CELEX: 51991PC0057
Language: en
Date: 1991-03-22
Title: PROPOSAL FOR A THIRD COUNCIL DIRECTIVE ON THE COORDINATION OF LAWS, REGULATIONS AND ADMINISTRATIVE PROVISIONS RELATING TO DIRECT LIFE ASSURANCE AND AMENDING DIRECTIVES 79/267/EEC AND 90/619/EEC

COMMISSION OF THE EUROPEAN COMMUNITIES
                                         C0M(91) 57 final - SYN 329
                                         Brussels,22 March 1991
                          Proposal for a
                     THIRD COUNCIL DIRECTIVE
  on the coordination of laws, regulations and administrative
   provisions relating to direct life assurance and amending
              Directives 79/267/EEC and 90/619/EEC
                  (presented by the Commission)
 ---pagebreak---                                        - 2 -
                             EXPLANATORY MEMORANDUM
I•  INTRODUCTION - GENERAL CONSIDERATIONS
A) The completion      of  the   Internal   market    in  insurance    is one of     the
   Commission's priority objectives given the              increasing    importance of
   this   industry,    which,   especially     on   the   life    insurance   side,   is
   expanding    rapidly, and the work already undertaken              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    to   facilitate    freedom    to   provide    services    in   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 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-iife insurance business and its subjection to a single set
   of   legal   arrangements.     A proposal     for   a Third     Non-Life    Insurance
   Directive was accordingly approved by the Commission on 18 July 1990
   and transmitted to the Council. 1
 ---pagebreak---                                      - 3 -
As regards life insurance, the second stage has just been reached with
the    adoption,     on    8 November     last,    of   the   Second    Directive,
                          1
Directive 90/619/EEC,        which governs freedom       to provide services in
life insurance, likewise on the basis of two sets of arrangements: the
first, resting on the principle of application of the rules of, and
supervision     by,   the   home  country,    being   concerned    with   insurance
buyers who take the initiative in seeking "services" cover-, the second
providing for application of the rules of, and supervision by, the
country    in which the service is provided when it is the undertaking
that takes the initiative in entering into a contractual relationship.
For the achievement of this, the third stage in life insurance, which
will result in the full completion of the internal market, the general
strategy adopted       is, as in non-life insurance, that provided for in
 the White Paper:
 (a)          coordination of the essential rules on the prudential and
              financial supervision of direct 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;
 (c)          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   UCITS
 (Directive 85/611/EEC,       OJ   No   L 375,   31.12.1985),     banking    (Second
 Directive 89/646/EEC,       OJ   No   L    386,    30.12.1989)    and   investment
 services    (OJ    No   C 43,   22.2.1989),     where    considerations    of   the
 ---pagebreak---                                   - 4 -
protection of the savers, investors and consumers are as much to the
fore as they are in insurance.       It is therefore considered Justified,
while not    denying   the distinctness of     insurance, to apply    to all
financial institutions a regime based on the same principles.
Once 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.
The introduction of this regime into the direct life insurance sector
 involves substantial amendment of the rules currently in force under
the First and Second Directives.        Those Directives make no provision
for   either   a single   authorization system    or  genuine   home  country
control. Nor has any coordination been carried out yet as regards the
essential    harmonization of    prudential   supervision   rules  concerning
 insurance   companies'    technical,    and  in  particular    mathematical,
provisions and investments.
The present proposal for a Third Directive addresses these issues and
amends the first two Directives so as to produce a cohesive system
applicable to all      life insurance business, whether transacted under
conditions    of   establishment   or   under  conditions   of  provision  of
 services.
The structure of this proposal        for a Directive   is the same as that
 already adopted by the Second Banking Directive, the proposal          for a
 Directive on investment services and the proposal for a Third Non-Life
 Directive.    It consists, therefore, of five titles:
 ---pagebreak---                                       - 5 -
TITLE I:          Definitions and scope
         (Art icles 1 and 2)
TITLE II:         The taking-up of the business of life insurance
         (Articles   3-7)
TITLE III:        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 - 39)
TITLE V:          Final provisions
         (Articles 40 - 46)
B)   Harmonization of     the  rules concerning  the technical   provisions of
     undertakings carrying on the business of direct life insurance
     The    introduction  of  a system   of  a single  authorization  and   home
     country control calls for harmonization of Member States' rules on the
     definition and calculation of technical provisions and on the currency
     matching,    diversification,   spread  and  localization  of  the   assets
     representing them.
     As regards the definition and calculation of        technical  provisions,
      this proposal for a Directive establishes coordination on the basis of
     actuarial    principles  that  have  to be respected   by every  insurance
     undertaking.
 ---pagebreak---                                     - 6 -
As   regards   the   assets   representing    the   technical   provisions,   the
proposal     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, any requirement that a minimum proportion of assets
be invested in specific categories can no longer be maintained.
- law applicable to contracts and policy conditions
This proposal for a Directive does not undertake any harmonization of
the substantive       law applicable to contracts and policy         conditions.
The work on non-life         insurance   carried   out  within   the Council   in
recent   years    has shown    that   it  is not    essential   to achieve   such
harmonization 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 of the commitment can, if it so wishes,
apply   its own    law to an insurance contract covering a policy-holder
 resident in its territory.
At the same time, the Commission considers that, in order that they
might find the cover best suited to their specific 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 of the commitment.
 ---pagebreak---                                           - 7 -
"Material control" over insurance policies and premium rates
As part of this drive to achieve greater freedom of movement of insurance
products in the Community while maintaining an adequate level of consumer
protection, the methods of vetting contracts and premium rates should be
adapted to the requirements of a genuine single market.
As indicated above, the proposal for a Directive provides for coordination
of   the   prudential    principles    applicable      to  technical    provisions    and
investments.    As far as policy conditions are concerned, in the absence of
harmonization    of   contract    law,   the   proposal    permits   Member   States   to
request the application, in the vast majority of cases, of their own law to
commitments concerning their residents, in so far as such application is
Justified by considerations of the general good, and subject ultimately to
review by the Court of Justice.
The   Commission    considers    that   it   has   thus   complied   with   the   Court's
Judgments of 4 December 1986.
The Commission proposes, therefore, henceforth to extend to all commitments
the arrangements for vetting contracts and premium rates already accepted
by    the   Member    States    in   respect     of    contracts   concluded     on   the
policy-holder's     initiative,    i.e. the abolition of all          systems of    prior
approval     of   such    documents    and    their     replacement    by   systems    of
non-systematic, subsequent notification.
That   is not   to say that Member       States must abolish all checks on           life
 insurance   products   and   that   they will      be  deprived   of   every   means of
monitoring and ensuring observance of the law.               However, with a view to
protecting policy-holders in the single market              it is necessary to adapt
existing methods of supervision, which were designed for purely national
situations, to take account of requirements arising from the welding of the
twelve national markets       into a large economic and financial area without
 ---pagebreak---                                           - 8 -
internal   frontiers.     From this standpoint      checks should be organized        in
such a way     that   the needs of protection        are reconciled with      those of
competition between products, be it on premiums or on the product itself.
There are four cornerstones to the proposed system for vetting the content
of contracts and policy conditions, a system geared to the single market
with its proper functioning in mind:
   (i)   The power of each Member State to require observance of the rules
         of law applicable in its territory.          The supervisory authorities of
         the State in which the insurance undertaking conducts business will
         be able, in collaboration with the supervisory authorities of the
         home Member      State, or even directly        in urgent  cases, to     impose
         penalties on an offending insurer, the ultimate penalty being a ban
         on   the   conclusion   of   any   new   life   insurance  contracts    in  its
         territory (Article 3 5 ) . An       insurance company contemplating doing
         business      in   the   Member    State    concerned   will    therefore    be
         well-advised to observe the contract law in force there.
  (ii)   Secondly, when a branch         is being set up, the authorities of the
         Member State in which the branch will be situated may spell out the
          legal   environment    in which     it will   be called upon     to operate,
          indicating    the conditions      under  which,    in the   interest  of   the
         general good, its activities must be carried on (Article 28(4)).
 ---pagebreak---                                         - 9 -
(ill)     Thirdly, the present proposal provides for greater transparency of
          insurance  products,   stipulating     that   in   all   Member   States   a
          policy-holder must be informed, before finalising the contract or,
          if necessary, during    the term of the contract, of the elements
          essential  to  a  proper    understanding    of   the   commitment   he   is
          entering into (Article 2 7 ) .
  (iv)    Lastly, the option given to policy-holders to cancel the contract
          within a period of between 14 and 30 days from its commencement.
          This provision has already been       incorporated    in Community   law by
          the Second Life Directive 90/619/EEC.
       premium rates
Prior vetting of premium rates is likewise incompatible with the logic of
the single market.
Once the essential elements of the calculation of technical provisions and
of the investment rules have been coordinated, the supervisory authority of
the home Member State will be responsible for the overall solvency of the
undertaking.     The principal   task    of  the  home   Member   State   supervisory
authority    is, therefore, to make sure that the insurance undertaking has
established sufficient technical provisions to meet all             its liabilities,
 invested the assets representing those provisions in accordance with the
rules in force, and correctly constituted its solvency margin.
But beyond this prudential basis, which ensures the safety of the products
on offer,     it  is in the consumer's      interest  that   he should be able to
benefit    from  the broadest  possible premium competition, given           that  the
Treaty's    general  competition   rules apply, of      course,    to  insurance   and
ensure that such competition is fair.
 ---pagebreak---                                         - 10 -
      abolition of the prohibition of the simultaneous pursuit of business
      by way of right of establishment and by way of freedom                to provide
      services
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 services as far as the covering of commitments entered                into on
the insurer's     initiative 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 services, 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.
      composite undertakings
 In 1979   it was decided       that the principle    should be     laid down of     the
segregation of the activities of life and non-life insurance by prohibiting
the   authorization     of   undertakings  carrying    on   both  types    of   activity
simultaneously.     This position was adopted at the time as being likely to
afford lives assured the best possible protection against sums accumulated
on their behalf being used to cover a deficit on the non-life side.
 ---pagebreak---                                       - 11 -
   This principle      was not, however, unqualified: those Member           States
   which so wished could permit existing composite offices to continue
   operating provided they adopted separate management and did not set up
   any   life    insurance   branches;   the  situation   was, moreover,     to be
   reviewed in the light of a report, to be drawn up by the Commission,
   taking    stock    of   ten   years'   experience   of   the   functioning     of
   composites.
   The report having shown that policy-holders are no less well protected
   when   they    contract   with   a  composite   undertaking   than   when    they
   contract     with   a   specialized   one,   the   present   Directive,    while
   retaining the requirement of separate management, proposes to remove
   the restrictions on composite undertakings and affords those Member
   States which so wish the opportunity of authorizing new composites.
   -   exercise of implementing powers
   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 powers (OJ No C 230, 15.9.1990).
C) Two factors help explain the urgency of action at Community                 level
   along    the    lines of    that  proposed   in  this  proposal   for   a  Third
    Direct ive.
 ---pagebreak---                                    - 12 -
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 concerns 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 UCITS.
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, and in particular      life insurers, with whom, in the case of
certain products, they compete directly.
The insurance     industry   is currently at a disadvantage compared with
other financial services 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 business,
whether    it be    by  way   of  establishment   or   by  way   of   freedom  of
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 regards
 attaining the objectives of the EEC Treaty are to be met.
 ---pagebreak---                                      - 13 -
II.   COMMENTARY ON THE ARTICLES
                                     TITLE I
                             Definitions and scope
Article 1 - Definitions
This Article contains definitions of certain 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.
Art icle 2 - Scope
This Article defines the scope of the proposal for a Directive.      The scope
coincides with that of the First Directive 79/267/EEC.    Article 1(2) of the
First Directive is amended so as to permit any insurer duly authorized by
the home Member State to pursue activities falling within the scope of the
Directives anywhere in the Community.
The   operations  and  activities   referred  to in Article 2 of    the   First
Directive   are  excluded   from  the   scope of  the proposal,  as   are   the
organizations and mutual associations referred to in Articles 3 and 4 of
that Directive.
 ---pagebreak---                                          - 14 -
                                        TITLE il
                 The taking-up of the business of life insurance
AUTHORIZATION CONDITIONS
Articles 3 and 4 - The single authorization
These Articles     introduce the fundamental      concept of the single          insurance
licence   by    amending    Articles 6     and  7   of   the    First    Life   Directive
79/267/EEC.    Article 6 as amended now states that the authorization to take
up the business of direct life insurance is to be granted by the competent
authorities    of   the   home   Member   State.   This    system    still   has   as  its
premises    that   an   official    authorization     is   a   pre-condition      for  the
taking-up and pursuit of direct           life  insurance business.        Article 7 has
been amended to state that the authorization is to be valid throughout the
Community.    This    extended      territorial     scope     will     apply    both    to
establishment and to pursuit of the activities covered by this proposal for
a Directive by way of provision of services (paragraph 1 ) . The role of the
competent authorities of the home Member State (defined in Article 1 as the
Member State in which the head office of the insurance undertaking covering
 the  commitment    is situated)     is consistent     with    the   principle    of  home
country supervisory control of the financial position of the undertaking,
 including its insurance activities undertaken by way of branches or by free
provision    of   services     (see  Article 8 ) . The     task    of   supervising    the
undertaking'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 the Annex to the First Directive.            The option for
Member States to also grant authorization for a group of classes has been
maintained in this proposal (paragraph 2 ) .
 ---pagebreak---                                           - 15 -
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 ) .
Article 5 - Conditions for receipt of authorization
The   home   Member    State   must   require   any  insurance   undertaking    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.
An   additional    mandatory    condition, which was      facultative    in the    First
Directive,     has. been     added    to   the  requirements,    concerning    adequate
technical qualifications and soundness of the managers and directors of any
undertaking 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
of the company (paragraph 1 ) .
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   require    only    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
 act ivitles.
 ---pagebreak---                                       - 16 -
Article 6 - Adaptation of the scheme of operations
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 do not have to state in their scheme of operations either the
premium rates or the contract documents which they propose to apply for
each category of business they engage in.
Article 7 - Supervision of shareholders of insurance undertakings
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 particularly evident in an environment of vast changes in the structure
of financial systems.       For these reasons the current proposal stipulates
 that the competent authorities, before granting an authorization, should be
 informed of the identity 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
 operat ion.
 ---pagebreak---                                             - 17 -
                                           TITLE III
           Harmonization of conditions governing pursuit of business
Chapter 1
Article 8 - Supervision of the business of insurance
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 the insurance undertaking, whether it
be by way of establishment or by way of freedom of services.
Article 8 of this proposal          for a Directive contains a new provision which
replaces Article 15 of the First Directive 79/267/EEC.                 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 services, 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.         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
 (c) 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     control   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
 sat isf ied.
 ---pagebreak---                                           - 18 -
Without making any inroads into this exclusive competence, the Article also
provides   that   the   supervisory     authorities   of   the Member    State    of   the
commitment may inform the competent authorities of the home Member State if
they  think, for whatever        reason, that     the activities of an undertaking
carrying   on   business     in   their    territory   might    affect   its   financial
soundness.    Naturally,     in   such    circumstances,     the   home   Member     State
authorities have sole power to determine the state of the undertaking's
f inances.
Article 9 - On-the-spot monitoring of branches
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     the
branch, 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
 services.   The    Second   Banking     Directive   contains    a   similar   provision
 (Article 15). The      same    applies    to   the  proposal    for   a   Directive    on
 investment services in the securities field (Article 19).
Article 10 - Sanctions
 This Article    introduces    into the First Directive a new Article 23a which
 provides that Member      States must      impose suitable penalties on        insurance
undertakings or those who effectively control              the business of      insurance
 undertakings found to be in breach of the rules on supervision.
 ---pagebreak---                                     - 19 -
Article 11 - Transfers of portfolios
The Second Directive 90/619/EEC on direct life insurance 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 life insurance, both by way of establishment and by way
of freedom of services.   The introduction of a new, single legal regime for
all direct life insurance business, irrespective of the way in which it is
pursued,  means  that  the  provisions   on   portfolio  transfer   have   to  be
adjusted.
Articles 12 and 13 - Withdrawal     of authorization and financial       recovery
measures
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 24    of    the    First
Directive 79/267/EEC 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 26 of the First Directive, on
the  conditions  under  which   the authorization   granted  to   the   insurance
undertaking may be withdrawn.
Article 14 - Supervision of malor shareholders or members
This Article introduces into the life insurance sector specific provisions
the purpose of which is to ensure that the prudent and sound management of
an insurance undertaking   is not called into question by the existence of
major holdings.
 ---pagebreak---                                             - 20 -
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 specific 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.
 ---pagebreak---                                       - 21
Articles 14a and 14b - Composites
In accordance with the findings of the report drawn up by the Commission on
the basis of Article 39(2) of the First Directive, these Articles provide
for the abolition of restrictions on the right of composite undertakings to
establish branches or on their freedom to provide life insurance services.
Article 14a also allows those Member States which so wish to authorize new
composite undertakings.
At all events, composite undertakings, whether existing or new, must have
separate management, the results of their         life and non-life    activities
being shown separately, and must comply with the prudential rules relating
to both act ivit ies.
Chapter 11
Article 15 - Home country control of technical provisions and coordination
of the actuarial principles applied when calculating technical provisions
Paragraph 1 of     this Article    introduces  the  principle   of  home   country
control for the definition and calculation of technical provisions.
 In comparison    with  non-life   insurance, Council    Directive         on  the
annual accounts and consolidated accounts of        insurance undertakings    lays
down   few  rules   on  the  determination of    technical   provisions   in  life
 insurance.  This Article therefore harmonizes national       laws to the extent
necessary to permit mutual      recognition and home country control       in this
 field.
Many different     actuarial methods and bases are used at present          in the
Member States of the Community to calculate technical provisions           in life
 insurance,   and   a  wide   variety   of  products   are   available.  However,
 ---pagebreak---                                            - 22 -
comparative    studies,      in  particular      that    by   the  Consultative     Group    of
Actuaries of Countries of the European Communities, have shown                       that   the
results of calculations are often very similar where similar products are
concerned    and   that    the   methods    are    all    based   on    the  same   actuarial
principles,    including     that of prudence        in the     face of uncertainty.        The
conclusion reached by the Consultative Group's study is that harmonization
on the basis of these actuarial           principles would be sufficient            to ensure
the   effective   protection      of   lives    assured     in the    context   of   a   single
 licence  system.     The    Consultative     Group      considers,     moreover,    that   any
attempt to standardize throughout the Community the methods and bases used
for calculating      technical     provisions would        be   inappropriate, unnecessary
and counterproductive.
Apart   from these considerations of prudence and                 the protection of       lives
assured, the Consultative Group also concluded                  that   there   is no risk of
competition being distorted significantly by the use                   in the Member States
of   different    methods     and   bases    for    calculating      technical    provisions,
 provided   that   sound    actuarial    principles       continue    to  be   applied.    This
Article therefore lays down these sound and prudent principles on the basis
of suggestions made by the Consultative Group.
 Even after   this harmonization has been carried out, there will                     remain a
 large number    of actuarial      methods and bases capable of satisfying                these
 principles.    Paragraph 2      of   this    Article      therefore     provides    that   the
methods and bases used by each undertaking must be published.                    Even if this
 information     is    too     technical     to     be    readily     understood     by    most
 policy-holders,     the mere     fact   that    it   is freely     available    is an    added
 inducement to the undertaking to exercise prudence.                 It might, for example,
 be analysed and compared by trade associations, consumer protection bodies,
 the press or insurance intermediaries.
 Paragraph 3    introduces      the  principle      of    home   country    control    for   the
 investment   of   the   assets     representing       the   technical    provisions.     These
 assets are required to be invested            in accordance with the rules laid down
 in Articles 17 - 21 of this proposal for a Directive.
 ---pagebreak---                                    - 23 -
Those rules cover:
(i)   a general principle for the investment of the assets representing the
      technical provisions,
(ii) the admissibility of investments,
(iii)the diversification of investments,
(iv) currency matching requirements.
Furthermore,   paragraph 3  of  this  Article  extends  the  requirement  of
 localization of assets in the country 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 performance
and regional spread of insurance companies' investments.
Article 16 - Premiums for new business
The establishment and the supervision of technical provisions are the best
guarantee of the strength of insurance undertakings and of the security of
policy-holders.    It is therefore important that the supervisory authority
 should be able to ascertain that the undertaking has sufficient resources
 to finance these provisions, notably for new business, and to meet all its
 liabilities, including the solvency margin.
 In this context, premiums receivable for new business are obviously of
 considerable  importance.  In assessing an undertaking's capacity   to meet
 its liabilities, it is nevertheless important to consider the undertaking's
 overall financial position.
 ---pagebreak---                                        - 24 -
This Article therefore stresses the importance of the adequacy of premium
rates for new business, taking account of every aspect of the undertaking's
financial situation.
Article 17 - Investment of technical provisions
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, in
particular circumstances and at the insurance undertaking's request, the
home Member State may allow exceptions to the rules on the admissibility
and spread of investments.      These exceptions may, however, only be allowed
when the home Member State        is satisfied that the general     requirement of
Article 17 is fulfiI led.
Article 18 - Admissible     investments
This Article contains a list of assets in which the home Member State may
allow insurance undertakings to invest their technical provisions.            With a
view to retaining the parallelism between the arrangements for supervising
 life and non-life activities, the list is similar to that in the proposal
 for a third non-life insurance coordination Directive.
The list of admissible assets is to be regarded as a maximum             list.  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 case-by-case
 basis and subject to Article 17 of this proposal for a Directive.
 ---pagebreak---                                           - 25 -
Article 19 - Diversification of investments
This   Article     lays   down    a  set    of   rules   on   the    diversification     of
investments.     Again, the diversification rules laid down in paragraph 1 are
to be regarded as a prudential minimum.             Home Member States are thus free
to   impose  lower    maximum    percentages     for  certain    or   all   categories of
 investments, but only for insurance undertakings whose head office                  is in
their   territory.     The  diversification       criteria   are    likewise   similar   to
those   of   the    proposal     for  a    third    non-life    insurance     coordination
Direct ive.
For some categories of investments, especially government bonds, there are
no maximum     percentages.     For other      categories, however, especially         debt
securities and other bonds issued by undertakings, secured loans to natural
persons,    transferable      shares    and     other   transferable      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 or local authority 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.
 ---pagebreak---                                           - 26 -
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
put 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.
Article 21 - Currency matching
 In contrast   to    the  position     in direct   non-life   insurance,   the   Second
Directive   90/619/EEC 1    on   direct    life  insurance  did  not   carry   out   any
coordination of national currency matching rules.
This   Article    is   intended     to   introduce  such   rules,   with   appropriate
 relaxations,   into   life   insurance.     The rules are similar    to those which
will apply in the non-life insurance sector, allowing for the peculiarities
of   life  insurance, for example         the existence of contracts      linked   to a
 particular unit of account.
Article 22 - Subordinated loan capital
This Article updates        the   list of assets    recognized   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 funds are identical to those laid down in Council Directive 89/299/EEC
 (OJ No L 124, 5.5.1989, p. 16) on the own funds of credit institutions.
      OJ No L 330, 29.11.1990, p. 50,
 ---pagebreak---                                       - 27 -
Article 23
This Article amends Article 21 of the First Directive in order to bring it
into line with the principle of home country control.
Chapter 3
Article 24 - Legal provisions protecting the general good
The aim of this Article is to specify that any person seeking insurance can
conclude any contract allowed by the law of a Member State, provided that
the contract does not conflict with legal provisions protecting the general
good   in  the  Member   State  of   the  commitment.    In accordance   with the
established case law of the Court of Justice, such provisions concerning
the general good can only be enforced,         in the absence of more detailed
harmonisation of     the provisions of Member      States,, if they satisfy   the
following conditions:     the provisions for the general good must be applied
 in  a  non-discriminatory    manner   to  all   undertakings  operating   on the
territory of the Member State, they must be objectively necessary for the
protection   of   that  general   good,   they  must  also  be  proportionate  in
relation to the desired objective and the existing provisions in the Member
State of origin of the product must be insufficient to protect that general
good.   The public authorities must also interpret this concept of general
good   in the   light of   these criteria.     It  is clearly  for  the Court  to
determine in the last resort whether the authorities' interpretation is in
keeping with Community law.
Article 25 - Abolition of the prior approval of premium scales and policies
Consumer protection also includes the right to the widest possible choice
of innovative insurance products at the most reasonable prices.        This right
 ---pagebreak---                                         - 28 -
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 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 of the commitment 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 p r o o f    will have the effect of making
 insured persons more aware of their responsibilities vis-à-vis the products
offered     to  them,   and   hence  of    increasing   the   real   level   of    their
protection.
Article 26 - Cooling-off period
The Second Life Insurance Directive 90/619/EEC afforded a policy-holder who
entered    into a commitment under the services arrangements the possibility
of cancelling the contract within a period of between 14 and 30 days from
 the time when he was informed that the contract had been concluded.
 ---pagebreak---                                          - 29 -
As part of the process of completing the internal market, this option must
be extended    to every policy-holder       regardless of the way     in which   the
contract   is concluded, i.e. whether on an establishment or on a services
basis, in order to afford policy-holders adequate protection.
Article 27 - Transparency
Life   insurance   differs    from   non-life   insurance  in   the length   of  the
commitments entered into, extending as they do in many cases over several
decades.    In addition, some products resemble rival financial products sold
by economic operators other than insurance undertakings.
The upshot    of  this   is that,     if he   is to profit    fully from   increased
competition between a growing number of contracts, the consumer must be
provided    with   clear    and    accurate    information  about   the   essential
characteristics of products offered to him, both during the pre-contractual
phase   in order   to guide him     in his choice, and during the term of the
contract in the event of any change or amendment.
The list set out in Annex 2 is a minimum list which Member States may add
to in respect of commitments concerning their residents, although it must
be understood that the aim of the obligation to provide information is to
protect the consumer through a better understanding by the policy-holder of
the essential elements of his particular contract, and not to limit the
choice of products available.
                                        TITLE IV
              Provisions relating to freedom of establishment and
                            freedom to provide services
Articles 28 and 29 - Freedom of establishment
Article    28 contains    a set of detailed provisions amending Article 10 of
 the  First   Directive    and   organizing    cooperation  between  the   competent
 ---pagebreak---                                    - 30 -
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 must notify the authorities of
its home country, 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(1) - (3)).
After examining the notification, the competent authority may, if it has
reason   to doubt   the viability of   the project  or  the adequacy  of the
structures of the insurance undertaking, refuse to send the information to
the prospective host authorities.    In any such case it should give reasons
for its refusal to the institution within three months of receipt of the
notification (Article 10(3)).
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 30 - 32 - Freedom to provide services
These Articles set out the procedure to be followed and cooperation between
 the home and host country authorities with regard to freedom to provide
services.   The relevant provisions of the Second Directive are amended and
extended   to cover not only activities carried on by way of freedom to
 ---pagebreak---                                        - 31 -
provide services on the initiative of the policy-holder, but all types of
commitment falling within the scope of this proposal for a Directive, and
thus to set up a single regime for the whole business of life insurance;
those Articles of the Second Directive which have become superfluous are to
be deleted (Article 3 3 ) .
Thus any   insurer wishing to pursue life business by way of cross-border
services must indicate to the home authorities the Member State in which it
is intended to provide services and the business that will be pursued there
(Article   11  of   the   Second   Directive,  as  amended).  The  host   country
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 commitments it proposes to cover (Article 14
of the Second Directive as amended).
Article 33 - Technical adjustments, abolition of the prohibition of the
simultaneous pursuit of business by way of establishment and by way of
freedom of services
This Article deletes those provisions of the Second Directive 90/619/EEC
which   have been    nullified   by  the  introduction of  a uniform   system of
supervision applicable to all direct        life insurance business and by the
extension of the scope to include all the activities referred to in the
First Directive 79/267/EEC.
Article 10 of     the   Second   Directive, which   concerns  the scope   of  the
provisions on freedom to provide services, is thus deleted.
The   same goes    for  Article 16 of    the Second   Directive, which   entitles
Member States to prohibit the simultaneous pursuit of insurance business by
way of establishment and by way of services, and for Article 22, which
 ---pagebreak---                                      - 32 -
concerns  the  information   to be supplied    to policy-holders,    inasmuch   as
Article 27 of this proposal for a Directive lays down more detailed rules
on the subject.
Article 24 of the Second Directive, which provides for home country control
of the technical provisions in the case of commitments entered          into on a
services basis on the initiative of the policy-holder and for host country
control in all other cases, is likewise deleted.
Lastly, Article   14 of   the Second Directive, which      lays down    the prior
authorization arrangements governing the pursuit of business on an active
provision of services basis, must also be repealed on         identical grounds.
Henceforth the only    legal regime applicable to the taking-up of business
under conditions of freedom to provide services       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 concerning 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 5 and 25 of this proposal for a Directive.      The Member State of
 the commitment cannot, therefore, require prior approval of such documents
 as that would hinder considerably the free movement of products and the
 development  of   innovative   products.   Moreover,  the   provisions    on   the
 compulsory provision of    information by   insurers laid down    in Article 27,
 and the option of cancelling the contract, afford policy-holders adequate
 protection.  For    the   purpose   of   monitoring   compliance     with    those
 provisions, the Member States may require only non-systematic communication
 ---pagebreak---                                       - 33 -
of policies and contract documents.       These arrangements are better suited
to the requirements of a single market and ensure an effective             level of
protection of policy-holders.
Article 35 - Sanctions
Article 20 of      the  Second  Directive 90/619/EEC    introduced  rules on     the
adoption of measures and sanctions against         insurance undertakings which
 infringe the provisions applicable to them when carrying on business by way
of freedom to provide services.
The rules are based on the principles of devolution of the general power to
adopt measures and sanctions to the home Member State and on collaboration
between    the   different   Member States   concerned.   The  host  Member State
retains, however, the possibility of taking measures directly against an
undertaking    operating   in  its territory   in order   to prevent   or   correct
 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
services.    It is therefore necessary to extend the arrangements provided
for in Article 20 of the Second Directive 90/619/EEC to cover all business.
These arrangements are the same as those applicable to other              financial
services (Article 21, Second Banking Directive 89/646/EEC).
Article 36 - Advertising
Publicity    for    insurance  products   is  an  essential   means   of   enabling
 insurance activities to be carried on effectively within the Community.
 ---pagebreak---                                          - 34 -
This Article allows any duly authorised insurance undertaking full access
to all the normal means of mass-advertising of its services and products
within the Community.      The Article recalls the position that Member States
may   require   that   their    national    rules   on    the   form   and   content    of
advertising    be   respected.     These   may   be   requirements      resulting     from
Community legislation on advertising, in particular Directive 84/450/EEC on
misleading advertising, and Chapter         IV of Directive 890/552/EEC on cross-
border television, or they may be national requirements adopted by Member
States for reasons of the general good.            Once again, this notion of the
general good must be interpreted in accordance with the requirements of the
case law of the Court of Justice as explained in the commentary on Article
24 and as expressed, for instance, in Case 352/85, Bond van Adverteerders
and in Case 362/88, GB-INNO-BM.
Article 37 - Equality of treatment          In the event of the winding-up of an
 insurance undertaking
This provision     confirms    the principle of equality of           treatment   of all
 insurance   creditors    in   the   event   of  the    winding-up    of   an   insurance
undertaking and, where this case arises, in the event of the intervention
of a guarantee system without any distinction being made on grounds of the
 nationality of insured persons or beneficiaries or on grounds of the way in
which insurance contracts are underwritten.           The principle has already been
 incorporated   in other   insurance Directives, notably the Second Directives
 88/357/EEC and 90/619/EEC.
 Article 38 - 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 services.
 ---pagebreak---                                      - 35 -
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 gauge properly the relative size of the various markets.               A
similar   provision   is contained   in  the   proposal   for  a   Third    Non-Life
Insurance Directive (Article 3 9 ) .
ArtIcle 39 - Taxât ion
This Article extends to the establishment regime the system provided for in
the Second Directives in respect of freedom to provide services.
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 of       the
commitment 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 services,
 its own national provisions concerning measures to ensure the collection of
such taxes.
                                     TITLE V
                                FINAL PROVISIONS
Article 40 - Implementing powers of the Commission
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.
 ---pagebreak---                                     - 36 -
The procedures for adapting    those Articles are set out      in the Council
Directive setting up a Committee on Insurance.
Article 41
This Article contains a provision which states that this Directive does not
affect existing rights acquired by authorized branches and in the field of
freedom of services.
Article 42 - Transfers of portfolios of Community branches of undertakings
sublect to the law of a third country
Title III of the First Directive 79/267/EEC lays down rules applicable to
branches   set up  in the Community    by   third-country undertakings.   This
Article   introduces  into  that   Title   III,  with   a view   to  providing
policy-holders with the same safeguards      in all cases, rules on how the
transfer of such branches' portfolios of contracts must be effected.
Article 43 - Right of appeal
This Article provides for a right to apply to the courts in respect of
decisions taken by competent     authorities   in the field covered by    this
proposal for a 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.
 ---pagebreak---                                        - 37 -
                                  Proposal for a
                             THIRD COUNCIL DIRECTIVE
         on the coordination of laws, regulations and administrative
               provisions relating to direct life assurance and
                 amending Directives 79/267/EEC and 90/619/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 life
     assurance, from the point of view both of freedom of establishment and
     freedom to provide services, so as to make           it easier for assurance
     undertakings     whose   head   office    is  in   the   Community    to   cover
     commitments in the Community;
2.   Whereas the Second Council Directive 90/619/EEC of 8 November 1990 on
      the coordination of     laws, regulations and administrative provisions
      relating    to  direct    life   assurance,    laying   down   provisions    to
      facilitate the effective exercise of freedom to provide services and
      amending    Directive 79/267/EEC 1 ,    hereinafter    called    the    "Second
      Directive", has contributed       substantially   to the formation      of  the
      internal market    in direct   life assurance by already granting policy-
      holders who, by virtue of the fact that they take the initiative in
 ---pagebreak---                                     - 38 -
   entering into a commitment in another country, do not require special
   protection in the Member State of the commitment, complete freedom to
   avail themselves of the widest possible life assurance market;
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, whether or not they themselves
   take the initiative, to have recourse to any assurer 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
   protect ion*,
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
    life assurance is henceforth to be subject to the grant of a single
   official authorization issued by the authorities of the Member State
    in which the assurance 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 assurance undertakings which have
   already been authorized      in the home Member State and which wish to
   carry on assurance business        there  to seek   a fresh  authorization;
   whereas the First and Second Directives should therefore be amended
   along those Iines;
 ---pagebreak---                                          - 39 -
6.   Whereas   responsibility      for monitoring     the financial     health of      the
     assurance     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;
7.   Whereas the home Member State may lay down stricter rules than those
     provided    for   in Articles 7, 14, 15, 18, 19(1) and            (3) and      20 in
     respect   of   assurance 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     79/267/EEC 2 ,   as   last
     amended by the Second Directive 90/619/EEC, and by Council Directive
      .../.../EEC    [on   the  annual    accounts   and   consolidated    accounts     of
                                 3
      insurance undertakings] ;
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 assurance 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    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;
  2    OJ No L 63, 13.3.1979, p. 1.
  3    OJ No
 ---pagebreak---                                         - 40 -
11. Whereas    it   is clear     from   the   report   drawn  up  on   the    basis   of
    Article 39(2) of the First Directive that there are no grounds for
    maintaining the current restrictions on composite undertakings or for
    opposing    the formation of new composite undertakings provided                they
    manage separately, and show separately the results of, the activity of
     life assurance and that of non-life            insurance and comply with the
    prudential rules relating to both activities;
12. Whereas it is necessary from the point of view of the protection of
     lives  assured    that    every    assurance    undertaking   should     establish
    sufficient     technical    provisions; whereas       the  calculation     of   such
    provisions is based for the most part on actuarial principles-, whereas
    those principles should be coordinated            in order to facilitate mutual
    recognition     of   the    prudential     rules   applicable   in   the    various
    Member States-,
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
                             4
    Directive 88/361/EEC       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    assurance
     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-,
 ---pagebreak---                                          - 41 -
15. 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;
16. Whereas    it   is   at   present     neither     necessary    nor   appropriate       to
    harmonize the law covering the contract;               whereas    in the absence of
    such harmonization the opportunity afforded to the Member States of
     imposing the application of their law to assurance contracts covering
    commitments     in their    territory      is   likely   to provide      a  sufficient
    safeguard for policy-holders;
17. 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 life assurance products available in the Community
    so that he can choose that which is best suited to his need; whereas
    therefore the Member State           in which the commitment         is entered      into
    must   allow   all    life   assurance     products     offered    for   sale    in   the
    Community    to be marketed       in its territory as         long as they do not
    conflict    with   the   legal   provisions protecting        the general      good    in
    force    in that    Member   State,     insofar    as that    good    is not    already
    protected    by the rules       in the Member       State of origin, that           these
    provisions     are    applied     in   a    non-discriminatory       manner     to    all
    undertakings carrying on business in that Member State and that they
    are objectively necessary and proportionate to the desired objective;
18. Whereas Member States must ensure that the life assurance products and
    contract documents used for covering, whether by way of establishment
    or by way of freedom to provide services, commitments entered into 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,
 ---pagebreak---                                          - 42 -
     constitute a prior condition for carrying on life assurance 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;
19.  Whereas in a single insurance market the consumer will have a wider
     and more varied choice of contracts; whereas If he is to profit fully
     from   this   diversity    and    from   increased    competition,   he   must  be
     provided   with whatever      information     is necessary    to enable him     to
     choose the contract best suited to his needs-, whereas this information
     requirement    is all the more important as the duration of commitments
     can be very     long-, whereas the minimum provisions must therefore be
     coordinated    in order    that    the consumer     receive clear   and accurate
      information    about   the   essential     characteristics    of   the   products
     proposed to him as well as the address of the body or bodies, to which
      any complaints of policy-holders, lives assured or beneficiaries of
      the contract may be addressed;
19a. Whereas publicity      for   insurance products       is an essential    means of
      enabling  insurance business to be carried on effectively within the
      Community;   whereas    it    is   necessary    to   leave  open   to   insurance
      companies the use of all normal means of advertising              in the Member
      State of the branch or of provision of services; whereas Member States
      may nevertheless require compliance with their national rules on the
      form  and   content    of   advertising,      whether   required   by  Community
      legislation on advertising or adopted for reasons of the general good;
 ---pagebreak---                                          - 43 -
20.  Whereas within the framework of a single market no Member State may
     continue to prohibit the simultaneous carrying-on of              life assurance
     business in its territory by way of freedom of establishment and of
     freedom to provide services; whereas the option given to Member States
     in   this   connection   by    the   Second   Directive   should   therefore   be
     abo I i shed -,
21.  Whereas provision should be made for a system of penalties to be
      imposed when, in the Member State in which the commitment            is entered
      into, the assurance undertaking does not comply with the provisions
     protecting the general good that are applicable to it;
21a. Whereas work is in progress          on  the subject of winding-up      insurance
     undertakings     (Amended   Commission     proposal   COM(89)     394  final   of
     18 September 1989); whereas it is essential at this stage to provide,
      in the event of the winding-up of an insurance undertaking, that the
     systems    of   protection    in   place   in Member    States   must  guarantee
     equality of treatment       for all     insurance creditors,     irrespective of
     nationality and of the method of entering into the commitment;
22.  Whereas some Member States do not subject life assurance transactions
      to any form of indirect taxation, while others apply special taxes and
     other forms of contribution; 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 commitment
      is entered into is likely to remedy such mischief; whereas it is for
      the Member States to establish the method of ensuring that such taxes
      and contributions are collected;
 ---pagebreak---                                  - 44 -
23. 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,
24. Whereas it is necessary to lay down specific provisions 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,
 ---pagebreak---                                      - 45 -
HAS ADOPTED THIS DIRECTIVE
                                    TITLE I
                             Definitions and scope
                                   Article 1
For the purposes of this Directive:
(a)  "First Directive" means Directive 79/267/EEC;
(b)  "Second Directive" means Directive 90/619/EEC;
(c)  "assurance    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 assurance undertaking, having
     regard to Article 3 of the Second Directive;
(e)  "commitment" means a commitment      represented by one of the kinds of
      insurance   or  operation   referred   to  in  Article 1   of   the  First
     Direct ive;
(f)  "home Member State" means the Member State in which the head office of
     the assurance undertaking covering the commitment is situated;
(g)  "Member   State of the branch" means the Member       State   in which  the
     branch covering the commitment is situated;
 ---pagebreak---                                      - 46 -
(h) "Member State of provision of services" means the Member State of the
    commitment, as defined     in Article 2 (e) of the Second Directive, if
    the commitment    is\ covered by an assurance undertaking or a branch
    situated in another Member State;
(I) "control" means the relationship between a parent undertaking and a
    subsidiary, as defined in Article 1 of Council Directive 83/349/EEC 5 ,
    or a similar relationship between any natural or legal person and an
    undertaking;
(J) "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
                           6
    Directive 88/627/EEC     shall be taken into consideration;
(k) "parent   undertaking"    means    a   parent     undertaking     as    defined   in
    Articles 1 and 2 of Directive 83/349/EEC;
(I) "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 2
1.  This   Directive   shall   apply    to   the    commitments    and     undertakings
    referred to in Article 1 of the First Directive.
 5   OJ No L 193, 18.7.1983, p. 1.
 6   OJ No L 348, 17.12.1988, p. 62.
 ---pagebreak---                                          - 47 -
     2.    In Article 1(2) of the First Directive the words "and are authorized
           in the country concerned" are deleted.
     3.    This Directive shall not apply to operations, undertakings or entities
           to which   the First  Directive does not apply, nor    to the entities
           referred to in Article 4 of that Directive.
                                      TITLE II
                  The taking-up of the business of life assurance
                                     Article 3
Article 6 of the First Directive is replaced by the following:
"Article 6
1.   The taking-up of the business of direct life assurance 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.
2.   Member   States shall not make authorization subject    to the  lodging of a
     deposit or the provision of security."
 ---pagebreak---                                     - 48 -
                                  Article 4
Article 7 of the First Directive is replaced by the following:
"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 assurance
      as listed in the Annex.   It shall cover the entire class, unless the
      applicant wishes to cover only part of the risks pertaining to that
      class.
      The supervisory authorities may restrict an authorization requested
      for one of the classes to the operations set out     in the scheme of
      operations referred to in Article 9.
      Each Member State may grant an authorization for two or more of the
      classes, where its national laws permit such classes to be carried on
      simultaneously."
                                  Article 5
Article 8 of the First Directive is replaced by the following:
 "Article 8
 1.   The home Member State shall require that any assurance undertaking for
      which an authorization is sought shall:
       (a)       adopt one of the following forms:
 ---pagebreak---                                 - 49 -
in the case of the Kingdom of Belgium: "société anonyme/naamloze
vennootschap",    "société     en  commandite   par   actions/commanditaire
vennootschap        op       aandelen",       "association        d'assurance
mutuelle/onderI Inge            verzekeringmaatschappiJ",            "société
coopérât ive/cooperatieve vennootschap";
in the case of the Kingdom of Denmark: "aktieselskaber", "gensidige
selskaber";
in     the    case     of     the    Federal     Republic     of     Germany:
"AktiengeselIschaft",       "Versicherungsverein     auf  GegenseItIgkeIt",
"OffentIich-rechtIiches Wettbewerbs-Versicherungsunternehmen";
 in the case of the French Republic: "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 the Italian Republic: "société per azioni", "société
coopérâtiva", "mutua di assicurazione";
 in the case of the Grand Duchy of Luxembourg: " société anonyme",
 "société  en   commandite     par  actions",    "association    d'assurances
mutuelles", "société coopérative";
 in   the  case    of   the   Kingdom   of   the    Netherlands:    "naamloze
vennootschap", "onderlinge waarborgmaatschappiJ";
 ---pagebreak---                                        - 50 -
         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 Lloyd's-,
         in the case of the Hellenic Republic:
          " avûvuun etaipla "
          in the case of the Kingdom of Spain: "sociedad anonima", "sociedad
         mutua", "sociedad coopérâtiva";
          in the case of the Portuguese Republic: "sociedade anonima", mutua
         de seguros".
Assurance undertakings may also adopt the form of a European company (SE),
as  provided    for   in Council   Regulation (EEC) No   .../...* and    Council
Directive .../.../EEC**.
Furthermore, Member      States may   set up, where  appropriate,   undertakings
under any 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 Article 9;
(d)  possess the minimum guarantee fund provided for in Article 20(2);
 ---pagebreak---                                       - 51 -
(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.
    It shall, furthermore, be required to show proof that it possesses the
    solvency margin provided      for   in Article 19 and the guarantee fund
    referred to in Article 20(1) and (2).
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, the technical bases used inter al la for calculating
    scales of    premiums   and  technical    provisions, 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 assurance contracts, and this requirement may
    not constitute a prior condition for an undertaking            to be able to
    carry on its activities.
4.  The abovementioned provisions may not require that any application for
     authorization be dealt with in the light of the economic requirements
    of the market.
 *   OJ No L
 **  OJ No L
 ---pagebreak---                                       - 52 -
                                   Article 6
Article 9 of the First Directive is replaced by the following:
"Article 9
The scheme of operations      referred   to   in Article 8(1)(c) and    (2) shall
contain the following particulars or proof concerning:
      (a)        the   nature   of   the   commitments    which  the  undertaking
                 proposes to cover;
      (b)        the guiding principles as to reinsurance;
      (c)        the items constituting the minimum guarantee fund;
      (d)        estimates    relating     to   the   cost   of   installing   the
                 administrative services and the organization for securing
                 business and the financial resources intended to meet such
                 cost;
 and, in addition, for the first three financial years:
      (e)        a   plan  setting    out   detailed   estimates   of  income  and
                 expenditure    in  respect    of  direct   business,  reinsurance
                 acceptances and reinsurance cessions;
      (f)        a forecast balance sheet;
      (g)        estimates relating to the financial resources intended to
                 cover underwriting liabilities and the solvency margin."
 ---pagebreak---                                    - 53 -
                                 Article 7
The  competent  authorities  of  the  home Member   State shall   not  grant
authorization for taking up the business of assurance 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  assurance
undertaking, they are not satisfied as to the suitability of the said
shareholders or members.
 ---pagebreak---                                     - 54 -
                                  TITLE III
         Harmonization of conditions governing pursuit of business
                                  Chapter 1
                                  Article 8
Article 15 of the First Directive is replaced by the following:
"Article 15
1.   The financial supervision of an assurance 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.     If the authorities of the Member State of the
     commitment have reason to suspect that the activities of an assurance
     undertaking might affect    its financial soundness, they shall      inform
     the authorities of the undertaking's home Member State.        The latter
     authorities shall determine whether the undertaking is complying with
      the prudential principles laid down in this Directive.
2.   The financial supervision shall include verification, with respect to
      the entire business of the assurance undertaking, of        its state of
      solvency,   the  establishment   of   technical   provisions,    including
     mathematical    provisions,  and   of   the   assets  covering   them,   in
      accordance with the rules laid down or practices followed in the home
     Member State pursuant to provisions adopted at Community level.
 3.   The competent authorities of the home Member State shall require every
      assurance  undertaking   to have sound    administrative and   accounting
      procedures and adequate internal control mechanisms."
 ---pagebreak---                                     - 55 -
                                  Article 9
Article 16 of the First Directive is replaced by the following:
"Article 16
Member  States  of  the   branch  shall  provide that,  where   an  assurance
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."
                                  Article 10
The following Article 23a is inserted in the First Directive:
"Article 23a
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 assurance undertakings or
those who effectively control the business of assurance 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."
 ---pagebreak---                                       - 56 -
                                    Article 11
1. Article 6, paragraphs 2 to 7, of the Second Directive are deleted.
2. Each Member State shall, under the conditions              laid down by national
   law, authorize assurance 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.
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 the branch
   shalI 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 of commitment.
5.  The    supervisory   authorities    of  the Member      States    consulted    shall
    inform    the competent    authorities of      the home Member       State of    the
    transferring     assurance   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 of the commitment.         Such transfer shall be automatically
    valid against      the policy-holders, the       lives assured      and any other
    person having      rights and obligations arising out of             the  contracts
    transferred.
 ---pagebreak---                                        - 57 -
      Member States may provide policy-holders with the option of cancelling
      the contract within a given period after the transfer.
                                     Article 12
Article 24 of the First Directive is replaced by the following:
"Article 24
1.   If an undertaking does not comply with the provisions of Article 17,
the supervisory authority of its home Member State may prohibit the free
disposal of assets after having informed the supervisory authorities of the
Member States of commitment.
2.   For the purposes of restoring the financial situation of an undertaking
whose    solvency   margin   has   fallen  below  the   minimum   required    under
Article 19,    the   supervisory   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 20,    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   lives assured    in the cases
 provided for in paragraphs 1 and 3.
 ---pagebreak---                                     - 58 -
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."
                                  Article 13
Article 26 of the First Directive is replaced by the following:
"Article 26
1.   An authorization granted to an assurance 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 24-,
         (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 shall
 ---pagebreak---                                        - 59 -
       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    lives assured      and,   in particular,       shall
       restrict   the free disposal        of the assets of the undertaking            in
       accordance with Article 24(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
   assurance 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    assurance
   undertaking would become his subsidiary.
   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    assurance
   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.
 ---pagebreak---                                   - 60 -
2. Member States shall require any natural or legal person who proposes
   to dispose, directly or     indirectly, of a qualifying holding       in an
   assurance 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 assurance undertaking would cease to be his subsidiary.
3. On becoming aware of them, assurance 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.
   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   assurance
    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.
 ---pagebreak---                                       - 61 -
     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.
                                   Article 14a
Article 13 of the First Directive is replaced by the following:
"Article 13
1.   Undertakings which, in accordance with Article 6 of the first non-life
      insurance  coordination    Directive    and   of   this   Directive,   receive
     authorizations    permitting    them    to   carry    on   simultaneously   the
     activities referred to in the Annex to the first non-life             insurance
     coordination Directive and those listed in Article 1 of this Directive
     shall manage each activity separately in accordance with Article 14.
2.   Where an undertaking carrying on the activities referred to in the
     Annex   to  the  first   non-life    insurance   coordination    Directive  has
     financial,   commercial   or  administrative      links with    an  undertaking
     carrying on the activities covered by this Directive, the supervisory
     authorities of the Member States in whose territory the head offices
     of those undertakings are situated shall ensure that the accounts of
     the undertakings in question are not distorted by agreements between
     these   undertakings   or  by   any   arrangement    which   could  affect  the
     apportionment of expenses and income.
3.   Subject to paragraph 4, undertakings which at the time of notification
     of this Directive carry on simultaneously          in a Member State both of
 ---pagebreak---                                        - 62 -
      the activities referred to in paragraph 1 may continue to do so there
     provided that each activity is separately managed in accordance with
     Article 14.
4.    Any Member    State may   require undertakings    whose  head offices     are
      established    in  its  territory    to  cease,  within   a  period   to   be
      determined by the Member State concerned, the simultaneous pursuit of
      activities in which they were engaged at the time of notification of
      this Directive."
                                    Article 14b
Article    18   of   the  Second   Directive    is  deleted   with   effect    from
1 January 1996.
                                     Chapter 2
                                     Article 15
Article 17 of the First Directive is replaced by the following:
 "Article 17
 1.   The home Member State shall       require every assurance undertaking       to
       establish   sufficient   technical   provisions,   including   mathematical
       provisions, in respect of its entire business.
       The amount of such provisions shall be determined according to the
       following principles:
 ---pagebreak---                              - 63 -
A.(i)  The   amount    of   the   mathematical   provisions     shall    be
       calculated by a sufficiently prudent actuarial valuation of
       all    future     liabilities   for   all    existing     policies,
       including:
       all   guaranteed    benefits,   including  guaranteed     surrender
       values;
       bonuses     which   have   already   been   guaranteed,     whether
       described as vested, declared or allotted;
       options available to the policy-holder under the terms of
       the contract;
       expenses, including commissions;
       taking credit for future premiums due.
 (ii)  The use of a retrospective method is allowed, if it can be
       shown that the resulting technical provisions are not lower
       than    would   be   required   under   a  sufficiently      prudent
       prospective calculation or if a prospective method cannot
       be used for the type of policy involved.
 (iii) A prudent valuation is not a 'best estimate' valuation, but
       shall    include an appropriate margin for adverse deviation
       of the relevant factors.
 (iv)   The valuation shall take account of the method of valuation
       of   the   corresponding    assets, depending    on   the   type of
        policy, and the extent       to which specific assets can be
        identified.
 (v)    Technical    provisions shall    be calculated    separately    for
        each contract.     The use of appropriate approximations or
        generalizations is allowed however, where they are likely
 ---pagebreak---                            - 64 -
     to give approximately the same result as the                 individual
     calculations.     The principle of separate calculation shall
     in   no   way    prevent    the     establishment      of    additional
     provisions for general risks which are not individualized.
(vi) Where the surrender value of a policy if guaranteed, the
     amount of the mathematical provisions for the policy shall
     be at least as great as that value.
B.   The   rate  of    interest    used    in  the    calculation     of  the
     technical provisions shall be chosen prudently, taking into
     account   the currency     In which the policy         is denominated,
     and   having   regard    to    the   yield    on   the    corresponding
     existing assets and to the yield which it is expected will
     be obtained on sums to be invested in the future.
C.   The elements of the statistical basis and the allowance for
     expenses    used     in   the    calculation      of    the   technical
     provisions shall be chosen prudently, having regard to the
     State   of   the   commitment,     the   type   of   policy,    and  the
     administrative      costs    and    commissions      expected     to  be
      incurred.
D.    In the case of participating policies, the valuation method
     shall take into account, either           implicitly or explicitly,
      future bonuses of all kinds, in a manner consistent with
      the other assumptions on future experience and with the
     current method of distribution of bonus.             Where no explicit
      allowance   is made for future bonuses a technical              rate of
      interest shall be used which is lower than the rate chosen
      according to principle B by an appropriate amount.
 ---pagebreak---                                       - 65 -
        E.      Allowance for future expenses may be made implicitly, for
                instance by the use of an appropriate net premium.        However
                the overall allowance, implicit or explicit, shall be not
                less  than     a  prudent   estimate  of   the  relevant   future
                expenses.
        F.      The method of calculation of technical provisions from year
                to  year    shall   be  such   as  to  recognize   profit   in  an
                appropriate way over the duration of each policy, and shall
                not be subject to discontinuities arising from arbitrary
                changes to the method or the bases of calculation.
2.   Assurance undertakings shall publish the bases and methods used in the
     calculation of   the    technical   provisions,  including  provisions    for
     bonuses.
3.   The home Member State shall       require every assurance undertaking to
     cover the technical provisions in respect of its entire business by
     matching  assets,    in   accordance   with  Article   21.   In  respect   of
     business written in the Community, these assets must be localized on
     the territory of the Community.       The home Member State may, however,
     permit relaxations in the rules on the localization of assets."
                                    Article 16
Premiums for new business shall be sufficient, on reasonable actuarial
assumptions, to enable undertakings to meet all their commitments having
regard to all aspects of their financial situation.
 ---pagebreak---                                       - 66 -
                                    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 value.
                                    Article 18
1.   The home Member State shall allow every assurance undertaking to cover
     the technical provisions only 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);
         (d)     transferable shares and other transferable variable yield
                 part icipations;
         (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-,
 ---pagebreak---                         - 67 -
(h)  loans guaranteed by mortgage on land, buildings, ships or
     aircraft;
(i)  cash    at  bank   and   in   hand,  deposits    with   credit
     institutions;
(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
      i ncome;
(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;
 (t)  loans on policies.
 ---pagebreak---                                     - 68 -
2. Notwithstanding paragraph 1, in particular circumstances and at the
   assurance 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 assurance 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);
       (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;
               The home Member State may waive the 80% limit, on condition
               that the 10% limit laid down in point (g) is reduced to 5%.
        (d)    5%  of   the  total     of   the  technical    provisions,    net  of
               reinsurance,     in    the    category    of    assets    listed    in
               Article 18(1)(c);
 ---pagebreak---                                        - 69 -
         (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.
2.    Member States shall not require assurance 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
      assurance 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   assurance
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.
 ---pagebreak---                                        - 70 -
                                   Article 21
For the purposes of Article 17(3) and Article 28 of the First Directive,
Member States shall comply with Annex 1 to this Directive as regards the
matching rules.
                                    Article 22
Article 18(1) of the First Directive is replaced by the following:
"1.   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 fund;
      one-half of the share capital or the 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;
      any carry-forward of profits;
      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 assurance 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 settled;
 ---pagebreak---                                       - 71 -
                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 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 assurance
                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   assurance    undertaking,    the   debt   will   become
                 repayable before the agreed repayment date."
                                    Article 23
Article 21 of the First Directive is replaced by the following:
"Article 21
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 17.
 ---pagebreak---                                        - 72 -
2.    Subject to Article 17(3), Article 24(1), (3) and (5) and the second
      subparagraph of Article 26(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.    This Article shall     not   preclude any measures which Member States,
      while safeguarding the interests of the lives assured, are entitled to
      take   as   owners,  members    or   associates    of   the  undertakings  in
      quest ion."
                                      Chapter 3
                                     Article 24
The Member State of the commitment 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 of the commitment.
                                     Article 25
Member States shall not lay down provisions requiring the prior approval or
 systematic   notification   of   general   and   special   policy  conditions, the
 technical   bases used   Inter al la for calculating scales of premiums and
 technical   provisions, and     forms   and  other   printed   documents which  an
 assurance undertaking intends to use in its dealings with policy-holders.
 ---pagebreak---                                      - 73 -
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   assurance
contracts, and this requirement may not constitute a prior condition for an
undertaking to be able to carry on its activities.
                                   Article 26
In the first subparagraph of Article 15(1) of the Second Directive the
words "in one of the cases referred to in Title III" are deleted.
                                   Article 27
1.    Before any commitment is finalised, the policy-holder shall receive at
      least the information listed in point A of Annex 2.
2.    The policy-holder shall be kept      informed throughout the term of the
      contract of any change concerning the information listed in point B of
      Annex 2.
3.    The Member State of the commitment may require assurance undertakings
      to furnish information in addition to that listed in Annex 2 only if
       it is indispensable to a proper understanding by the policy-holder of
      the essential elements of the commitment.
 ---pagebreak---                                      - 74 -
                                    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 assurance undertaking wishing        to establish  a branch   in another
     Member State    shall  notify   the  competent   authorities  of   its  home
     Member State.
2.   Member States shall     require every assurance 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;
 ---pagebreak---                                      - 75 -
      (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
              Member State of the branch.
              With regard to Lloyd's, in the event of any litigation in
               the   Member State of the branch resulting from underwritten
              commitments,       the    lives   assured       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   assurance    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 assurance
   undertaking, calculated in accordance with Articles 19 and 20.
   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.
 ---pagebreak---                                     - 76 -
4.   Before   the  branch   of   an   assurance  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 the branch.
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 assurance 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.
                                  Article 30
Article 11 of the Second Directive is replaced by the following:
 ---pagebreak---                                     - 77 -
"Article 11
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 commitments it proposes to cover."
                                  Article 31
Article 14 of the Second Directive is replaced by the following:
"Article 14
1.   The competent authorities of the home Member State shall communicate,
     within one month of the notification provided for       in Article 11, to
      the Member State or Member States within the territory of which the
     undertaking intends to carry on business by way of freedom to provide
      services:
         (a)     the amount of the solvency margin calculated in accordance
                 with Articles 19 and 20 of the First Directive-,
         (b)     the classes which the undertaking has been authorized to
                 transact;
         (c)     the  nature  of   the   commitments   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.
 ---pagebreak---                                      - 78 -
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 11 shall be subject to the procedure provided for in
Articles 11 and 14."
                                   Article 33
Articles 10, 12, 13, 16, 22 and 24 of the Second Directive are deleted.
                                   Article 34
1.   Article 19 of the Second Directive is deleted.
 ---pagebreak---                                     - 79 -
2. Member States of the branch or of provision of services shall not lay
   down    provisions    requiring    the    prior   approval    or    systematic
   notification of general and special policy conditions, the technical
   bases used inter al la for calculating scales of premiums and technical
   provisions, 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 assurance 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.
                                  Article 35
1. Article 20 of the Second Directive is deleted.
2. Any    undertaking   carrying    on    business   by   way   of   freedom    of
   establishment   or  freedom   to provide     services  shall   submit   to  the
   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.
 ---pagebreak---                                       - 80 -
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
   assurance     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 assurance
   undertakings.
6. Paragraphs 2 to 5 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    assurance
   undertakings    from   continuing     to   conclude   new   assurance   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.
 ---pagebreak---                                        - 81 -
8.   Any measure adopted pursuant to paragraphs 4 to 7 involving penalties
     or  restrictions    on   the carrying-on    of   assurance     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.
                                     Article 36
Nothing   in this Directive shall prevent assurance undertakings with head
offices in other Member States from advertising their services through all
available means of      communication    in the Member State of         the branch 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 21 of the Second Directive is deleted.
 2.   In the event of an assurance 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     assurance     contracts, without
      distinction   of   nationality    as   far  as   the   lives   assured   and   the
      beneficiaries are concerned.
 ---pagebreak---                                     - 82 -
                                 Article 38
1. Article 23 of the Second Directive is deleted.
2. Every assurance 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
   each   of  classes I to VI, as      defined  in the Annex    to  the  First
   Directive.
   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 39
1. Article 25 of the Second Directive is deleted.
2. Without   prejudice to any subsequent      harmonization, every   assurance
    contract   shall  be  subject   exclusively  to  the  indirect  taxes  and
    parafiscal charges on assurance premiums in the Member State of the
    commitment within the meaning of Article 2(e) of the Second Directive,
    and also, with regard to Spain, to the surcharges legally established
    in favour of the Spanish "Consorcio de Compensaciôn de Seguros" for
    the fulfilment of its functions relating to the compensation of losses
    arising from extraordinary events occurring in that Member State.
    The law applicable to the contract pursuant to Article 4 of the Second
    Directive shall not affect the fiscal arrangements applicable.
 ---pagebreak---                                    - 83 -
   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 referred to in the first subparagraph.
                                  TITLE V
                             Final provisions
                                 Article 40
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 First
               Directive, or adaptation of the terminology used      in that
                list to take account of developments on assurance markets;
               clarification of the items constituting the solvency margin
                listed in Article 18 of the First Directive to take account
               of the creation of new financial instruments;
               alteration of the minimum guarantee fund provided for in
               Article 20(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;
 ---pagebreak---                                       - 84 -
                changes   to   the   exceptions   to  the matching    principle,
                provided for in Annex 1 to this Directive, to take account
                of the development of new currency hedging instruments or
                progress towards economic and monetary union;
                clarification of the definitions in order to ensure uniform
                application of the First and Second Directives and of this
                Directive throughout the Community;
                consolidation of the First and Second Directives, and this
                Direct ive.
                                   Article 41
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 17, 23a,
     24 and 26 of the First Directive and by Article 35 of this Directive.
2.   Articles 30 and   31   shall   not  affect  rights acquired   by   assurance
     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 42
The following Article is inserted in the First Directive:
"Article 31a
 ---pagebreak---                                        - 85 -
1.    Each Member State shall, under the conditions laid down by national
       law, authorize    agencies and branches set      up   in   its territory    and
      referred to in this Title to transfer all or part of their portfolios
      of contracts to an accepting office established in the Community, if
      the   supervisory   authorities of     the Member State     of   the  accepting
      office certify that the latter possesses the necessary solvency margin
      after taking the transfer into account.
2.    A   transfer   authorized   in  accordance   with     paragraph    1  shall    be
      published, under     the conditions    laid down by national       law,  in the
      Member State of the commitment.       Such transfer shall be automatically
      valid   against   the policy-holders, the     lives assured     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."
                                     Article 43
Member States shall ensure that decisions taken in respect of an assurance
undertaking in pursuance of laws, regulations and administrative provisions
adopted    in accordance with this Directive may be subject to the right to
apply to the courts.
                                     Article 44
Member States      shall    bring  into    force   the     laws,    regulations     and
administrative provisions necessary to comply with this Directive not later
 than ...    They shall forthwith inform the Commission thereof.
When Member States adopt these provisions, these shall contain a reference
 to this Directive or shall be accompanied by such reference at the time of
 their   official   publication.  The procedure     for  such    reference   shall   be
 adopted by Member States.
 ---pagebreak---                                    - 86 -
                                Article 45
Upon notification of this Directive, Member States shall communicate to the
Commission  the  texts of  the main   laws,  regulations  or  administrative
provisions which they adopt in the field covered by this Directive.
                                 Article 46
This Directive is addressed to the Member States.
Done at Brussels,                                For the Council
                                                  The President
 ---pagebreak---                                         - 87 -
                                                                   ANNEX 1
                                   MATCHING RULES
The  currency     in which   the  assurer's     commitments    are   payable     shall   be
determined in accordance with the following rules:
1.   Where the cover provided by a contract              is expressed    in terms of a
     particular currency, the assurer's commitments are considered                   to be
     payable in that currency.
2.   Where the cover provided by a contract is directly linked to the value
     of units      in a UCITS or    some other      reference value, the         technical
      provisions must be represented by directly equivalent assets.
3.   Member States may authorize undertakings not to cover their technical
      provisions,     including   their   mathematical      provisions,     by    matching
      assets   if application of the above procedures would              result     in the
      undertaking    being   obliged,    in order     to comply     with   the    matching
      principle, to hold assets in a currency amounting to not more than 7%
      of the assets existing in other currencies.
4.    Member States may choose not         to require undertakings        to apply      the
      matching principle where commitments are payable in a currency other
      than    the   currency   of   one    of    the   Community    Member States,        if
      investments in that currency are regulated, if the currency is subject
      to   transfer    restrictions   or    if, for    similar   reasons,      it   is not
      suitable for covering technical provisions.
 5.   Undertakings are authorized not to hold matching assets to cover an
      amount    not   exceeding   20%   of    their   commitments     in   a    particular
      currency.
 ---pagebreak---                                  - 88 -
   However, total assets   in all currencies combined must be at   least
   equal to total commitments in all currencies combined.
6. Each Member State may    provide  that, whenever 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 ecus.
 ---pagebreak---                                          - 89 -
                                                                  ANNEX 2
                          Information for policy-holders
The policy-holder must be informed of the following information before
finalising the contract (A), or during the term of the contract (B). The
information must be provided in a clear and accurate manner, in writing, and in
the official language of the Member State of the commitment:
A.   Before finalising the contract
Information about the                   Information about the
assurance company                      assurance policy
a.1  The name of the company and       a.4     Definition of each benefit
      its legal form                           and each opt ion
a.2  The name of the Member State      a.5     Term of the policy
      in which the head office, and
     where appropriate the agency      a.6     Means of terminating the
     or branch which issues the                contract
     policy, is situated
                                       a.7     Means of payment of
a.3  The address of the head office            premiums
     and where appropriate of the
     agency or branch which issues     a.8     Means of calculation and
     the policy                                distribution of profit
                                               participation
                                       a.9      Indications      of   surrender     and
                                               paid-up values, and the extent to
                                               which they are guaranteed
                                        a. 10   Information on the premiums for
                                               each benefit, both main benefits
                                               and supplementary benefits
                                        a. 11   For        un 11-11nked      poIi c i es,
                                               definition of the units to which
                                               the benefits are linked
                                        a.12    Indication    of the nature of the
                                               underlying     assets for un it-1 inked
                                               poIi c i es
 ---pagebreak---                                         - 90 -
                                      a.13    Application   of    the    cooling-off
                                              per iod
                                      a.14    Indication of the tax arrangements
                                              applicable to the policy
                                      a. 15   The address of the body or bodies
                                              in    the  Member    State    of   the
                                              commitment to which any complaints
                                              of policyholders, lives assured or
                                              beneficiaries    of     the   contract
                                              should be addressed
B.   During the term of the contract
In addition to the policy conditions, both general and specific, the
policy-holder must receive the following information throughout the term of the
contract.
Information about the                  Information about the
assurance company                     assurance policy
b.1  Any change in the name of the    b.2     All the information listed
     company, its legal form or                in points a.4 to a.13 of A in
     the address of its head office,          the event of a change in the
     and where appropriate of the             policy conditions or
     agency or branch which issues            amendment of the law
     the policy                               applicable to the policy
The detailed application of the above requirements is to be determined according
to the law of the Member State of the commitment.
 ---pagebreak---                                     - 91 -
                              FICHE FINANCIERE
(délai de consultation requis pour la DG XIX : 10 Jours ouvrables)
                     VOLET 1 : IMPLICATIONS FINANCIERES
1.   Intitulé de I'action
    Prop, de directive du Conseil : 3ème directive de coordination dans
     le domaine de l'assurance directe sur la vie.
2.  Lignes budgétaires concernées : crédits de fonctionnement
3.  Base légale : Art. 57 para 2 et 66 du Traité CEE
4.  Description de l'action
     4.1.     Objectifs spécifiques de l'action : acte législatif
     4.2.     Durée : pas d'application
     4.3.     Population visée par l'action : autorités dans les E.M.
5.   Classification de la dépense ou des recettes
     5.1.     DO/DNO
     5.2.     CD/CND
     5.3.     Types de recettes visées
     Réponse : pas d'application
6.   Nature de la dépense ou des recettes
     6.1.     Subvention à 100 %
     6.2.     Subvention pour co-fInancement avec d'autres sources du
              secteur public et/ou privé
     6.3.     Bonification d'Intérêt
     6.4.     Autres
     6.5.     En cas de réussite économique de l'action, un remboursement
              partiel ou total de l'apport financier communautaire est-
               II prévu ?
     6.6.     L'action proposée Implique-t-elle une modification du
              niveau des recettes? SI oui, de quelle nature est la
              modification et quel type de recettes est visé ?
     Réponse : pas d'application
7.    Incidence financière sur les crédits d'intervention (partie B du
     budget)
     7.1.      Indiquez le mode de calcul du coût total de l'action
     7.2.      Indiquez la part du "mini-budget" dans le coût total de
               l'action, explicitez le mode de calcul.
     7.3.     Echéancier Indicatif des crédits d'engagement et de
              paiement
     Réponse : pas d'application
 8.  Quelles sont les dispositions anti-fraude prévues dans la
     proposition d'action ?
     Réponse : pas d'application
 ---pagebreak---                                 - 92 -
                   VOLET 2 : DEPENSES ADMINISTRATIVES
                               (partie A du budget)
(Volet à transmettre à la DG IX pour avis-, celle-ci le transmet ensuite
à la DG XIX)
1.  L'action prorposée ImpIique-t-elle une augmentation du nombre
    d'effectifs de la Commission ? Si oui, de combien 7
    Non.
2.  Indiquez le montant des dépenses de fonctionnement et de personnel
    généréres la proposition d'action. Explicitez le mode de calcul.
    Pas d'applIcat ion
 ---pagebreak---                                 - 93 -
             VOLET 3 : ELEMENTS D'ANALYSE COUT-EFFICACITE
1. Objectifs et cohérence avec la programmation financière
   1.1.    Objectifs spécifiques de l'action proposée. Il doit être
           quantifié dans la msure du possible et présenté pour
           chacune des années concernées s'il s'agit d'une action
           plurlannuel le.
   Réponse : acte législatif comportant harmonisation des législations
   1.2.    L'action est-elle prévue dans la programmation financière
           de la DG pour les années concernées 7
   Réponse : pas d'application
   1.3.     Indiquez à quel objectif plus général défini dans la
           programmation financière de la DG correspond l'objectif de
            I'action proposée
   Réponse : programme de travail législatif de la DG XV
2. Justification de l'action
   2.1.    Justification de l'action choisie par rapport à une
           alternative qui permettrait d'atteindre les mêmes
           objectifs. La justification doit se baser notamment sur
           trois critères :
           a) coût
           b) effets dérivés (Impact au-delà des objectifs
               spécifiques)
           c) effet multiplicateur (capacité de mobilisation d'autres
               sources de financement
   Réponse : pas d'application; proposition faite dans le cadre du
   droit d'initiative de la Commission en matière législative.
3. Suivi et évaluation de l'action
   3.1.    Indicateurs de performance sélectionnés
   3.2.    Modalités et périodicité de l'évaluation prévues
   3.3.    Principaux facteurs d'Incertitude pouvant affecter les
           résultats spécifiques de l'action
   Réponse : pas d'application
 ---pagebreak---                                94 -
                   THE IMPACT OF TEE PROPOSAL CM BUSINESS
    with special reference to small and medium-sized enterprises (SMEs) '
Title of proposal:      Proposal for a Third Council Directive on the
                        coordination of lavs, regulations and
                        administrative provisions relating to direct life
                        assurance and amending Directives 79/267/EEC and
                        90/619/EBC
Reference number (Répertoire): <Xt£(91)
1. Taking account of the principle of subsidiarity, *hy Is Community
   législation necessary in this area and uhat are Its main alms?
   To complete the Internal market in direct life assurance in accordance
   with the principles laid down in the White Paper, in order to create a
   genuine single market in this important area of financial services.
   This proposal for a Third Directive fits into a wider pattern of work to
   be undertaken with a view to completing the single market in Insurance,
   both life and non-life.
   The adoption of the Second Directives on non-life insurance (1988) and
   life assurance (1990) contributed substantially to the attainment of
   this fundamental objective of the Community. Those Instruments laid
   down two different sets of arrangements for the pursuit of business
   under conditions of freedom of services. The first, based on the
   approach - as mapped out in the White Paper - of home country control,
   is applicable to policy-holders who are in no need of specific
   protection by the application of their own national rules (large risks,
   provision of services on the policy-holder's Initiative). The second,
   based an application of the rules of the country In which the service is
   provided, concerns policy-holders who do need speclfio protection (mass
   risks, life assurance commitments entered Into by the policy-holder
   without his taking the Initiative in seeking cover abroad).
   When these two Directives were adopted, the Commission formally
   undertook to present new proposals aimed at completing the Internal
   market within the time-limits prescribed by the White Paper.
 ---pagebreak---                                      - 95 -
   A proposal for a third non-life insurance coordination Directive was
   transmitted to the Council on 27 July 1990. The present proposal for a
   Third Directive concerns life assurance and Is designed to lay down the
   provisions necessary to complete the Internal market in that branch of
   insurance.
   The arrangements proposed are based on the strategy already used to
   create the Internal market in hanking and in Investment servioes (Second
   Banking Directive and proposal for a Directive on Investment servioes),
   namely the Introduction of a single authorization system and a system of
   home country control. Once this Directive has been adopted, all direct
   life assurance business will be subject to a single regime under which
   life assurance undertakings will be able to sell their products anywhere
   In the Community and purchasers of life assurance will have aooess to
   the widest possible market in which to find the product best suited to
   their needs at the most reasonable price.
The Impact nn frisinfiPR
2. Who will be affected by the proposal?
        which sectors of hiffinflss
        Insurance undertakings authorized to carry on life assurance
        activities within the meaning of the First Directive 79/267/EEC.
        Moreover, the proposal will enable buyers of insurance, many of
        whom are SMEs, to benefit from the final completion of the Internal
        market and to have aooess as a result to the full range of life
        assurance products available In the the EBC.
        which sizes of hnslnass (what Is the concentration of snail and
        medium-sized firms)
        All insurance undertakings falling within the scope of the
        Directive. Very small undertaking
                                 undertakings with a local base and a small
        market share are excluded (of. 5a a).
        are there particular geographical areas of the Community where
        these businesses are found
        One measures contained in the proposal for a Directive are not
        likely to affect the regions of the Community unequally.
3. What will businesses have to do to comply with the proposal?
   The proposal for a Directive Introduces into the direct life assurance
   sector, as Is the oase with other financial servioes, the system of a
 ---pagebreak---                                 96 -
   single official authorization for an undertaking's entire business in
   the Community, and prudential supervision by the authorities of the home
   Member State.
   This approach simplifies considerably the present situation as regards
   the taking-up and pursuit of this business, characterized as it Is by a
   multiplicity of authorizations and controls.
   At the same time, home country control, on the basis of coordinated
   rules, of the holding by insurance undertakings of adequate technical
   and mathematical provisions, and of the valuation of those provisions
   and their representation by matching assets located In the Community,
   will reduce the multiplicity of arrangements now in existence. The
   strength of insurance undertakings will be increased and safeguarded,
   and policy-holders will be better protected as a result.
4. What eoanoBdo effects is the proposal likely to have?
   —    on employment
        No direct effect.
        an Investment and the creation of new businesses
        The Introduction of a system of home country control will reduce
        the operating costs of insurance undertakings owing to the
        calculation at head-office level of the technical provisions In
        respect of an undertaking's entire business.
        The measures proposed for the constitution of the solvency margin
        (Inclusion of subordinated loan capital) will facilitate the
        financing of undertakings, notably mutuals and Insurance
        cooperatives, by external resources.
   —    an the competitive position of businesses
        Community insurance undertakings will be subject to coordinated
        rules an the taking-up and pursuit of the activities of direct life
        assurance and direct non-life Insurance. Through the creation of a
        single market they will be able to offer their Insurance products
        anywhere In the Community to any Insurance buyer. There is
        therefore likely to be Increased competition between insurance
        undertakings and between Insurance undertakings and other financial
        institutions offering similar products.
        SHE buyers of Insurance will have a much wider range of products
        from which to choose that which is best suited to their needs in
        terms of both cover proposed and price.
 ---pagebreak---                                   - 97 -
5. Does the proposal contain measures to take account of the specific
   situation of email and medium-sized firms (reduced or different
   requirements, eto.)?
   (a)  frigvrarme undertakings
        The First Directive 79/267/EBC has already laid down a series of
        provisions specifioally aimed at small or medium-sized Insurance
        undertakings. Article 3 states that the Directive does not apply
        to pertain small and medium-sized mutual associations. Moreover,
        the Directive permits a one-quarter reduction in the minimum
        guarantee fund required of Insurance undertakings In the case of
        mutual associations and mutual-type associations.
        The proposal for a Third Directive does not modify this treatment
        of certain Insurance undertakings.
   (b) Insurance buyers
        The proposal for a Third Directive contains provisions aimed at
        giving Insurance buyers the necessary degree of protection when
        they concise Insurance contracts. Insurance undertakings will
        have to render the contract subject to the law that Is applicable
        In accordance with the provisions of the proposal (as a rule, the
        law of the country in which the policy-holder Is resident). They
        will also have to provide the policy-holder with essential
        Information about the product (Article 27). lastly, there is a
        cooling-off period of between 14 and 30 days within which the
        policy-holder can cancel the contract.
Consultation
6. List the organizations which have been consulted about the proposal and
   outline their main views.
   European Insurance Committee (EIC).
   The ETC is In favour of the present proposal for a Directive, notably as
   regards the coordination of technical provisions and of the rules
   concerning the representation, valuation and looallTation of the assets
   covering the technical provisions.
 ---pagebreak---  ---pagebreak---                                                                                 ISSN 0254-1475
                                                                    COM (91) 57 final
                                                       DOCUMENTS
EN                                                                                       10 06
                                   Catalogue number : CB-CO-91-113-EN-C
                                                                ISBN 92-77-70449-7
PRICE                         1 - 30 pages: 3 JO ECU      per additional 10 pages: 1.25 ECU
Office for Official Publications of the European Comtnunities
L-2985 Luxembourg