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
Date: 1990-08-31
Institutions: European Commission
Subjects: approximation of laws, freedom to provide services, insurance, insurance company, right of establishment

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) 

-  2 

-

EXPLANATORY  MEMORANDUM 

i.  arjiawriuLzja 

»•  {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. 

- 3 -

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. 

- 4 -

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) 

-  5 -

B)  Hairnrml ration nf tfrp -rnlffl ooirernlng th* **y»in1ry».1 prnxHglnrtfg nf 

undertakings nftrrying on tfr* H V C H T *^  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 

- 6 -

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. 

-  7  -

-  AbniAtinn  nf  ffa  prohibition  Of  thlft  fit 
hllfilnftSfi  by  way  nf  T»1fh*.  nf  ^ ^ Hf i> n n p nt  «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. 

- 8 -

-  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 U n es 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 

- 9 -

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. 

I I) 

raiMKMPAW  CK TOW AOTTHTJg; 

TVyflnl^lopf? «rri  scope 

A r t i c le  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. 

- 10 -

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»  S t a t e s'  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. 

-  11  -

TITLE II 

The taklng-up of  the  business  of  insurance 

AUTffiRIZATICM  QDMDITIC1TS 

Arttnlftg  4  «nd  R -  Thg  «inglq  f y i t ^ r l ^ t l n" 

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 ). 

- 12 -

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 ). 

-  13  -

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 

-  U  -

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. 

- 15 -

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. 

- 16 -

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. 

- 17 -

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. 

- 18 -

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. 

A r t i c le  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 

T MS  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) 

(11) 

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) 

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. 

A r t i c le  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. 

A r t i c le  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 __ 

T Mp  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 
undertakings3; 

on  the  annual  accounts  and  consolidated  accounts  of  insurance 

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. 

1 

2 

OJ  No L  193, 18.7.1983,  p.1. 

OJ  No L 348, 17.12.1988, p.62. 

(6) 

-  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 -

A r t i c le  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 -

A r t i c le  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 

A r t i c le  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. 

A r t i c le  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". 

A r t i c le  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." 

A r t i c le  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. 

A r t i c le  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. 

A r t i c le  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. 

A r t i c le  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. 

A r t i c le  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. 

ISSN 0254-1475 

COM(90) 348 final 

DOCUMENTS 

EN 

18 

Catalogue number : CB-CO-90-427-EN-C 
ISBN 92-77-63831-1 

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