-holders adequate protection; 
20a. Whereas some Member States allow, under certain conditions, their 
residents to conclude health insurance contracts with private insurers 
Instead of and replacing the cover provided for by the statutory social 
security system; whereas the nature and social effect of such contracts 
justify the supervisory authorities of the Member State where the risk is 
situated In applying to such insurance contracts the regime laid down for 
compulsory Insurances and In thus requiring systematic notification of the 
general and special policy conditions for reasons of verification In order 
to ensure that such contracts offer at least the same guarantees as those 
provided for in the statutory social security system-, whereas such 
verification should not be a precondition for the activity of offering 
insurance; 
21. Whereas within the framework of a single market no Member State may 
continue to prohibit the simultaneous carrying-on of insurance business in 
its territory under conditions of establishment and under conditions of 
freedom to provide services; whereas the option given to Member States in 
this connection by the Second Directive should therefore be abolished; 
- 38 -
22. Whereas provisions should be made for a system of penalties to be 
Imposed when, In the Member State in which the risk Is situated, the 
insurance undertaking does not comply with the provisions protecting the 
general good that are applicable to it; 
23. Whereas some Member States do not subject Insurance transactions to 
any form of indirect taxation, while the majority apply special taxes and 
other forms of contribution, Including surcharges intended for compensation 
bodies; whereas the structure and rate of these taxes and contributions 
vary considerably between the Member States in which they are applied; 
whereas it Is desirable to avoid a situation in which existing differences 
lead to distortions of competition in insurance services between 
Member States; whereas, pending subsequent harmonization, the application 
of the tax system and of other forms of contribution provided for by the 
Member State In which the risk is situated Is likely to remedy such 
mischief and whereas it is for the Member States to establish the method of 
ensuring that such taxes and contributions are collected; 
24. Whereas technical adjustments to the detailed rules laid down in this 
Directive may be necessary from time to time to take account of fresh 
developments in the insurance industry; whereas the Commission will make 
such adjustments as and when necessary, after consulting the 
Committee on Insurance set up by in the exercise of the 
implementing powers conferred on it by the Treaty; 
25. Whereas it is necessary to lay down specific provisions designed to 
ensure a smooth transition from the legal regime existing at the time of 
application of this Directive to the regime introduced by it, taking care 
not to place an additional workload on Member States' competent 
authorities, 
HAS ADOPTED THIS DIRECTIVE: 
- 39 -
TITLE I 
Definitions and scope 
Article 1 
For the purposes of this Directive: 
(a) "First Directive" means Directive 73/239/EEC; 
(b) "Second Directive" means Directive 88/357/EEC; 
(c) "Insurance undertaking" means an undertaking which has received 
official authorization in accordance with Article 6 of the First 
Directive; 
(d) "branch" means an agency or branch of an insurance undertaking, 
having regard to Article 3 of the Second Directive-, 
(e) "home Member State" means the Member State In which the head office 
of the insurance undertaking covering the risk is situated; 
(f) "Member State of the branch" means the Member State in which the 
branch covering the risk is situated; 
(g) "Member State of provision of services" means the Member State in 
which the risk is situated, as defined in Article 2 (d) of the 
Second Directive, if it is covered by an undertaking or a branch 
situated In another Member State; 
- 40 -
(h) "control" means the relationship between a parent undertaking and a 
subsidiary, as defined in Article 1 of Council Directive 
83/349/EEC1, or a similar relationship between any natural or 
legal person and an undertaking; 
(I) "qualifying holding" means a direct or indirect holding In an 
undertaking which represents 10% or more of the capital or of the 
voting rights or which makes it possible to exercise a significant 
Influence over the management of the undertaking in which a 
holding subsists. 
For the purposes of this definition, In the context of 
Articles 7 and 14 and of the other levels of holding referred 
to In Article 14, the voting rights referred to In Article 7 
of Council Directive 88/627/EEC2 shall be taken into 
consideration; 
(j) "parent undertaking" means a parent undertaking as defined in 
Articles 1 and 2 of Direct Ive 83/349/EEC; 
(k) "subsidiary" means a subsidiary undertaking as defined in 
Articles 1 and 2 of Directive 83/349/EEC; any subsidiary of a 
subsidiary undertaking shall also be regarded as a subsidiary of 
the parent undertaking which Is at the head of those undertakings. 
Article I 
1. This Directive shall apply to the classes of insurance and 
undertakings referred to In Article 1 of the First Directive. 
(6) 1 OJ No L 193, 18.7.1983, p.1. 
2 OJ No L 348, 17.12.1988, p.62. 
- 41 -
2. This Directive shall not apply to operations, undertakings or 
entitles to which the First Directive does not apply, nor to the 
entities referred to In Article 4 of that Directive. 
Article 3 
Notwithstanding Article 2(2), Member States shall take every step to 
ensure that monopolies in respect of the taklng-up of the business of 
certain classes of insurance, granted to entitles established in their 
territory, are abolished by the date mentioned In Article 44, second 
paragraph of this Directive. 
- 42 -
TITLE II 
The taklng-up of the business of Insurance 
Article 4 
Article 6 of the First Directive is replaced by the following: 
"Article 6 
The taking-up of the business of direct insurance shall be subject 
to prior official authorization. 
Such authorization shall be sought from the authorities of the 
home Member State by: 
a) Any undertaking which establishes its head office in the 
territory of such state; 
b) Any undertaking which, having received the authorization 
required under a) above, extends Its business to other 
classes." 
Article 5 
Article 7 of the First Directive is replaced by the following: 
- 43 -
"Article 7 
1. An authorization shall be valid for the whole Community. It shall 
permit an undertaking to carry on business there, either by way of 
right of establishment or by way of freedom to provide services. 
2. An authorization shall be granted for a particular class of 
Insurance. It shall cover the entire class, unless the applicant 
wishes to cover only part of the risks pertaining to that class, as 
listed in point A of the Annex. 
However : 
(a) Member States may grant authorizations for the groups of 
classes indicated In point B of the Annex, attaching to 
them the appropriate denomination specified therein; 
(b) an authorization granted for one class or a group of 
classes shall also be valid for the purpose of covering 
ancillary risks included in another class if the 
conditions specified in point C of the Annex are 
fulfilled." 
- 44 -
Article 6 
Article 8 of the First Directive is replaced by the following: 
"Article 8 
1. Each Member State shall require that any undertaking set up in Its 
territory for which an authorization Is sought shall: 
(a) Adopt one of the following forms: 
In the case of Belgium: "société anonyme/naamloze 
vennootschap", "société en commandite par 
actions/commanditaire vennootschap op aandelen", 
"association d'assurance mutelle/onderI Inge 
verzekeringmaatschappi J", "société 
coopérât Ive/coôperat levé vennootscap"; 
In the case of Denmark: "aktleselskaber", "gensidige 
selskaber"; 
in the case of the Federal Republic of Germany: 
"AktlengeselIschaft", "Verslcherungsvereln auf 
GegenseltIgkeit", "OffentIich-rechtIiches Wettbewerbs-
verslcherungsunternehmen"; 
- 45 -
In the case of France: "société anonyme", "société 
d'assurance mutuelle"; 
in the case of Ireland: Incorporated companies limited by 
shares or by guarantee or unlimited; 
In the case of Italy: "société per azlonl", "société 
coopérât I va", "mutua dl ass I curazlone"; 
In the case of Luxembourg: "société anonyme", "société en 
commandite par actions", "association d'assurances 
mutuelles", "société coopérative"; 
In the case of the Netherlands: "naamloze vennootschap", 
"onder11nge waarborgmaatschapp i J"; 
In the case of the United Kingdom: "Incorporated 
companies limited by shares or by guarantee or 
unlimited", "societies registered under the Industrial 
and Provident Societies Acts", "societies registered 
under the Friendly Societies Act", "the association of 
underwriters known as Lloyds". 
In the case of the Greece: "Avwvuun eiatpela"-
"AXXnXao*aXiOTiKÔ<: ouveiaipiouoc". 
in the case of Spain: "sociedad anon Ima", "sociedad 
mutua", "sociedad coopérât Iva"; 
In the case of Portugual: "sociedade anon Ima", "mutua de 
seguros". 
- 46 -
Insurance undertakings may also adopt the form of a European 
company (SE), as provided for in Council Regulation .../EEC1 
and Council Directive .../EEC.2 
Furthermore, Member States may set up, where appropriate, 
undertakings under any form of known public-law form provided 
that such institutions have as their object Insurance 
operations in conditions equivalent to those under which 
private-1 aw undertakings operate; 
(b) Limit its business activities to the business of 
insurance and operations directly arising therefrom, to 
the exclusion of all other .commercial business; 
(c) Submit a scheme of operations in accordance with 
Art icle 9; 
(d) Possess the minimum guarantee fund provided for In 
Article 17(2); 
(e) Be run by technically qualified persons of good repute. 
2. An undertaking seeking authorization to extend its business to 
other classes shall be required to submit a scheme of operations in 
accordance with Article 9. 
- 47 -
It shall, furthermore, be required to show proof that It possesses 
the solvency margin provided for in Article 16 and, If with regard 
to such other classes Article 17(2) requires a higher minimum 
guarantee fund than before, that it possesses such minimum. 
3. Nothing In this Directive shall prevent Member States from 
maintaining in force or introducing laws, regulations or 
administrative provisions requiring the approval of the memorandum 
and articles of association and the communication of any other 
documents necessary for the normal exercise of supervision. 
Member States shall not, however, lay down provisions requiring the 
prior approval or systematic notification of general and special 
policy conditions, scales of premiums and forms and other printed 
documents which an undertaking Intends to use in its dealings with 
policy-holders. They may require only non-systematic notification 
of those conditions and other documents for the purpose of 
verifying compliance with laws, regulations and administrative 
provisions in respect of Insurance contracts, and this requirement 
may not constitute a prior conditions for an undertaking to be able 
to carry on its activities. 
- 48 -
Member States may not retain or Introduce prior notification or 
approval of proposed increases in premium rates except as part 
of a general price control system. 
Nothing in this Directive shall prevent Member States from 
subjecting undertakings requesting or having obtained 
authorization for class 18 in point A of the Annex to checks on 
their direct or indirect resources in staff and equipment, 
including the qualification of their medical teams and the 
quality of the equipment available to the undertakings to meet 
their commitments arising from this class of insurance. 
4. The abovementIoned provisions may not require that any application 
for authorization shall be dealt with in the light of the economic 
requirements of the market. 
1 OJ No L 
2 OJ No L 
Article 6a 
Article 9 of the First Directive is replaced by the following: 
"Article 9 
The scheme of operations referred to in Article 8(1)(c) shall contain 
the following particulars or proof concerning: 
(a) the nature of the risks which the undertaking proposes to 
cover ; 
(b) the guiding principles as to reinsurance; 
(c) the Items constituting the minimum guarantee fund; 
- 49 -
(d) estimates relating to the cost of Installing the 
administrative services and the organization for securing 
business; the financial resources Intended to meet such 
cost and, if the risks to be covered are classified under 
class 18 in point A of the Annex, the means at the 
undertaking's disposal for providing the assistance 
promised; 
and, in addition, for the first three financial years: 
(e) estimates relating to expenses of management other than 
costs of Installation, and in particular current general 
expenses and commissions; 
(f) estimates relating to premiums or contributions and to 
claims; 
(g) a forecast balance sheet; 
(h) estimates relating to the financial resources intended to 
cover underwriting liabilities and the solvency margin." 
Article 7 
The competent authorities of the home Member State shall not grant 
authorization for taking up the business of insurance before they have 
been informed of the Identities of the shareholders or members, whether 
direct or Indirect, natural or legal persons, who have qualifying 
holdings and of the amounts of those holdings. 
Those same authorities shall refuse authorization if, taking into 
account the need to ensure the sound and prudent management of an 
Insurance undertaking, they are not satisfied as to the suitability of 
the said shareholders or members. 
- 50 -
TITLE III 
Harmonization of conditions governing pursuit of business 
Chapter 1 
Article 8 
Article 13 of the First Directive is replaced by the following: 
"Article 13 
1. The financial supervision of an insurance undertaking, including 
that of the activities it carries on either through branches or by 
way of freedom to provide services, shall be the sole 
responsibility of the home Member State. 
2. The financial supervision shall include verification, with respect 
to the entire business of the insurance undertaking, of Its state 
of solvency, the establishment of technical provisions and of the 
assets covering them, in accordance with the rules laid down or 
practices followed in the home Member State pursuant to Articles 15 
to 23 of this Directive. 
- 51 -
Where the undertakings In question are authorized to cover the 
risks classified under class 18 in point A of the Annex, the 
supervision shall extend also to monitoring the technical 
resources which the undertakings must have at their disposal In 
order to carry out the assistance operations they have 
undertaken to perform, where the law of the home Member State 
provides for the supervision of such resources. 
3. The competent authorities of the home Member State shall require 
every insurance undertaking to have sound administrative and 
accounting procedures and adequate internal control mechanisms". 
Article 9 
Article 14 of the First Directive is replaced by the following: 
"Article 14 
Member States of establishment shall provide that, where an 
insurance undertaking authorized In another Member State carries on 
Its activities through a branch, the competent authorities of the 
home Member State may, after having first informed the competent 
authorities of the Member State of the branch, carry out themselves 
or through the intermediary of persons they appoint for that 
purpose on-the-spot verification of the Information necessary to 
ensure the financial supervision of the undertaking." 
- 52 -
Article 10 
The following Article 19a is inserted in the First Directive: 
"Article 19a 
Without prejudice to the procedures for the withdrawal of 
authorizations and the provisions of criminal law, Member States 
shall provide that their respective competent authorities may, as 
against insurance undertakings or those who effectively control the 
business of Insurance undertakings which breach laws, regulations 
or administrative provisions concerning the supervision or pursuit 
of their activities, adopt or impose in respect of them penalties 
or measures aimed specifically at ending observed breaches or the 
causes of such breaches." 
Article 11 
1. Article 11 of the Second Directive is deleted. 
2. Each Member State shall, under the conditions laid down by national 
law, authorize Insurance undertakings whose head office is 
established In Its territory to transfer all or part of their 
portfolios of contracts, whether concluded by way of freedom of 
establishment or by way of freedom to provide services, to an 
accepting office established in the Community, If the supervisory 
authorities of the home Member State of the accepting office 
certify that the latter possesses the necessary solvency margin 
after taking the transfer into account. 
- 53 -
3. Where a branch proposes to transfer all or part of its portfolio of 
contracts, whether concluded by way of freedom of establishment or 
by way of freedom to provide services, the Member State of 
establishment shall be consulted. 
4. In the circumstances referred to in paragraphs 2 and 3, the 
supervisory authorities of the home Member State of the 
transferring undertaking shall authorize the transfer after 
obtaining the agreement of the supervisory authorities of the 
Member States in which the risks are situated. 
5. The supervisory authorities of the Member States consulted shall 
inform the competent authorities of the home Member State of the 
transferring insurance undertaking of their opinion within three 
months of receipt of the request for an opinion; if no response is 
forthcoming by the end of that period, the opinion of the 
authorities consulted shall be deemed to be favourable. 
6. A transfer authorized in accordance with this Article shall be 
published, under the conditions laid down by national law, in the 
Member State in which the risk is situated. Such transfer shall be 
automatically valid against the policy-holders, the insured persons 
and any other person having rights and obligations arising out of 
the contracts transferred. 
This provision shall not affect the right of Member States to 
provide policy-holders with the option of cancelling the contract 
within a given period after the transfer." 
- 54 -
Article 12 
Article 20 of the First Directive is replaced by the following: 
"Article 2Q 
1. If an undertaking does not comply with the provisions of 
Article 15, the authority of its home Member State may prohibit 
the free disposal of assets after having Informed the 
supervisory authorities of the Member States in which the risks 
are situated. 
2. For the purposes of restoring the financial situation of an 
undertaking whose solvency margin has fallen below the minimum 
required under Article 16 (3), the surpervisory authority of 
the home Member State shall require a plan for the restoration 
of a sound financial position to be submitted for its approval. 
3. If the solvency margin falls below the guarantee fund as 
defined in Article 17, the supervisory authority of the home 
Member State shall require the undertaking to submit a short-
term finance scheme for its approval. 
It may also restrict or prohibit the free disposal of the 
assets of the undertaking. It shall inform the authorities of 
other Member States in whose territories the undertaking 
carries on business of any measures and the latter shall, at 
the request of the former, take the same measures. 
4. The competent supervisory authorities may further take all 
measures necessary to safeguard the interests of the Insured in 
the cases provided for In (1) and (3). 
5. Each Member State shall also take the measures necessary to 
be able to prohibit the free disposal of assets located In Its 
territory at the request of the undertaking's home 
Member State." 
- 55 -
Article 13 
Article 22 of the First Directive is replaced by the following: 
"Article 22 
1. An authorization granted to an Insurance undertaking by the 
competent authority of the home Member State may be withdrawn by 
that authority if the undertaking: 
(a) does not make use of the authorization within 12 months, 
expressly renounces the authorization or has ceased to 
engage in business for more than six months, unless the 
Member State concerned has made provision for the 
authorization to lapse in such cases; 
(b) no longer fulfils the conditions for admission; 
(c) has been unable, within the time allowed, to take the 
measures contained In the restoration plan or finance 
scheme referred to in Article 20; 
(d) fails seriously In Its obligations under the regulations 
to which it is subject. 
In the event of withdrawal of the authorization, the 
supervisory authority of the home Member State shall notify 
such withdrawal to the supervisory authorities of the other 
Member States, which 
- 56 -
shall take appropriate measures to prevent the undertaking from 
commencing new operations In their territory, whether by way of 
freedom of establishment or by way of freedom to provide 
services. The home Member State supervisory authority shall, 
in conjunction with those authorities, take all necessary 
measures to safeguard the interests of the Insured and, In 
particular, shall restrict the free disposal of the assets of 
the undertaking In accordance with Article 20(1) and (3), 
second subparagraph. 
2. Any decision to withdraw an authorization shall be supported by 
precise reasons and notified to the undertaking in question. 
Each Member State shall make provision for a right to apply to the 
courts against such a decision." 
Article 14 
1. Member States shall require any natural or legal person who 
proposes to acquire, directly or indirectly, a qualifying holding 
in an insurance undertaking to inform the competent authorities of 
the home Member State, Indicating the size of the intended holding. 
Such a person must likewise inform the competent authorities of the 
home Member State If he proposes to increase his qualifying holding 
so that the proportion of the voting rights or of the capital held 
by him would reach or exceed 20%, 33% or 50% or so that the 
insurance undertaking would become his subsidiary. 
- 57 -
The competent authorities of the home Member State shall have a 
maximum of three months from the date of the notification provided 
for in the first subparagraph to oppose such a plan if, In view of 
the need to ensure sound and prudent management of the Insurance 
undertaking, they are not satisfied as to the suitability of the 
person referred to in the first subparagraph. If they do not 
oppose the plan referred to in the first subparagraph, they may fix 
a maximum period for its implementation. 
2. Member States shall require any natural or legal person who 
proposes to dispose, directly or indirectly, of a qualifying 
holding In an insurance undertaking first to inform the competent 
authorities of the home Member State, indicating the size of his 
Intended holding. Such a person must likewise inform the competent 
authorities If he proposes to reduce his qualifying holding so that 
the proportion of the voting rights or of the capital held by him 
would fall below 20%, 33% or 50% or so that the insurance 
undertaking would cease to be his subsidiary. 
3. On becoming aware of them, insurance undertakings shall inform the 
competent authorities of the home Member State of any acquisitions 
or disposals of holdings In their capital that cause holdings to 
exceed or fall below one of the thresholds referred to In 
paragraphs 1 and 2. 
- 58 -
/ They shall also, at least once a year, inform them of the names of 
shareholders and members possessing qualifying holdings and the 
sizes of such holdings as shown, for example, by the information 
received at the annual general meetings of shareholders and members 
or as a result of compliance with the regulations relating to 
companies listed on stock exchanges. 
4. Member States shall require that, where the influence exercised by 
the persons referred to in paragraph 1 is likely to operate to the 
detriment of the prudent and sound management of the insurance 
undertaking, the competent authorities of the home Member State 
shall take appropriate measures to put an end to that situation. 
Such measures may consist, for example, in injunctions, sanctions 
against directors and managers, or the suspension of the exercise 
of the voting rights attaching to the shares held by the 
shareholders or members in question. 
Similar measures shall apply to natural or legal persons failing to 
comply with the obligation to provide prior information, as laid 
down in paragraph 1. If a holding Is acquired despite the 
opposition of the competent authorities, the Member States shall, 
regardless of any other sanctions to be adopted, provide either for 
exercise of the corresponding voting rights to be suspended, or for 
the nullity of votes cast or for the possibility of their 
annulment. 
- 59 -
CHAPTER 2 
Article 15 
Article 15 of the First Directive Is replaced by the following: 
"Article 15 
1. The home Member State shall require every Insurance undertaking to 
establish sufficient technical provisions in respect of Its entire 
bus Iness. 
The amount of such technical provisions shall be determined 
according to the rules laid down in Articles 21 to 26, 40 and 52 to 
57 of Council Directive on the annual accounts and consolidated 
accounts of Insurance undertakings.( ) 
2. The home Member State shall require every Insurance undertaking to 
cover the technical provisions in respect of its entire business by 
matching assets in accordance with Article 6 of the Second 
Directive. In respect of business written in the European 
Community, these assets must be localised in a Member State of the 
European Community. The home Member State may, however, permit 
relaxations In the rules on the localization of assets. 
( ) OJ No 
- 60 -
Article 16 
Article 23 of the Second Directive Is deleted. 
Article 17 
Assets representing the technical provisions shall be invested having 
regard to the kind of business transacted, and the nature and duration 
of the assets, including possible future variations In their yield and 
va Iue. 
Article 18 
1. The home Member State shall allow every insurance undertaking to 
cover the technical provisions from amongst the following 
categories of assets. 
(a) debt securities, bonds and other money market instruments 
Issued by a State or local authority; loans to or 
guaranteed by a State or local authority; 
(b) debt securities, bonds and other money market instruments 
Issued by undertakings-, secured loans to or guaranteed 
by undertakings; 
(c) secured loans to natural persons other than those listed 
under (h); 
- 61 -
(d) transferable shares and other transferable variable yield 
participât ions; 
(e) units in undertakings for collective investments In 
transferable securities and other investment pools; 
(f) hedging instruments, such as options, futures, swaps-, 
(g) land and buildings; 
(h) loans guaranteed by mortgage on land, buildings, ships or 
aircraft ; 
(I) cash at bank and in hand, deposits with credit 
inst itut ions; 
(j) reinsurance amounts of technical provisions, determined 
in accordance with the stipulations of the underlying 
reinsurance contracts; 
(k) deposits with and debts owed by ceding undertakings; 
(I) debts owed by policy-holders and intermediaries arising 
out of direct and reinsurance operations, up to 30% of 
premiums earned in the financial year; 
(m) accrued interest and rent and other prepayments and 
accrued income; 
- 62 -
(n) deferred acquisition costs; 
(o) amounts receivable as a result of salvage and 
subrogation; 
(p) recognized tax recoveries; 
(q) claims against guarantee funds; 
(r) tangible fixed assets, other than land and buildings; 
(s) reversionary interests. 
2. Notwithstanding paragraph 1, in particular circumstances and at the 
Insurance undertaking's request, the home Member State may, on the 
basis of a duly motivated decision, allow other categories of 
assets for the purpose of covering technical provisions, subject to 
Article 17. 
Article 19 
1. The home Member State shall require every insurance undertaking to 
invest no more than: 
(a) 50% of the total of the technical provisions, net of 
reinsurance, in the category of assets listed in 
Article 18(1)(b); 
- 63 -
(b) 50% of the total of the technical provisions, net of 
reinsurance, in the categories of assets listed in 
Article 18(1) (g) and (h), taken together; 
(c) 80% of the total of the technical provisions, net of 
reinsurance, in the categories of assets listed In 
Article 18(1)(d),(e) and (f), taken together, of which no 
more than 10% shall comprise the category of assets 
listed in Article 18(1)(f) or unlisted transferable 
shares and other transferable variable yield 
participations taken together; 
(d) 5% of the total of the technical provisions, net of 
reinsurance, in the category of assets listed in 
Article 18(1)(c); 
(e) 10% of the total of the technical provisions, net of 
reinsurance, in any one piece of land or buildings, or a 
number of pieces of such buildings; 
(f) 10% of the total of the technical provisions, net of 
reinsurance, in any one loan guaranteed by a mortgage on 
land, buildings, ships or aircraft; 
(g) 10% of the total of the technical provisions, net of 
reinsurance, taken together in transferable shares, other 
transferable variable yield participations, debentures 
and other bonds of any one undertaking and loans to any 
one undertaking; 
- 64 -
2. Member States shall not require insurance undertakings to invest in 
particular categories of assets or to localize their assets in a 
particular Member State. 
3. Notwithstanding paragraph 1, in particular circumstances and at the 
insurance undertaking's request, the home Member State may, on the 
basis of a duly motivated decision, allow exceptions to the rules 
laid down In points (a) to (g) of paragraph 1 of this Article, 
subject to Article 17. 
Article 20 
At the request of, and upon proof being shown by, the Insurance 
undertaking, the home Member State may allow any hidden reserves 
resulting from the undervaluation of assets as cover for technical 
provisions in so far as those hidden reserves are not of an exceptional 
nature. 
If hidden reserves are recognized as cover for technical provisions, an 
adequate amount of latent taxes and selling expenses shall be deducted. 
Article 21 
Numbers 8 and 9 of Annex 1 to the Second Directive are replaced by the 
fo11owIng: 
"8. Insurance undertakings may hold non-matching assets to cover an 
amount not exceeding 20% of their commitments in a particular currency. 
- 65 -
9. Each Member State may provide that, when under the preceding 
procedures a commitment has to be covered by assets expressed in the 
currency of a Member State, this requirement shall also be considered 
to be satisfied when the assets are expressed in ECU." 
Article 22 
Article 16(1) of the First Directive is replaced by the following: 
"1. The home Member State shall require every Insurance undertaking to 
establish an adequate solvency margin in respect of its entire 
business. 
The solvency margin shall correspond to the assets of the undertaking 
free of any foreseeable liabilities, less any intangible items. In 
particular the following shall be considered: 
the paid-up share capital or, in the case of a mutual concern, the 
effective Initial fund; 
one-half of the share capital or the Initial fund which is not yet 
paid-up, once the paid-up part reaches 25% of this capital or fund; 
reserves (statutory reserves and free reserves) not corresponding 
to underwriting liabilities; 
- 66 -
any carry-forward of profits; 
In the case of a mutual or mutual-type association with 
variable contributions, any claim which it has against its 
members by way of a call for supplementary contribution, within 
the financial year, up to one-half of the difference between 
the maximum contributions and the contributions actually called 
in, and subject to an overriding limit of 50% of the margin-, 
at the request of, and upon proof being shown by, the insurance 
undertaking, any hidden reserves resulting from undervaluation 
of assets, in so far as those hidden reserves are not of an 
exceptional nature; 
subordinated loan capital, up to an overriding limit of 25% of 
the margin, if the following criteria are met: 
there must be a binding agreement by which, in the event 
of bankruptcy or liquidation of the Insurance 
undertaking, the subordinated loan capital ranks after 
the claims of all other creditors and is not to be repaid 
until all other debts outstanding at that time have been 
sett led; 
only fully paid-up funds may be taken into account; 
the original maturity must be of at least five years, 
after which the subordinated loan capital may be repaid; 
if its maturity is not fixed, it shall be repayable only 
subject to five years' notice unless It is no longer 
- 67 -
considered as own funds or unless the prior consent of 
the home Member State is specifically required for early 
repayment. The home Member State may grant permission 
for the early repayment of such loans provided the 
request is made on the initiative of the Issuer and the 
solvency of the insurance undertaking in question is not 
affected; 
the extent to which subordinated loan capital may rank as 
own funds must be gradually reduced during at least the 
last five years before the agreed repayment date; 
the loan agreement must not include any clause providing 
that in specified circumstances, other than the 
winding-up of the insurance undertaking, the debt will 
become repayable before the agreed repayment date." 
Article 23 
Article 18 of the First Directive Is replaced by the following: 
"Article 18 
1. Member States shall not prescribe any rules as to the choice of the 
assets In excess of those representing the technical provisions 
referred to In Article 15. 
- 68 -
2. Subject to Article 15(2), Article 20(1), (3) and (5) and the last 
subparagraph of Article 22(1), Member States shall not restrain the 
free disposal of the assets, whether movable or Immovable property, 
forming part of the assets of authorized businesses. 
3. Those provisions shall not preclude any measures which 
Member States, while safeguarding the interests of the Insured, are 
f entitled to take as owners, members or associates of the 
undertakings in question." 
- 69 -
CHAPTER 3 
Article 24 
Article 7(1) of the Second Directive is replaced by the following: 
"1. The law applicable to contracts of insurance referred to by this 
Directive and covering risks within the Member States shall be 
determined in accordance with the following provisions. 
(a) Where a policy-holder has his habitual residence or 
central administration within the territory of the 
Member State in which the risk is situated, the law 
applicable to the insurance contract shall be the law of 
that Member State. 
(b) Where the contract covers either a risk situated in a 
Member State other than the Member State in which the 
policy-holder has his habitual residence or central 
administration, or where the contract covers two or more 
risks situated in different Member States, the freedom of 
choice of the law applicable to the contract shall extend 
to the laws of those Member States and to the country in 
which the policy-holder has his habitual residence or 
central administration. 
(c) Notwithstanding subparagraphs (a) and (b), where the 
Member States referred to in those subparagraphs grant 
greater freedom of choice of the law applicable to the 
contract, the parties may take advantage of that freedom. 
- 70 -
(d) Notwithstanding subparagraphs (a) and (b), when the risks covered 
by the contract are limited to events occurring In a Member State 
other than the Member State in which the risk is situated, the 
parties may always choose the law of the former State. 
(e) For the risks referred to in Article 5(d) of the First Directive, 
the parties to the contract may choose any law. 
(f) The fact that, in the cases referred to in subparagraph (a) or (e), 
the parties have chosen a law shall not, where all the other 
elements relevant to the situation at the time of the choice are 
connected with one Member State only, prejudice the application of 
the mandatory rules of law of that Member State, which means the 
rules from which the law of that Member State allows no derogation 
by means of a contract. 
(g) The choice referred to in the preceding subparagraphs must be 
expressed or demonstrated with reasonable certainty by the terms of 
the contract or the circumstances of the case. If this Is not so, 
or If no choice has been made, the contract shall be governed by 
the law of the country, from amongst those considered in the 
relevant subparagraphs above, with which It is most closely 
connected. Nevertheless, a severable part of the contract which 
has a closer connection with another country, from amongst those 
considered in the relevant subparagraphs, may by way of exception 
be governed by the law of that other country. The contract shall 
be rebuttably presumed to be most closely connected with the 
Member State in which the risk is situated. 
- 71 -
(h) Where a State Includes several territorial units, each of which has 
Its own rules of law concerning contractual obligations, each unit 
shall be considered a country for the purposes of identifying the 
law applicable under this Directive. 
A Member State in which various territorial units have their own 
rules of law concerning contractual obligations shall not be bound 
to apply this Directive to conflicts between the laws of those 
units." 
Article 25 
The Member State in which the risk is situated shall not prevent the 
policy-holder from concluding a contract conforming with the rules of 
the home Member State, as long as it does not conflict with legal 
provisions protecting the general good in the Member State in which the 
r isk Is situated. 
Article 26 
Member States shall not lay down provisions requiring the prior 
approval or systematic notification of general and special policy 
conditions, scales of premiums, or forms and other printed documents 
which an insurance undertaking intends to use in its dealings with 
policy-holders. They may require only non-systematic notification 
- 72 -
of those conditions and other documents for the purpose of verifying 
compliance with laws, regulations and administrative provisions in 
respect of insurance contracts, and this requirement may not constitute 
a prior condition for an undertaking to be able to cary on its 
act ivltles. 
Member States may not retain or Introduce prior notification or 
approval of proposed increases in premium rates except as part of a 
general price control system. 
Article 27 
1. Article 8(4)(b) of the Second Directive is deleted. 
2. Notwithstanding any provision to the contrary, a Member State which 
imposes an obligation to take out insurance may require that the 
general and special conditions of the compulsory Insurance be 
communicated to the supervisory authority of that Member State 
before being circulated. 
- 73 -
TITLE IV 
Provisions relating to freedom of establishment 
and freedom to provide services 
Article 28 
Article 10 of the First Directive is replaced by the following: 
"Article 10 
1. An insurance undertaking wishing to establish a branch In another 
Member State shall notify the competent authorities of its home 
Member State. 
2. The Member States shall require every Insurance undertaking wishing 
to establish a branch in another Member State to provide the 
following information when effecting the notification referred to 
in paragraph 1 : 
(a) the Member State in whose territory it plans to establish 
a branch; 
(b) a scheme of operations setting out Inter al la the types 
of business envisaged and the structural organization of 
the branch ; 
(c) the address In the Member State of the branch from which 
documents may be obtained; 
- 74 -
(d) The name of the person responsible for the management of 
the branch and possessing sufficient powers to bind the 
undertaking in relation to third parties and to represent 
it in relations with the authorities and courts of the 
host Member State. With regard to Lloyd's, In the event 
of any litigation in the Member State of establishment 
resulting from underwritten commitments, insured persons 
must not be more unfavourably treated than if the 
litigation had been brought against businesses of a more 
conventional type. The authorized agent must, therefore, 
possess sufficient powers to enable proceedings to be 
instituted against him and must in that capacity be able 
to bind the Lloyd's underwriters concerned. 
3. Unless the competent authorities of the home Member State have 
reason to doubt the adequacy of the administrative structure or the 
financial situation of the insurance undertaking, taking into 
account the activities envisaged, they shall within three months of 
receipt of the Information referred to in paragraph 2 communicate 
that information to the competent authorities of the Member State 
of the branch and shall inform the undertaking concerned 
accordingly. 
The home Member State competent authorities shall also communicate 
the amount of the guarantee fund and solvency margin of the 
Insurance undertaking, calculated in accordance with Articles 16 
and 17. 
- 75 -
Where the competent authorities of the home Member State refuse to 
communicate the information referred to in paragraph 2 to the 
competent authorities of the Member State of the branch they shall 
give reasons for their refusal to the undertaking concerned within 
three months of receipt of all the information. That refusal or 
failure to reply shall be subject to a right to apply to the courts 
in the home Member State. 
4. Before the branch of an insurance undertaking commences Its 
activities, the competent authorities of the Member State of the 
branch shall, within two months of receiving the information 
mentioned in paragraph 3, if necessary indicate the conditions 
under which, in the Interest of the general good, those activities 
must be carried on in the Member State of establishment. 
5. On receipt of a communication from the competent authorities of the 
Member State of the branch, or, if no communication Is received 
from them, on expiry of the period provided for in paragraph 4, the 
branch may be established and commence its activities. 
6. In the event of a change in any of the particulars communicated 
pursuant to paragraph 2(b), (c) or (d), an insurance undertaking 
shall give written notice of the change to the competent 
authorities of the home Member State and Member State of the branch 
at least one month before making the change so as to enable the 
competent authorities of the home Member State to take a decision 
pursuant to paragraph 3 and the competent authorities of the 
Member State of the branch to take a decision on the change 
pursuant to paragraph 4." 
Article 29 
Article 11 of the First Directive is deleted. 
- 76 -
Article 30 
Article 14 of the Second Directive is replaced by the following: 
"Article 14 
Any undertaking intending to carry on business for the first time by 
way of freedom to provide services shall first inform the competent 
authorities of the home Member State, indicating the Member State or 
Member States within the territory of which it contemplates providing 
services and the nature of the risks it proposes to cover". 
Article 31 
Article 16 of the Second Directive is replaced by the following: 
"Article 16 
1. The competent authorities of the home Member State shall 
communicate, within one month of the notification provided for In 
Article 14, to the Member State or Member States within the 
territory of which the undertaking intends to carry on business 
under conditions of freedom to provide services: 
(a) the amount of the solvency margin calculated in 
accordance with Articles 16 and 17 of the First 
Direct Ive; 
(b) the classes which the undertaking has been authorized to 
transact ; 
(c) the nature of the risks which the undertaking proposes to 
cover in the Member State of provision of services. 
At the same time, they shall inform the undertaking concerned 
accordingly. 
- 77 -
2. Where the competent authorities of the home Member State do not 
communicate the information referred to in paragraph 1 within the 
period laid down, they shall give the reasons for their refusal to 
the undertaking within that same period. The refusal shall be 
subject to a right to apply to the courts in the home Member State. 
3. The undertaking may commence activities as from the certified date 
on which it is informed of the communication provided for in the 
first subparagraph of paragraph 1." 
Article 32 
Article 17 of the Second Directive Is replaced by the following: 
"Article 17 
Any amendment which the undertaking intends to make to the information 
referred to In Article 14 shall be subject to the procedure provided 
for In Articles 14 and 16." 
Article 33 
Articles 12(2) and (3), 13 and 15 of the Second Directive are deleted. 
- 78 -
Article 34 
1. Article 18(1) of the Second Directive is deleted. 
2. Member States of the branch or of provision of services shall not 
lay down provisions requiring the prior approval of general and 
special policy conditions, scales of premiums and forms and other 
printed documents which an undertaking intends to use. For the 
purpose of verifying compliance with their national provisions, 
they shall require of any undertaking wishing to carry on insurance 
business in their territory, whether by way of freedom of 
establishment or by way of freedom to provide services, only 
non-systematic notification of the conditions it proposes to use, 
although this requirement may not constitute a prior condition for 
an undertaking to carry on its activities. 
3. Member States of the branch or of provision of services shall not 
retain or introduce prior notification or approval of proposed 
increases in premium rates except as part of a general price 
control system. 
Article 35 
1. Article 19 of the Second Directive Is deleted. 
2. Any undertaking carrying on business under conditions of freedom of 
establishment or freedom to provide services shall submit to the 
79 -
competent authorities of the Member State of the branch and/or of 
the Member State of provision of services all documents requested 
of it for the purposes of this Article in so far as undertakings 
whose head office is In those Member States are also obliged to do 
so. 
3. If the competent authorities of a Member State establish that an 
undertaking with a branch or providing services in Its territory is 
not complying with the legal provisions applicable to It in that 
State, they shall require the undertaking concerned to put an end 
to the irregular situation. 
4. If the undertaking in question fails to take the necessary steps, 
the competent authorities of the Member State concerned shall 
inform the competent authorities of the home Member State 
accordingly. The latter authorities shall, at the earliest 
opportunity, take all appropriate measures to ensure that the 
undertaking concerned puts an end to that Irregular situation. The 
nature of those measures shall be communicated to the competent 
authorities of the Member State concerned. 
5. If, despite the measures taken by the home Member State or because 
such measures prove inadequate or are lacking in that State, the 
undertaking persists in violating the legal provisions In force in 
the Member State concerned, the latter may, after Informing the 
competent authorities of the home Member State, take appropriate 
measures to prevent or punish further irregularities, Including, In 
so far as Is strictly necessary, the prevention of the further 
conclusion of new insurance contracts by that undertaking In its 
territory. Member States shall ensure that In their territories It 
is possible to serve the legal documents necessary for these 
measures on Insurance undertakings. 
- 80 -
6. The foregoing provisions shall not affect the power of the 
Member States concerned to take - in the case of urgency -
appropriate measures to prevent or punish Irregularities committed 
within their territories. This shall include the possibility of 
preventing insurance undertakings from continuing to conclude new 
insurance contracts within their territories. 
7. If the undertaking which has committed the irregularity has an 
establishment or possesses property In the Member State concerned, 
the competent authorities of the latter may, In accordance with 
national legislation, apply the administrative penalties prescribed 
for that offence by way of enforcement against that establishment 
or property. 
8. Any measure adopted pursuant to paragraphs 4 to 7 involving 
penalties or restrictions on the carrying-on of insurance business 
must be properly Justified and communicated to the undertaking 
concerned. Provision shall be made for a right to apply in respect 
of any such measure to the courts in the Member State in which it 
was adopted. 
9. Every two years the Commission shall submit to the Council a report 
summarizing the number and type of cases in which, in each 
Member State, decisions refusing authorization have been 
communicated under Article 28 or measures have been taken under 
paragraph 4. Member States shall cooperate with the Commission by 
providing It with the information required for the report. 
- 81 -
Article 36 
Nothing in this Directive shall prevent insurance undertakings with 
head offices in other Member States from advertising their services 
through all available means of communication in the Member State or 
Member State of provision of services, subject to any rules governing 
the form and content of such advertising adopted in the interest of the 
general good. 
Article 37 
1. Article 20 of the Second Directive is deleted. 
2. In the event of an insurance undertaking being wound up, 
commitments arising from contracts underwritten through a branch or 
by way of freedom to provide services shall be met in the same way 
as those arising from that undertaking's other insurance contracts, 
without distinction of nationality as far as the insured and the 
beneficiaries are concerned. 
Article 38 
1. Article 21 of the Second Directive is deleted. 
2. Where Insurance is offered by way of freedom of establishment or by 
way of freedom to provide services, the policy-holder shall, before 
any commitment Is entered into, be informed of the Member State In 
which the head office or branch with which the contract is to be 
concluded is established. 
- 82 -
Any document issued to the policy-holder must contain the 
information referred to in the first subparagraph. 
The requirements in the first two subparagraphs shall not apply to 
the risks referred to In Article 5(d) of the First Directive. 
2. The contract or other document granting cover, together with the 
insurance proposal where it is binding upon the proposer, must 
specify the address of the head office, or, where appropriate, of 
the branch of the insurance undertaking which grants the cover. 
Article 39 
1. Article 22 of the Second Directive is deleted. 
2. Every Insurance undertaking shall inform the supervisory authority 
of Its home Member State, separately In respect of operations 
effected by way of freedom of establishment and in respect of those 
effected by way of freedom to provide services, of the amount of 
the premiums, without deduction of reinsurance, receivable by 
Member State and by group of classes. 
The groups of classes are defined as follows: 
accident and sickness (1 and 2); 
motor (3, 7 and 10, the figures for class 10 being given 
separately); 
- 83 -
fire and other damage to property (8 and 9); 
aviation, marine and transport (4, 5, 6, 7, 11 and 12); 
general IiabiIity (13); 
credit and suretyship (14 and 15); 
other classes (16, 17 and 18). 
The supervisory authority of the home Member State shall 
forward this information to the supervisory authorities of each 
of the Member States concerned which so request. 
Article 40 
1. Article 24 of the Second Directive is deleted. 
2. Nothing in this Directive shall prejudice the right of the 
Member States to require undertakings operating in their 
territories by way of freedom of establishment or by way of freedom 
to provide services to join and participate in any scheme designed 
to guarantee the payment of insurance claims to policy-holders and 
injured third parties, on the same terms as undertakings authorized 
there. 
- 84 -
Article 41 
1. Article 25 of the Second Directive is deleted. 
2. Without prejudice to any subsequent harmonization, every Insurance 
contract shall be subject exclusively to the indirect taxes and 
parafiscal charges on insurance premiums in the Member State in 
which the risk is situated within the meaning of Article 2(d) of 
the Second Directive, and also, with regard to Spain, to the 
surcharges legally established in favour of the Spanish "Consorclo 
de Compensaclôn de Seguros" for the fulfilment of Its functions 
relating to the compensation of losses arising from extraordinary 
events occurring in that Member State. 
Notwithstanding the first indent of Article 2(d) of the Second 
Directive, and for the purposes of this paragraph, moveable 
property contained in a building situated in the territory of a 
Member State, except for goods in commercial transit, shall be a 
risk situated in that Member State, even If the building and its 
contents are not covered by the same Insurance policy. 
The law applicable to the contract pursuant to Article 7 of the 
Second Directive shall not affect the fiscal arrangements 
applicab le. 
Each Member State shall, subject to future harmonization, apply to 
those undertakings which carry on business In Its territory, its 
own national provisions for measures to ensure the collection of 
indirect taxes and parafiscal charges due under the first 
subparagraph. 
- 85 -
TITLE V 
Final provisions 
Article 42 
1. The technical adjustments to be made to the First and Second 
Directives and to this Directive in the following areas shall be 
adopted in accordance with the procedure laid down in Article ... 
of Council Directive ... (Committee on Insurance): 
amendments to the list set out in the Annex to the 
Directive, or adaptation of the terminology used in that 
list to take account of developments on Insurance 
markets; 
clarification of the items constituting the solvency 
margin listed in Article 16(1) of the First Directive to 
take account of the creation of new financial 
instruments; 
alteration of the minimum guarantee fund provided for in 
Article 17(2) of the First Directive to take account of 
developments in the economic and financial field; 
amendments to the list of admissible assets which may 
cover the technical provisions, set out In Article 18 of 
this Directive, and of the rules on the spreading of 
investments laid down in Article 19 of this Directive; 
- 86 -
changes to the exceptions to the matching principle, 
provided for in Annex 1 to the Second Directive, to take 
account of the development of new currency hedging 
Instruments; 
clarification of the definitions in order to ensure 
uniform application of the First and Second Directives 
and of this Directive throughout the Community; 
consolidation of the First and Second Directives, and 
this Direct ive. 
Article 43 
1. Branches which have commenced their activities, in accordance with 
the provisions in force in their Member State of establishment, 
before the entry Into force of the provisions adopted In 
implementation of this Directive shall be presumed to have been 
subject to the procedure laid down in Article 10(1) to (5) of the 
First Directive. They shall be governed, from the date of that 
entry Into force, by Articles 15, 19(a), 20 and 22 of the First 
Directive and by Article 35 of this Directive. 
2. Articles 30 and 31 shall not affect rights acquired by insurance 
undertakings transacting business by way of freedom to provide 
services before the entry Into force of the provisions adopted In 
implementation of this Directive. 
Article 43a 
Notwithstanding any provision to the contrary, a Member State in which 
contracts covering the risks mentioned in class 2 of part A of the 
Annex to the first Directive may be concluded In place of cover under a 
statutory social security system, may apply to such contracts the 
regime laid down for compulsory insurances in Article 8 of the Second 
Directive, as amended by Article 27 of this Directive. 
- 87 -
Article 43b 
Member States shall ensure that decisions taken in respect of an 
insurance undertaking in pursuance of laws, regulations and 
administrative provisions adopted in accordance with this Directive may 
be subject to the right to apply to the Courts. 
Article 44 
Member States shall amend their national provisions to comply with this 
Directive not later than ... and shall forthwith inform the Commission 
thereof. 
The provisions amended in accordance with the first subparagraph shall 
be applied not later than ... 
These provisions shall make express reference to this Directive. 
Article 45 
Upon notification of this Directive, Member States shall communicate to 
the Commission the texts of the main laws, regulations or 
administrative provisions which they adopt in the field covered by this 
Direct ive. 
Article 46 
This Directive Is addressed to the Member States 
Done at Brussels, For the Council 
- 88 -
FICHE FINANCIERE 
La présente proposition de troisième directive sur l'assurance directe autre 
que l'assurance sur la vie n'entraîne pas de coût pour le budget de la Communuaté 
- 89 -
COMPETITIVENESS AND EMPLOYMENT IMPACT STATEMENT 
I.What Is the main reason for Introducing the measure? 
The completion of the Internal market in the direct non-life insurance 
sector in accordance with the principles laid down In the White Paper In 
order to create a true single market in this Important financial service 
sector. 
The first and second Directives have already gone a long way towards 
realizing this fundamental Community objective. The second Directive 
established the necessary conditions to enable Community Insurance 
undertakings to cover under the freedom of services regime those risks 
located within the Community which do not involve a need for special 
protection ("large risks"). At the same time Insurance buyers Insuring 
these large risks can have access to the widest possible Community 
insurance market to find the cover most suited to their requirements. 
However, some coordination work at Community level is necessary to 
arrive at the same regime for Insurance contracts entered Into by other 
smaller consumer policyholders ("mass risks"). 
The regime that Is proposed is based on that already used for the 
creation of the Internal market for banking and Investment services 
(Second Banking Directive and proposal for a Directive on Investment 
services): introduction of a single licence system and of the concept of 
home-country control. When this new proposal for a Directive Is adopted 
all direct non-life Insurance will be subject to a single regime which 
will enable Insurance undertakings to offer their products throughout 
the Community and insurance buyers to have access to the widest possible 
market in order to find the most appropriate product. 
- 90 -
II. Features of the businesses in question - In particular: 
Are many SME concerned? 
yes, particularly as Insurance buyers who will benefit from the 
completion of the single market; 
Are there any regional concentrations? 
eligible for regional aids In the Member States? 
eligible under the European Regional Development Fund? 
The measures put forward In the proposal for a Directive are unlikely to 
affect unevenly the Community's regions. 
III. What direct obligations does this measure impose on businesses? 
In line with the policy followed for other financial services this 
proposal for a Directive Introduces in the direct non-life insurance 
sector the system of the single administrative authorization valid for 
all the undertaking's activities throughout the Community and of 
prudential supervision by the authorities of the Member State of origin 
(home country control). 
This development will simplify considerably the present situation as 
regards the taklng-up and pursuit of these activities, currently 
characterized by a multiplicity of authorizations and of controls 
according to the manner In which business is conducted. 
Home country control regarding the obligation to hold sufficient 
technical reserves and their valuation and representation by matching 
assets localized in the Community will replace the multiplicity of 
regimes that exist at present by coordinated rules. The solidity of 
Insurance undertakings will be strengthened and guaranteed and the 
protection of Insurance polIcyholderT wl11 be reinforced as a result. 
- 91 -
IV. What indirect obligations are local authorities llkelv to Impose on 
businesses? 
Within the limits laid down In the proposal for a Directive, the Member 
States' authorities may adopt rules to ensure that the measures they 
apply under the Directive are complied with. In particular, the Member 
State In which the Insured risk Is situated may require that Its own 
legal rules designed to protect the public good are respected on its 
territory. 
V. Are there anv special measures In respect of SMEs? 
The first Directive 73/239/EEC already set out a number of special 
arrangements for small or medium-sized Insurance undertakings. Article 
3 states that the Directive does not apply to certain small and medium-
sized mutual undertakings. In addition the Directive allows the 
required minimum guarantee fund to be reduced by one quarter In the case 
of mutuals or mutuaI-type undertakings. 
The proposal for a third Directive does not amend this treatment granted 
to certain Insurance undertakings. 
As regards Insurance policyholders which can be considered as mass risks 
the proposal for a third Directive provides for rules to guarantee that 
they are afforded the necessary and adequate protection when they enter 
Into Insurance contracts. 
- 92 -
VI. What Is the likely effect on; 
the competitiveness of businesses? 
Community Insurance undertakings will be subject to coordinated rules 
/governing the taklng-up and pursuit of the business of direct non-life 
Insurance. As a result of the creation of a single market they will be 
able to offer their Insurance products anywhere In the Community to any 
policyholder. An Increase In competition between Insurance undertakings 
can thus be anticipated. 
SME buyers of Insurance will benefit from a wider product range from 
which they will be able to choose the product most suited to their 
requirements in terms of cover and price proposed. 
employment? 
there will be no direct effect. 
VII. Have both sides of industry been consulted? 
opinions have been obtained from the European Insurance Committee (CEA), 
BEUC and from BIPAR, the International Bureau of Producers of Insurance 
and Reinsurance. 
In general the comments have been positive (unions, employers). 
The CEA supports the approach taken In this proposal for a Directive, 
notably as regards the coordination of technical reserves and of the 
rules concerning the representation, valuation and localization of the 
asse'«* representing those reserves. 


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