CELEX: 51974PC1838
Language: en
Date: 1974-11-14
Title: Amendments to the Proposal for a first Council Directive on the coordination of laws, regulations and administrative provisions relating to the taking-up and pursuit of the business of direct life assurance (Presented by the Commission to the Council pursuant to the second paragraph of Article 149 of the EEC Treaty)

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                                              COM(74)1838 final
                                              Brussels . 14 November 1974
              Amendments to the Proposal for a first Council
            Directive on the coordination of laws , regulations
         and administrative provisions relating to the taking-up
            and pursuit of the business of direct life assurance
                 ( Presented "by the Commission to the Council
                 pursuant to the second paragraph of Article
                            149 of the EEC Treaty)
   COM74) 1838 final
 ---pagebreak---                                                                XV/163/74-E
                                                                   ANNEX I
                            EXPLAIN ATORY MEMORANDUM
       On the basis of the Opinions delivered by the European Parliament and
the Economic and Social Committee concerning the proposal for a first Coun­
cil Directive on the coordination of laws , regulations and administrative
provisions relating to the taking-up and pursuit of the business of direct
life assurance , the Commission proposes that the amendments contained in the
document attached hereto be made to its original proposal .
Article 1
First nararraph
       The Economic and Social Committee proposes thai; the words " insurance
under takings " be replaced by " undertakings " since several of the activities
defined in the Directive are carried on by undertakings which cannot be des­
cribed as insurance undertakings .
       The Commission adopts the amendment proposed 'by the ESC , on the
grounds of consistency .            ?
                                                                 ' ■·        ΓΟ \
             ' »
Subparagraph 1
       Both the Economic and Social Committee and the European Parliament      ""
propose that subparagraph 1 ( b ) be incorporated in subparagraph 1 ( a ) in
order to eliminate any doubt as to whether annuities are covered by : Article
19 ( a), which deals with the method of calculating the solvency margin .
       The Commission adopts this proposal in order to prevent its intentions
from being misunderstood .
 ---pagebreak---                                         - 2 -                  XV/16 3/74-E
Articles 1 and 2
       Both the Economic and Social Committee and the European Parliament
request that the coordination referred to in Article 2 ( 3 ) be achieved
within four years . They consider that the present provision may result in
distortion of competition .
                 .           .   .          ,           •        f       _ •,
       Under Article 1 ( 2) ( c ) the management of group pension funds is imme­
diately subject to the provisions of the Directive where it is oarried on by
insurance undertakings , whereas if such management is carried on by other
                                                                        •'    . «» •
undertakings it is not subject to the provisions of the Directive until
further coordination , in respect of which no time limit is fi'uted'i has "been
effected ( Article 2 ( 3 ))»
       The provision is liable to distort competition in favour of such other
undertakings . In addition , the latter are not subject to the financial requi­
rements laid down in this Directive , which means that the beneficiaries of
their activities may Rave only a poor financial guarantee .
       The Commission , therefore , adopts the proposal of the consultative
bodies but considers it necessary to specify that the time limit runs from
the date of notification of the Directive .
Article 3 '
Subparagraph 1
       The Eui-bpean Parliament considers that , in view of the present cost of
funerals , the amount given in this sub paragraph for benefits in the event of
death- must be increased .
       The Commission agrees with this comment and adopts the /proposal .
Article 4
       The Economie and Social Committee considers that the Directive should
not apply to the "Caisse d' Epargne de l' Etat du Grand-Duché de Luxembourg".
 ---pagebreak---                                       - 3 -                    XV/1 63/7 4-E
      . The Commission .cannot adopt the proposal of the ESC since life assu­
rance contracts entered into ^^^ith this "body are directly covered "by the
Directive . The fact that such contracts are concluded only with the
beneficiaries of mortgage loans granted by' that institution does not
affect the situation and this same link also exists in other countries .
       Moreover , there is in the Community a public institution engaging in
the same operations and the Member State concerned has expressly stated
and accepted that this institution is covered by the Directive .
       If the Luxemburg institution referred to , which will enter into
competition with similar undertakings in other countries , was not subject
to the same financial requirements as these other undertakings , there
would be distortion of competition .
Articles 8 and 10 ( 3 )
1 ) Article 8 , introductory sentence , Article 8 ^ 3 ) and Article 10 ( 3 )
       The European Parliament proposes some purely textual amendments .
       The Commission considers that they are unnecessary since its proposed
    wording is sufficiently clear .
2 ) Article 8 ( l ) fb )
       The European Parliament asks the Commission to - specify that the      < ■•• •-
    business activities to which the undertakings covered by the Directive
    must confine themselves include reinsurance contracts . The Economic and
    Social Committee makes a similar request in respect of reinsurance ■
    acceptances .
       The Commission dtfes not agree with the views of the two consultative
    bodies , because the undertakings engaging solely in the business of
    reinsurance fall outside the soope of this directive by virtue of the
    1st article of this directive .
    Moreover , it is recalled , on the one hand , that re-inSurance was covered
    by the liberalization Directive No 64/225/CEE of 25 February 1964, - and
    on the other hand, it is recalled that the Commission has replied with
    considerable attention to these two consultative bodies , it mentioned
    re-insurance in several articles of the directive and in particular in
    article 19 ( a) and (b ).
                                                                             •/.
 ---pagebreak---                                       - A -                    XV/1 6 3/74-E
       Furthermore , it wishes to maintain as much consistency as possible
"between this Directive and. the first Directive on coordination in the field
of indemnity insurance of 24 . July 1973 1 which contains the same provision ,
 so that the two Directives form a coherent whole and no misinterpretation is
possible .
Article 12
       The European Parliament proposes that the present Article 14 be placed
immediately after Article 11 since it is its logical continuation *
       The Commission accepts this proposal . Accordingly , Article 14 becomes
Article 12 , Article 12 becomes Article 13 and Article 13 becomes Article 14 .
Article 12 ( old )
ParaGraph 1
       The European Parliament proposes that this paragraph refer not to the
activities listed in the Annex to the Directive but to those listed in
Article 1 , since this list is more comprehensive than the former .
       The Commission adopts this amendment .
Artide 13 ( old.)
Paragraph 2 , second subparagraph
       Both the Economic and Social Committee and the European Parliament
propose that in the French version the word " individualisees " be replaced
by the word "distinguees " in order to prevent this provision from being
interpreted as requiring the itemized breakdown of the assets and securities
forming the guarantees used to cover commitments contracted vis-a-vis life
policyholders .
       The Commission cannot accept this proposal since its intention is pre­
cisely to provide for an itemization of gurj?antees in order to afford
greater protection to policyholders . On the other hand , the word "geTdenti-
ficeerd " in the Dutch version of the Parliament 's report can be accepted .
 ---pagebreak---                                       - 5 -                 XV/163/74-E
Paragraph 3 ( b ), last sentence , and paragraph 3 ( c )
      Both the Economic and Social Committee and the European Parliament
note that in the event of the transfer of assets between the life portion
and the indemnity portion of the assets of an undertaking dealing in several
classes of insurance , and in the event of execution or the winding up of
such an undertaking , the Directive regulates only the position of those cre-
di ors whose claims arise out of life assurance business    and not that of
creditors whose claims arise out of indemnity insurance business , and that
this omission is liable to lead to misinterpretations . They request that si­
milar protection be afforded to creditors whose claims arise out of indemni­
ty insurance business .
      The Commission approves this proposal .
Article 17
      See the explanatory memorandum regarding Article 19 ( a ), first result .
Article 18
Subparagraph 1 , 1st indent
      Both the Economic and Social Committee and the European Parliament pro­
pose that an expression other than " effective initial fund" be used since , in
order to find the solvency margin of mutual concerns not only the effective
initial fund obut also any effective increase in that fund must be taken into
consideration .
       The Commission accepts this argument and adopts the wording proposed
by the European Parliament .
Subpara^rraph 2
      The Economic and Social Committee requests that the words " appearing
in the balance sheet " be deleted since , in certain member countries , under­
takings managing group pension funds may have profit reserves which must be
given in a separate special account and which provide the same guarantees
as profit reserves which appear in the balance sheet .
 ---pagebreak---                                          - 6 ~                   XV/163/74-E
         The Commission cannot accede to tlu's " request since. the f
  are " in the balance sheet " is a characteristic of the explicit items compri­
  sing the solvency margin which are referred to in subparagraphs 1. and 2 . By
  making provision for publicity ., it vri. vies to prevent other reserves which do
  not provide the same financial guarantees frorn being taken into considera-;
  tion .                     ' '         y
  Article 19
  Introductory sentence
       . Both the Economio and Social Committee and the European Parliament ■
  request that the words "minimy.ni polvsncy margin " be used to differentiate the
  latter from the effectiva sclv?.;icy n>a\'gin.' ' "                     . .
         The Commission recognizes the need to specify that the requirements of
  Artiole 19 relate to the minimuu. solvency margin , in order to avoid any con­
  fusion With the effective solvency margin . The word "minimum1 ' is in fact
  used in Article 24(2 ).
  Article 17 ( l ^ and Article 19 ( a), first result             - •    ■ •   •
* Point ( a ),     t resuit
    <
         The Economic and Social Committee considers that the first result in
  the calculation of the solvency margin must be computed in all countries on .
  the basis of the mathematicrl r3serves net of reinsurance , ig other words ,
  after deduction of transfers for reinsurance . It bases this proposal on the
  grounds that , in its opinion ,. Article 17 ( l ) enables Member States to autho­
  rize the establishment of net or gross mathematical reserves and that the
  Directive lays down coordinating measures in respect of solvency margins ,         cc.r
  according to which such margins would have to be calculated from equivalent
  mathematical reserves in al-1 the member countries .
         The Commission cannot accept this proposal . First of aLll , the arguments
  put forward by the ESC show tl-.nt , in order to avoid confusion , Article 17(l )
  must specify that the res ervae should include reinsurance . -     '
         Indeed^ where th&t           layn dewn that the amount of the. rc servo b
  isto be determined according to the rules fixed' by the              thife means that the
 ---pagebreak---                                        - 7 -                  XV/3 63/74-E
 rules of the State must govern the method of determining such amount , in
particular the choice of interest rate , mortality table and leading percen­
 tage , but not the determination of the nature of the reserves , in other
words , whether or not transfers for reinsurance are included .
        This coordinating Directive must make a single ruling on this impor­
tant question , or else distortion of competition will occur .
        It is preferable to specify that the reserves muat include reinsurance .
If it is laid down that reserves must be net of reinsurance , the protection
of insured persons will be reduced since the insurer cuuld on his own initia­
tive reduce the reserves to be established by increasing the amount of assets
he transfers to reinsurers .
        Whereas the ESC considers that the solvency margin should be calculated
on the basis of net reserves , the European Parliament on the other hand con­
siders that it should be calculated on the basis of gross reserves and gives
the following reasons for its rejection of the former method :
        a) Community reinsurers engaged exclusively in the business of reinsu­
rance are not subject to any control . Consequently , if the net reserves were
taken as a basis for calculation there would not be the additional financial
guarantee provided by the margin in respect of reinsurance .
        b ) The situation is similar if the reinsurance is with an undertaking
in a third country where control is impossible .                   ,
        c ) The higher the proportion of insurance reinsured the smaller would
be the margin of solvency , required in relation to the effective commitments
of the insurer. It could be added that this would enable insurers subject
to control to determine for themselves indirectly the amount of the finan­
cial guarantees they were required to provide , which would be an anomalous
situation .
        d ) In the United Kingdom about 20^ of insurance policies a,re reinsured ,
whereas this figure is only 10fo in the other Member States . Calculations
based on net reserves would therefore give rise to distortion of competition
between Member States .
                                                                            /.
 ---pagebreak---                                      - '8 -                  XV/I63 /74-E
      The European Parliament comes down in favour of calculations based on
the gross reserves plus reinsurance acceptances from outside the Community .
It tempers this stand by proposing a reduction in the percentage adopted for
calculating the margin .
      The Commission adopts the proposals of the European Parliament .
Point ( a), second resuit
      The Economic and Social Committee requests that , in order to obviate
any misinterpretation , it be specified that the capital at risk for which
the undertaking is responsible relates to direct business and to reinsurance
acceptances . The European Parliament applies the same arguments to both re­
sults under point ( a) and proposes a reduction of the "per mille1' relating
to the capital at risk .
      The Commission accepts the Parliament 's proposal and adds further
clarification to avoid the danger of misinterpretation pointed out by the
ESC .
Point ( b ). first paraffraph
      The Economic and Social Committee proposes extending the solution
set out in point ( b) in respect of temporary insurance for a period not
exceeding five years to cover temporary insurance for a period of between
five and ten years. In its opinion, .such: insurance is similar to indemnity
insurance and has only a small mathematical reserve . In this way , the addi­
tional guarantees required would not exceed what is technically essential
and an unwarranted rise in premiums would be averted. Moreover, there would
be adninistrative difficulties in distinguishing between temporary insu­
rance for a period not exceeding five years on the one hand and that for
a period exceeding five years on the other. The European Parliament has
expressed a similar opinion.
         :               '•       .                                   A >■ vol .
      Since the Commission is concerned with this borderline case , it
                1■ '                                                l        Xco
decided to accept the propositions of these consultative bodies .
 ---pagebreak---                                        - 9 -                   XV/163/74-E
Point ( b). second paragraph
       Both the Economic and Social Committee and the European Parliament
request that provision be made for a. more rapid reduction of the rates of
 the margin since the supplementary and temporary insurances covered by this
paragraph form only a small proportion of the policy portfolio of a life
assurancs company .
       The Commission accepts this proposai .
Point ( b ), third paragraph
     . Both the Economic and Social Committee and the European Parliament
propose that to take account of transfers for reinsurance , a reference period
longer than one financial year should be chosen in order to reduce the dif­
ficulties arising from fluctuations in the rate of reduction for reinsurance
which would be caused by variktipns in the volume of claims from year to
year .
       The Commission adopts this proposal , which makes for more stable mana­
gement of insurance undertakings .
Point ( b ) t fourth paragraph ( new)
       Both the Economic and . Social Committee and the European Parliament
consider that account     should be taken of the special position of Lloyds of
London arid that a new paragraph should be added to Article 19 ( b ) to bring
it into line with Article 16 ( 5 ) of the coordinating Directive in the field
of indemnity insurance .
       The Commission adopts this proposal .
Points' ( c ) and ( d )
       Both the Economic and Social Committee and the European Parliament con­
sider it necessary to specify that in respect of the mathematical reserves
referred to in' point ( c ) the definition given in point ( a) under the first
result should be adopted .
       They propose the saiae solution in respect of the " capital managed"
referred to in point ( d) which is , in fact , the mathematical reserves.
       The European Parliament proposes that in point ( c ) the rate of 4%
( per cent ) of the reserves be replaced by 3,5$ ( per cent ).
 ---pagebreak---                                       - 10 -                 XV/163/74-E
       The European Parliament proposes that it .be specified that point ( d)
relates to the management of group pension funds , since the funds themselves
are excluded from the scope of the Directive jLn accordance with Articles 1
and 2 ( 3 )»
       The Commission adopts the above proposals .
Article 20
Paragraph 1                                                   ■        '   .
       a) Both the Economic and Social Committee and The European Parliament
consider it necessary to specify that the guarantee fund is defined as a
function of the minimum , and not of the effeptive , solvency margin . Other­
wise , an undertaking with a particularly high relative guarantee fund because
it had a higher effective solvency margin than that . required under Article
19 , would be subjected to the restoration measures provided for in Article
24 ( 3)i and there would be no justification for this .
       The Commission adopts this proposal .
       b ) The Economic and Sooial Committee considers it unacceptable that
50% of the guarantee fund must consist only of items listed in Article I8(l )
and ( 2) while the items listed in Article 18(3) are excluded. In the opinion
of the ESC , the building up of these additionnal amounts of free assets will ,
firstly , be at the expense of the assured persons who will thus have a smaller
share in the profits of the undertaking and , secondly , will penalize persons
who have been insured for a longer period vis-a-vis the younger generations
of assured persons .                                            • • ••   ,
       The Commission feets that it cannot accept the views of the ESC on
this matter .
       Indeed , if at least half of the guarantee fund is covered by the items
listed in Article 18 ( l ) and ( 2), the so-called "explicit items", this provi­
des a substantial guarantee for assured persons and will facilitate both
the control of the solvency of undertakings and recourse to the restoration
measures provided for in Article 24 *
                                                                             /■
 ---pagebreak---                                       - 11 -                   xv/l 63/7 4-E
 Paragraph 3 (new)
       Both the Economic and Social Committee and. the European Parliament
 note that a third paragraph should "be added to Article 20 , along the lines
 of the solution adopted in the directive on the coordination of indemnity
 insurance , which makes provision for a reduced guarantee fund for mutual
 associations .
       The Commission adopts this proposal .
 Article 2 ?
       The Economic and Social Committee points out that mandatory transfer
may well constitute an obstacle to the freedom sought "by the Treaty of Rome
and that it would be useful if the Member States were to reduce progressively
the percentage of such transfers . While it considers it vital that Article
 22(3 ) should be retained, the Committee nevertheless recognizes that in
the immediate future Article 22(l ) and ( 2 ) may give rise to serious imple­
menting difficulties for certain Member States . It considers , however , that
the problems raised by Article 22 ( l ) and ( 2 ) must be definitively settled
when freedom to provide life assurance services is introduced.
       The Committee therefore proposes that Article 22(l ) and ( 2 ) be replaced
by a standstill - clause .
       The European Parliament , for 'its part , does not adopt an attitude which
is as favourable to' these n&ndatory transfers .       Indeed, the European •
Parliament proposes to maintain in the directive the affirmation only of '
those Bandatory transfers . which ought to be abolished.
Having recalled that this article covers only one country, it finds that
it is necessary to leave to the government of this country the time to
abolish this legislation and to adapt to the- new situation which is going
to carry the loss of returns for the state .
       The European Parliament proposes on the one hand that the abolition
of this national arrangement becomes obligatory only when the freedom to
ptovide services of life assurnnoe takes effect &nd on the other hand,
to abolish paragraph 2 which stipulates an immediate reduction of 25 %
of these transfers.' «                           : •
 ---pagebreak---                                      - 12 -                   XV/1 63/74-5
       The Commission recalls -that its original proposal is based on the
objectives of the Directive , As the E,S,C * and. the European Parliament
point out in their reports , article 22 covers in particular nandatory
transfers < with a designated public agency of one of the member states#
A similar situation existed in another member state . The latter, however ,
put and end to the situation, considering it to be incompatible with a
genuine common market in insiirance .
       Where an undertaking from a Member State other than that dove red by
this Article sets up in the latter State an agency or a branch, such agency
is obliged to effect partial reinsurance with the public agency covered by
this Article , whereas in an other Member State it would not have such obli­
gation and could, for example , effect the whole of its reinsurance with an
undertaking in the country where its head office was situated . The Commission
considers that this situation creates inequality between Member States as
regards the conditions governing the taking-up and pursuit of assurance
business and that it is necessary in this Directive to coordinate the rules
governing the matter .
      However, in view of the serious implement ing difficulties to which
this article could give rise in the member states concerned, the Commission
accepts the proposition of -'•he European Parliament , concerning paragraph 1 ,
that is to say, that the nandatoryyi;rancf qes . ought to be abolished pro­
gressively to disappear not in five years , but fet the moment of putting
into force of the second directive concerning the coordination of laws
and which is destined to facilitate the effective exercise of life insurance
activities . in providing services .
      For the same paragraph - paragraph 1 - the Parliament proposes equally
to abolish the words " en reassurance " and to specify that the beneficiary
bodies of these re-insurances are public bodies . The Commission i3 in
agreement with these two propositions .
      The first paragraph, thus modified, foreseeing the progressive abolition
of mandatory transfers, . the Commission (deviating from the attitude of
the European Parliament on this point ) feels that it is necessary to maintain
paragraph 2 which fixes the first stage of this progression and to use the
follo'.jing more precise phrase to achieve this j " from the coming into force
of this present directive this reduction is a minimum of 25 $        the actual
prescribed rate ".
 ---pagebreak---                                          - 13 -                 XV/163/74-E
Article 25
Paragraph 1
         The European Parliament proposes a slight textual amendment which the
Commission cannot accept since it does not represent a real improvement .
Moreover , this text is identical with the first subparagraph of Article
2l(l ) of the Directive on indemnity insurance and it is desirable to maintain
as much consistency as possible between the two directives .
Article 28
Third paragraph
         Both the Economic and Social Committee and the European Parliament
request that an addition be made to this paragraph to enable the technical
reserves of the agencies and branches of undertakings from third countries
to include claims against reinsurers , as is the case for Community, under­
takings ( Article 17(3 ) )• Moreover , similar provision is already made in the
coordinating Directive in the field of indemnity insurance ( Article 24 »
third paragraph , last sentence ).
         The Commission adopts this proposal .
Article 30
Paragraph s 1 and 2
         Both the Economic and Social Committee and the European Parliament
note that the advantages granted to undertakings from third countries form
an indivisible whole . The request that this Article be amended since it
does not appear desirable to grant one or other of these advantages without
granting the others .
         The Commission adopts this proposal and amends the Article so that the
granting of these advantages and the application therefor relate to all the
advantages .
Article 33
         The Economic and Social Committee points out that in Belgium there
 are undertakings called "Caisses patronalss de retraite " which are engaged
 in the management of group pension funds within the meaning of Article l(2)
 ( c ) and jihich therefore .should be subject to the provisions of the Directive.
 ---pagebreak---                                     - 14 -                   XV/163/74-E
These undertakings are "non-profit-making associations ", a legal form not
mentioned in Article 8 . The ESC considers that it is not necessary to com­
pel such undertakings to change their legal form and proposes the insertion
of a provision enabling them to keep it .
      The Commission adopts this proposal . For reasons of competition it is
important that such undertakings should come within the scope of the Direc­
tive and it is desirable to make this clear .
      It is therefore necessary to insert the new paragraph proposed between
the former paragraphs 2 and 3 *
 ---pagebreak---                                                                     XV/163/74-E
                                                                       ANNEX II
                          Amendments to the Proposal for a first Council
                 Directive on the coordination of laws , regulations and
                 administrative provisions relating to the taking-up and
                 pursuit of the business of direct life assurance
Initial proposai                                                       New proposai
ARTICLE 1                                 ARTICLE 1
First naragraph                           First paragraph
       This Directive concerns the                This Directive concerns the ,
taking-up of the self-employed acti­      taking-up of the self-employed acti­
vity of direct insurance carried on       vity of direct insurance carried on
by insurance undertakings established     by undertakings established in a
in a Member State or which wish to '      Member State or ■ which wish to become
become established there , and the        established there , and the pursuit
pursuit thereof in the form of the        thereof in the form of the activities
activit j es defined below .              defined below .
Subraragraph 1                            Subpara^raph 1
      The following kinds of insurance           The following kinds of insurance
where they are on a contractual basis : where they are on a contractual basis t
a) Life assurance , that is to say ,      a) Life assurance , that is to say ,
    the branch of insurance which com­        the branch of insurance which com­
    prises , in particular , assurance        prises , in particular , assurance
    on survival to a stipulated age           on survival to a stipulated age
    only , assurance on death only , as­      only , assurance on death only , as­
    surance on survival to a stipula­         surance on survival to a stipula­
    ted age or an earlier death , life        ted age or an earlier death , life
    assurance with return of premiums ,         assurance with return of premiums ,
    marriage assurance , and - birth as­      marriage assurance , birth assurance s
    surance ;                                provision of annuities :
b) Annuities :                            b ) Supplementary insurance ( formerly
                                              i   o  ;
c ) Supplementary insurance ....          c ) The type of insurance existing in
                                              Ireland and the United Kingdom ...
                                              ( formerly 1 ( d) ) ;
d) The type of insurance existing in
    Ireland and the United Kingdom ...                                           ./•
 ---pagebreak---                                       - 2 -                   XV/163/74-E
Initial proposai                                                   New proposai
ARTICLE 2                                  ARTICLE 2
Subparagraph 3                             Subparagraph 3
      Subject to further coordination ,         Subject to coordination , which
operations , other than those             must be achieved within four .years
                                           following the notification of this
                                           Directive , operations other than ...
                                           ( rest unchanged).
ARTICLE 3                                  ARTICLE 3
Subparagraph 1                             Subparagraph 1
      Institutions which undertake' to          Institutions which undertake to
provide benefits in the event of death     provide benefits in the event of death
only , where the amount of such bene­      only , where the amount of such bene­
fits is less than 300 units of account . fits is less than 800 units of account
Change of numbering of Articles
ARTICLE 12                                 es
                                     becomes                        ARTICLE 13
ARTICLE 13                   .  ...        es
                                     becomes                        ARTICLE 14
ARTICLE 14                                 es
                                     becomes                        ARTICLE 12
ARTICLE 1 2                                ARTICLE 13
Paragraph 1                                Paragraph 1
      An undertaking which sets up in           An undertaking which sets up xn
a Member State may not carry on simul­     a Member State may not carry on simul­
taneously the activities referred to       taneously the activities referred to
in the Annex to the first Directive on     in the Annex to the first Directive
the poordination of indemnity insu­        on the coordination of indemnity
rance and the activities listed in         insurance and the activities listed
 the Annex to this Directive .             in Article 1 of this Directive .
 ---pagebreak---                                        - 3 -                                      XV/1 63/74-3
 Inilial _ pjrçmgsal                                                                  New proposai
                                           ARTICLE 14
 Pavagraph 3 fb)., last sentence           &EasssaËLli*)i la5t .fiftaSgasa
         Each transfer of assets ftom                     Each transfer of assets from
 the life portion to the indemnity-        the life portion to the indemnity
 portion must lie approved a posteriori    portion                            vice versa must be appro­
"by the supervisory authority .            ved ex post facto by the supervisory
                                           authority .
         In the event of execution being                  In the event of execution being
 levies at the suit of one or more          levied at the suit of one or more indi­
 individual creditors to enforce claims     vidual creditors , the respective assets
 arising out of life assurance "business , of the life portion and of the indemnity
 the assets representing the life por**     portion shall be applied exclusively in
 tion shall be applied exclusively in      ■Satisfaction of creditors enforcing
 satisfaction of those creditors , and      claims arising out of business in the
 in the event of a winding-up , these       relevant portiion                      on , and m
                                            tria»»– i» ^ mi fi ai» cr «: i * i*ir n u
                                                                                                 in the event of
                                                                                        rr » iiiirrr <
 assets shall be applied in priority to     a winding-up the respective assets of
 all other claims in satisfaction of all each of these portions shall be applied
 creditors whose claims arise out of        in priority in satisfaction of all
 life ' assurance business .                creditors enforcing claims arising: out
                                            of business in the relevant portion .
 ARTICLE 17
JPaçag^gyoh 1   first sentence
         Each Member State in whose terr­                 Each Member State in whose terri­
 itory business is carried cn shall         tory an undertaking carries on business
 require the undertaking to establish        shall require such undertaking to esta­
 sufficient technical reserves , inclu­    blish in respect of its direct life
 ding mathematical reserves .               assurance business , inclnj-ing; liabi lities
                                            reinsured with other undertakings , suffi­
                                             cient technical reserves , including
                                            mathematical reserves .
 ---pagebreak---                                         - 4 -               XV/ 163 /7 .' --
 Initial propos ai,                                            Ne w pr oposai
.ARTICJJB_18_                               ARTICLE 1 ;
                                            Sub-p^aj^roh Jl .. first iden-t
-       the paid up share capital or ,      -     the amount of the paid up capital
        in the case of a mutual concern ,          of the company cr , in the case of
        the effective initial fund .              a mutual society , the effective
                                                   amount of its fund .
 ARTICLE 19                                 ARTICLE 19
  Introductory sentence
        Subject to the provisions of               Subject to the provisions of
 Article 20 the solvency margin shall       Article 20 the minimum solvency margin
 "be determined as shown "below accord­     shall "be determined as shown "below
  ing to the cases of insurance practi­     according to the class of insurance
  sed .                                     practised .
 Point ( a).
 -      fi^^t result :
        4% of the mathematical reserves            an amount equal to 3.5 /u ( per cent )
        relating to direct "business and           of the mathematical reserves in
        reinsurance acceptance ;                   respect of direct business includ­
                                                   ing liabilities reinsured vith othe
                                                  undertakings and of reinsurance
                                                   acceptance from third countries :
        secord rcsult t                            second item s
        the figure representing 3 1° of            an amount equal to
        the capital at risk for which              of   the capital at risk for which
        the undertaking is responsible             the undertaking is responsible in
        multiplied by the ratio existing           res pect of dire_ct ..bus^ne s^^and jof
        in respect of tne last financial           jr.Q          J?--2^9 ptav r.^ s ,front ithird
        year between the amount of capital         c ountries , multiplied by the ratio
        at risk for which the undertaking          obtaining in respect of the last
        remains responsible after trans­           financial year between ( i ) the
         fers and retrocessions for rein­          amount of capital at risk for which
         surance a.nd the amount of capi­          the undertaking remains responsible
         tal at risk without deducting             after deducting liabilities rein-
        reinsurance ; this ratio may in            sured with other undertakings and
        XJO  case be less   than 3C%.              adding retrocessions and ( ii ) the
                                                                                              •/.
 ---pagebreak---                                            - 5 -                  XV/ 1 63/74-E
                                                                   New -Dro^osal
                                                      md -acceptances from third countries
                                                      are added ;    this ratio may in no
                                                      case be less than 50
                                                              first paragraph
      . For insurances in case of death,              For insurance in Class I of the
temporary insurance and insurance              Annex to this Directive "being insurance
covering a period of 5 years or less           in case of death       taken out for a tempo-
are covered "by the first "branch of the       rary period not exceeding ten years ,
annax to this Directive .-
rcmt                                           Peint ( b ) . second narr.rranh
        The amount so obtained shall "be              The amount so obtained shall "be
divided into tv;o portions , the first         divided into two portions , the first
portion extending up to 10 million             comprising an amount not exceeding
units of account , the second compris­         5 million unit3 of account , the second
ing the excess ; 18 /s arid 1 6 /^ of these    comprising the excess ; amounts equal to
portions respectively shall "be cal­           18% and 1 6fs respectively cf these por­
culated and added together .                   tions shall "be calculated and added
                                               together .
                        ogra/oh                Point i "b ; . third Dars^aph
        The sum so calculated shall "be               The sum so calculated shall "be
multiplied "by the ratio existing in           multiplied "by the ratio obtaining in
respect of the last financial year             respect of the last three financial
"between the amount of olaims remain­          years, between the amount of claims
 ing to "be "borne "by the undertaking         remaining to be borne by the under­
 after deduction of transfers and              taking after deducting liabilities
retrocessions for reinsurance and              reinsured with other undertakings and
 the £TOSS amount of claims ; this             addiiig retrocessions and the gross
 ratio may in no case "be lens than            amount of claims ; this ratio may in
 50%                                           no case be less than 50$.
                                                                                       ./•
 ---pagebreak---                                                              XV/ 1 63/7 4-E
                                                              Now ,oro,nof?ril
                                                                 J>arssr              j.newl
                                           In the case of Lloyds , the_j^alcul at i on
                                          P.IL"fie, s olvency margin shall he ma de
                                           on the "basis of net premiums , which
                                           shall "be multiplied b.v a flat-rate
                                          percentage fixed arnuallv "by the inters
                                                                  «■«?!,- frTM 1 «■ t     A?MUG.'aUriS_»>ai
                                          nal_ auditor , ^ Th^s fl.at:–T'c,~t,o percen-
                                           tage mat he calculated on the_hasjL_n
                                           of .the most re cent ^tatistj. cal da 1,a on
                                           commissions paid .      These data together
                                          with the relevant calculations .shall
                                          "be sent to the au t horities of t he
                                           countries vjhee Llo**ds is es+ablirhed .
Point ( c )                                Point I cj.
       For permanent health insurance              For insurance in Class I of the
not subject to cancellation existing       Annex to this Directive "being perma­
in the United Kingdom and Ireland ,        nent health insurance not subject to
referred to in Clans I of the Annex        cancellation as practised in the United
to this Directive , and for capital        Kingdom and in Ireland , and for capital
redemption operations in Class V , it      redemption operations ( Class V ), it shall
shall "be equal to A°/° of the mathemati­  be equal to 3 . 5°/° ( per cent ) of the mathe­
cal reserves relating to this type of      matical reserves as specified in point
insurance or operation .                   ( a) of this Article ( first item ),
                                           J&iSlXsQ.
       For insurance connected with                For insurance connected with
investment funds referred to in Class      investment fluids ( Class II ), tontines
II , tontines referred to in Class IV      ( Class IV) and the i^nagcmcnt of group
and group pension funds referred to        pension funds ( Class Vl ), it shall be
in Class VI , it shall "be equal to 1 $    equal to 1 , ( per cent ) of the mqtho^
of the capital managed .                   matical reserves as gpe ci f i e ci . _in
                                                                                   ( fir.st item) ,
 ---pagebreak---                                          - 7 -                   XV/1 63/74-E
 initial -proposai
 ARTICLE 20                                  ARTICLE 20
 Paragraph J.                                ffMagaak »1.
         One third of the solvency mar­              One third of the mini.rrum solvency
 gin shall constitute the guarantee          margin M^pe                  /jti, cl e 1g shall
 fund .   It shall consist , to the extent   constitute the guarantee fund .             It
 of at least 50$, of items listed in         shall consist:,, to the extent of at least
 Article 18 ( 1 ) and ( 2).                  50 of the items listed in Article 18 ( l )
                                             and ( 2) .
                                                     In the case of mutual societies
                                             and companies of_a j%utual type . Member
                                             States qa^r •provide for the minirrtum
                                             gua-r^iitec fund to "be reduced to 450 000
                                             units of account .
.ARTICLE 22
 Paraeraph 1                                 Paragra-ph 1
         Member States shall gradually              Member States shall gradually
 reduce the scope of the obligation          reduce the scope of the obligation
  imposed on undertakings to effect          imposed on undertakings to reinsure
 partial reinsurance , in respect of         a proportion of their liabilities
 "business covered "by Article 1 , with      in respeot of business covered by
  one or more of the agencies designs        Article 1 with' one or more of the
  ted "by national rule3 , so as to "bring   ■public agencies designated by national
  ahout the complete disappearance of        rules , so as to bring about the com­
  such obligation at the end of the          plete disappearance of such obligation
  transitional period referred to in
  Article 33 .
                                             Dir^c.ti.v.q fleal,ing wltk. tiie, JPX QvlSJLon
                                                                                          /.
 ---pagebreak---                                       - 8 -                 XV/163/74-3
                                                             New Dronosal
JBg3ffigB5,£
       The ratio currently in force               with effect from the entry
 shall be reduced by 25$ forthwith.        into force of this Directive the pro­
                                           portion currently required to be so
                                           reinsured shall "be reduced by at
                                          «lâasfc 25/J.
ARTICLE 28                                 ARTICLE 28
       The Member State in question               Subject , as provided in Article
shall require that the assets repre­       17(3), the Member State in question
senting the technical reserves shall       shall require that the assets repre­
bo localized in its territory .            senting the technical reserves shall
                                           be localized in its territory.
                                          lEEna&jQ.
Paragraph 1
       Any undertaking which , having             Any undertaking which, having
obtained an authorization from one         obtained an authorization from one
Member State , obtains an authorizat­     Member State , obtains an authorization
ion from one or more other Member          from one or more other Member States
States to establish other- agencies        to establish other agencies or branches
or branches therein may apply for          therein may apply for all^of the follow­
one or more of the following advan­        ing advantages t
tages t                                    ( the rest unchanged)
 ---pagebreak---                                     - 9 -                     XV/1 63/74 -E
Initial .proposai                                               iTew proposai
      Should at least two of the                 Should at least two of the
Member States in question approve       Member States in question approve
the application in whole or in part      the application by the undertaking,
the oompetent authority .......          the competent authority .......
                                        ( rest unohanged) .
                                        Third .s^.ib--Tjqraaraph s ( new)
                                                 Those undertakings in Belgium
                                        which are called " Caisses patronales
                                        ds rctraite " and rhich in accordance
                                        with their objects as laid down in
                                        their statutes are engaged in the
                                        management of group pension fund 3
                                        within the meaning of Article 1 ( 2)( C )
                                        may nursue such activities under the
                                        xrtimrgi J» I    >.> i>n   < n-   w n « i»
                                        form of associations sans but lucra-
                                        tif ( non-profit -making associati ons )
                                        and shall not be required to adopt
                                        one of the legal forms specified in
                                        Article 8jfl)(a) of this Directive .
                            Decomes     the fourth sub-paraeraph
 ---pagebreak---                                                             Annex IV
                     Draft letter for the European Parliament
Sir ,
                     The European Parlaiment delivered its Opinion on 17 October 1974
concerning two Commission proposals for Directives on the coordination of laws ,
regulations and administrative provisions relating to the taking-up and pursuit
of the "business of direot life assurance (OJ Ho C 35 t 28 March 1974) and the
abolition of restrictions on freedom of establishment in the business of direct
life assurance (OJ No C 27, 15 March 1974)*
                     The European Parliament , while approving the broad lines of theno
two proposals for" Directives , proposed that certain Articles be amended . The
Commission has examined most carefully the Opinion of the European Parliament and
has decided to adopt most of its suggestions , including the most important ones ,
in the proposed amendments to its original proposal which it is sending to the
Council of Ministers in accordance with the second paragraph of Article 149 of
the EEC Treaty . These suggestions concern :
Article 3 (l ) J the raising fsorn 300 u.a. to 800 u,a« of the upper limit in
respect of the benefits provided by certain institutions not covered by the
Directive ,
Article 13(3 ) (b) and (c) S provision of similar protection for indemnity
policyholders as for life policyholders ,
Article 19 , introductory sentence , and Article 2Q(l ) : addition of the word
" minimum" before the words " solvency margin",
Article 19(a), first and second items , and Article 19(c) and (d) :
the solvency margin to be calculated on the basis of mathematical reserves in
respect of (i) direct business including liabilities reinsured with other
undertakings and (ii) reinsurance acceptances from third countries ,
reduction of the percentages relating to the solvency margin .
 ---pagebreak---                                       - 2 -                Anncx IV
Article 19(b), first paragraph t extension to contracts for periods not exceed!
ten years *     second paragraph : reduction of the first portion to 5 000 000 v f
Article 19 ("b) » third paragraph : reference period of three financial years for
olaims ,
Article 19(h): addition of a new fourth paragraph concerning Lloyds of London ,
Article 20 (2): addition of a third subparagraph providing for the guarantee
funds of mutual societies to "be reduoed ,
Article 22 (l ): reference to the putting Into effeot of a second Directive on
life assurance
Article 28 ,      third paragraph :   reference by way of proviso to Article 1 7 (3 x
                       The Commission has also adopted the improvements of form c *
layout proposed in respect of Article 1 (l ) , Article 12(l ), Article 14 (change of
numbering), Article l8(l ), Article 19(d), Article 22(2) and Article 30 .
                       Hie Commission has decided not to accept the Opinion of th ^
European Parliament on a small number of points .     The Commission considers thai
the first paragraph of Article 1 , the first sentence and paragraph 3 of Article
Article 10 (3 ) and Article 25 , in respect of all of which the Parliament propos'
drafting ohanges , should not be altered since , first the provisions in question
are dear enough and, secondly, it is desirable , if misinterpretations are to 1:
avoided to keep this Directive      aligned as far as possible on the First Directs
on coordination in the field of indemnity insurance of 24 July 1973#
                       The Commission is retaining the original text of the first
sub-paragraph of Article 13(2 ) for the purpose of protecting policyholders .
                       The Commission is also retaining, albeit in slightly amendo
forms , paragraph 2 of Article 22 because it seems to the Commission a logical
implementation of the principle laid down in the preoeding paragraph .
                                        Yours faithfully