CELEX: 51973PC2030
Language: en
Date: 1973-12-12
Title: Proposal for a first Council Directive on the coordination of laws, regulations and administrative provisions relating to the taking-up and pursuit of the business of direct life assurance (submitted to the Council by the Commission)

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 ---pagebreak--- COMMISSION OF THE EUROPEAN COMMUNITIES
                                                                                     COM(73)2030 final
                          .                                                          Strasbourg, 1 2 December 1973
                 .          -    Proposal for a first Council Directive ,                                >
                            . on the coordination of laws , regulations and                        ... .   .■     .
              administrative provisions relating to the taking-up and pursuit                                         .
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 ---pagebreak---                                                           XV/194/73-E
                              EXPLANATORY ■ MEMORANDUM
 Reasons for and objections of coordination ■       -
1 . The General Programme ^ for the abolition of restrictions on freedom
     of establishment , adopted by the Council on 18 December 1961 pursuant
   . to Article 54(l ) of "the Treaty establishing the ESC , stipulates in
     Title IV that the following measures of coordination and liberalization
     must be introduced in the insurance sector in the order given below :
     A. In respect of direct insurance undertakings other than life assurance
         undertalcings :
         1 - Coordination of .the conditions for the taking up and pursuit
             thereof ;
         2 - Removal of restrictions on the establishment of agencies and
             branches .
     B. In respect of direct life assurance undertakings :
         3 - Coordination of the conditions for the taking up and pursuit
             thereof ;                                                5
        •4 - Removal of restrictions on the establishment of agencies and
             branches .
The Council put the first part of this programme into effect by adopting
                                      2
on 24 July 1973 the two directives on, respectively, the coordination of
laws and the abolition of restrictions in the field of indemnity insurance .
The purpose of this directive is to initiate the same process as regards
the coordination of laws in the life assurance field. 15113 explains the
many similarities between the two texts .
–             –                                               ■          ./.
  OJ ETo 2 , 15 January 1962 , p. 36/62 .
20J Bo 223, 16 August 1973, P. 3 and p. 20 .
 ---pagebreak---                                      - 2 -
2 . The legal "basis is the same , namely Article 57(2) of the EEC Treaty,
    which lays down that the European Parliament must be consulted in
    connection with a directive of this nature , while consultation of the
    Economic and Social Committee is optional . Both these institutions
    were consulted concerning the coordinating directive , on indemnity
             1                                                           •   I
    insurance ,                                                 .
3 . The aim is the same , namely to achieve an initial coordination of the
    provisions governing the various classes of direct insurance , in this
    case life assurance , in order to make possible the removal of restrictions
    on the freedom of establishment of life assurance undertakings . A second
    draft directive is being submitted to the Council on this subject .
4. The objective of coordination is the same , namely to establish a common
    market in insurance , this time in life assurance . Any insurance under­
    taking having its head office within the Community may set up an agency
    or a branch in any other State of the Community under conditions of
    admission which are identical in the nine States . Moreover , identical
    conditions for the exercise of this business are also provided for both
    in respect of head offices and in respect of agencies and branches .
    Many rules identical to those for indemnity insurance have been laid
    down. Control of a mainly financial nature is exercised by the super­
    visory authority of the country where the head office is situated, with
    the assistance of the supervisory authority of the country or countries
    where the agencies and branches are situated. All insurance undertakings ,
    apart from several clearly defined exceptions , are subject to this super­
    vision, which extends to the undertaking 's entire business . ,
5 . This directive differs from the corresponding directive   on indemnity
    insurance in two main respects . Firstly, it settles the  problem, which
    was left open by the preceding directive , of whether an  undertaking may
    handle both life assurance and indemnity insurance and,    secondly, it
         ;                         ■   - - ■ .   .          - ..      .    ./.
     Opinion of European Parliament delivered on 13 March 1968 and published
     in OJ No C 2? of 28 March 1968 and Opinion of the Economic and Social
     Committee delivered on 28 April 1967 and published in OJ No 158 of
     18 July 1967 .
 ---pagebreak---                                   - 3 -
   introduces different rules for calculation and constitution of the
   financial guarantees required of undertakings from those laid down
   in respect of indemnity insurance . This is because of the techniques
   peculiar to each type of insurance .
This e:q?laiiatory memorandum deals only with those aspects which are specific
to life assurance and in particular with these two important questions .
 ---pagebreak---                                      - 4 -
                      II . Titles and Articles of the Directive
TITUI I      : General provis^.ons
Art . 1    :   Scope of the directive
Art . 2    :   Classes of insurance and operations not covered
Art . 3    s   Mutual associations not covered
Art . 4    J   Body not covered
Art . 5    !   Definitions
TITLE II   :   Rules applicable to undertakings whose head offices are
               situated within the Community
Section A :    Conditions of admission
Art , 6    :   Officiai authorization
Art . 7    '   Scope of authorization
Art . 8    :   Conditions of authorization in the country where the head
               office is situated
Art . 9    5   Scheme of operations in the country where the head office
               is situated
Art . 10  :    Conditions of authorization in other countries
Art ., 11 :    Scheme of operations in other countries
Art . 12  :    Principles of specialisation and separate management
Art . 13  i    Rules on separate managnnent
Art . 14  :    Refusal of authorization and right to apply to the courts
Section B :    Conditions for exercise of business
Art . 15  s    Principle of supervision-
Art . 16  :    Supervision of entire business by the supervisory authority
               of the country vrhere the head office is situated
Art . 17  :    Technical reserves
Art . 13  :    Principle aJid constituents of the solvency margin
Art , 19  :    Size of the solvency margin
Art . 20  :    Guarantee fund
Art . 21  :    Free disposal of assets
Art . 22  :    Reinsurance
Art . 23  :    Accounts
Art . 24  :    Measures to restore financial position
Art . 25  :    Assignuch-tr -of portfolio                                ,
                                                                       •/.
 ---pagebreak---                                  - 5 -
Section C : Withdrawal of authorization
Art . 26  : Conditions and procedure
TITLE III : Rules applicable to agencies or branches established within
            the Community and belonging to undertakings whose head offices
            are outside the Community
Art . 27  : Conditions of authorisation
Art , 23  : Technical reserves
Art . 29  : Solvency margin and guarantee fund
Art , 30  : Special rules in the case of business carried on in several
            Member States
Art . 31  : Analogy with certain rules in Title II
Art . 32  : Agreements vrith third countries
TITLE IV  : Transitional and other provisions
Art . 33  * In respect of Community undertakings
Art , 34  ! In respect of non-Community -undertakings
Art . 35  ' In the framework of agreements with third countries
TÏTLE v   Î Final provisions
Art . 3o  : Cooperation between the Commission and national authorities
Art . 37  : Review clause
Art . 38  : Timetable for implementing the directive
Art . 39  : Communication of changes in national legislation
Art . 40  : Classification of risks according to classes of insurance
Art . 41  : Addressees
AMI3X     s Classification of risks according to classes of insurance
 ---pagebreak---                                   - 6 -
                III . Uotes on the Titles and principal articles
Title I - General provisions (Artide 1 to 5)
Article 1 . Scope of the directive
The national supervisor;1- legislation at present existing in Member States
varies considerably in scope . Although life assurance is subject to
supervision in all Member States, the classes of insurance which are
subject to supervision differ and are defined differently, in different
countries .
Article 1 defines in precise terms the field of application of the
directive in order , firstly, to  guarantee equal protection for all
policyholders and beneficiaries   whichever country they are in and,
secondly, to avoid a distortion   of competition in favour of bodies "hich
might evade the requirements of   the directive while engaging in operations
similar to those it covers .
Article 2 , Classes of insurance and operations not covered
Social security insurance is excluded from the field of application of
the directive because it is usually subject to public law and involves
a different financial technique from life assurance .
Title II - Rules applicable to undertakings whose head offices are
            situated within the Community (articles 6 to 26)
Section A : Conditions of admission
The provisions in this section lay down that the talcing up of the business
of life assurance is subject to an official authorization similar to that
provided for in the coordinating directive on indemnity insurance , They
lay down the conditions for this authorization, organize the supervision
exercised by the administrative authorities over authorized undertakings
and regulate the withdrawal of authorization.
                                                                        /
 ---pagebreak---                                    - 7 -
Articles 12 and 13 . Specialization and separate management
Germany, i^rance , Ireland and the Netherlands apply the specialization
system . Under this system, undertakings dealing in life assurance are
forbj dden to handle indemnity insurance . These two classes of business
may only he carried on by separate legal persons . Danish law and Italian
regulations encourage undertakings to adopt this system, but do not
expressly require ercisting undertakings handling more than one class of
business to split up .
The United Kingdom, Eelgium and Luxemburg do not have this system and
undertakings are free either to specialize or to deal in more than one
class of insurance . In the latter case , however, they are subject to
rules on accounting and management which are designed to safeguard the
rights of life policyholders .
The solution adopted in this directive nay be summarized as follows :
1 . Undertakings set up after the entry into force of the directive will
    be required to specialize . Specialization is considered to offer the
    best protection to life policyholders by ensuring that the assets of
    the life assurer and those of the indemnity insurer are legally separate
    and thus preventing life policyholders from suffering as a result of
    losses in indemnity business .
2 . Existing undertakings which deal in more than one kind of insurance
    vxill be able to continue to do so , on condition that they adopt strict
    rules on separate management and accounting. Provision is made , in
    particular , for the assets of the insurer to be divided into a " life"
    portion and an " indemnity" portion, in order to provide life policy­
    holders with guarantees which, if not identical , are at least as
    nearly as equivalent as possible to those enjoyed under the specialization
    system .
 ---pagebreak---                                    - 3 -
By adopting this solution , the Commission shows its preference for the
 specialization system , while proving its concern not to upset the
 status quo .
Moreover , the solution proposed is in line with the resolution
 ( Doc . I325/61/E3 23 of 26 October 196l ) issued by the Council of Ministers
when the general prograi^imes for the abolition of restrictions on freedom
of establishment and freedom to provide services were adopted . The Council
called upon the Commission to find a solution to the problem of the
difference between the systems in force by encouraging undertakings
handling more than one class of business to keep apart as far as possible
everything relating to life assurance on the one hand and to indemnity
insurance on the other by establishing a separate account comprising,
generally speaking, all the assets relating to life assurance transactions .
Section E : Conditions for exercise of business
Article 18 . Principle and constituents of the solvency margin
The pi^c visions concerning the solvency margin are the most important in
the directive . On them is based the whole system which the directive is
designed to introduce into the legislation of Member States . An under-
talcing must prove that it possesses , in addition to technical reserves ,
a supplementary reserve called a solvency margin , which is intended to
enable the undertaking to meet its liabilities if the technical reserves
prove to be insufficient .
Although the principle is the s?jiie as in the directive on indemnity
insurance , the constituents of the solvency margin are different . They
may be either explicit or implicit .
The explicit items appear in the balance sheet and are the subject of
Article l8(l ) and ( 2 ). They comprise the undertaking 's assets, free of
all foreseeable liabilities , in particular the paid up share capital .
The implicit items are not shown in the balance sheet . They are listed
in Article 18(3 ).
                                                                         /.
 ---pagebreak--- Article 19 . Size of the solvency margi n
The liabilities contracted, by life assurance undertakings vis-a-vis
policyholders and beneficiaries are usually on a long-term basis and the
undertakings are obliged to evaluate their future liabilities by means
of extrapolation on the basis of more or less recent data . Business success
therefore depends on the assumptions made and on the ability of the under­
takings to meet the insured risks . For this reason the mathematical
reserves, which correspond to the assessment of liabilities in respect
of current contracts , must be evaluated by reference to the foreseeable
trend of the various factors which form the basis for calculating premiums
and mathematical reserves, namely, the death rate , the return on investments
and overheads .
In fixing the solvency margin it is necessary to take into accoxmt the
effect of any variations in each of these factors .
The margin must not be too large , for this would lead either directly or
indirectly to an unwarranted increase in the amount of the premiums required
of policyholders .
In the main classes of life assurance the so?.vency margin is calculated by
reference , firstly, to the mathematical reserves against investment risks
and, secondly, to the capital at risk against the risk of death and the
operating risk. This is dealt with in Article 19(a).
On the other hand, in the classes of insurance and operations dealt with
in Article 19(c ), where the main risk is an investment risk, the solvency
margin depends solely on the reserves .
In the classes of insurance and operations covered by Article 19(d) the
operating risk predominates and the margin depends solely on the capital
administered .
 ---pagebreak---                                    - 10 -
The supplementary classes covered in Article 19 vh ) employ the sane
technique as indemnity insurance and, as in the latter case , the solvercy
margin depends on the amount of the premiums , which represent the best
criterion for assessing the risk incurred by the insurer . The margin is
calculated in the same way for temporary assurance for a period not
exceeding 5 years on death (Article 19(b )).
Article 20 . Guarantee fund
The provisions of this Article meet the requirements of undertakings
to have at their disposal :
1 . at the time when they are set up , guarantees amounting to a minimum
    of 600 000 units of account , which must be constituted solely of
    explicit items ,
2 . during their operation, a minimum cf guarrmtees proportional to their
    volrjne of business . This minimum represents a third of the solvency
    margin and at least 50 f° dust be composed of explicit items .
Title III - Rules applicable to agencies or branches established within
              the Community and belonging to undertakings whose head offices
              are outside the Comratnity (Articles 27 to 32 )
Title IV - Transitional and other provisions (Articles 33 to 35)
                                                                          /.
 ---pagebreak---                                 - 11 -
Title V - Einal provisions (Articles 3 6 to 41 )
The provisions of these three Titles are almost identical with those of
the corresponding directive on indemnity insurance .
However, attention should he drawn to Article 33 ( 5) » under which under­
takings handling both life assurance and indemnity insurance have 5 years
from notification of the directive to comply with the rules on separate
managonont .
 ---pagebreak---                                      - 12 -
Tins C0UI7CIL 07 THE EUROPEAN COMMUNITIES ,
Having regard to the Treaty establishing the European Economic Community ,
and in particular Article 57(2 ) thereof,
Having regard to the General Programme (l ) for the abolition of restrictions
on freedom of establishment , and in particular Title' IV D thereof,
Having regard to the proposal from the Commission ,
Having- regard to the Opinion of the European Parliament ,
Having regard to the Opinion of the Economic and Social Committee ,
Whereas under the General Programme the removal of restrictions on the
establishment of agencies and branches is , in the case of direct life
insurance • undertakings , dependent on' the coordination of the conditions
for the taking up and pursuit thereof ; whereas such coordination ' should
be effected after that relating to direct insurance other than life assurance ,
which was the subject of a Directive ( 2 ) adopted by the Council on
24 July 1973 :
VJhereas in order to facilitate the taking up and pursuit of the business of
insurance , it is essential to eliminate certain divergences which exist
between national supervisory legislation ; whereas , in order to achieve this
objective and at the same time ensure adequate protection for insured persons
and beneficiaries in all Member States , it is desirable to coordinate , in
particular , the provisions relating to the financial guarantees required of
life assurance undertakings ;
             :                                                           ./•
 (l ) O.J. No 2, 15 January 1962, p. 36/62 .
 ( 2 ) Directive 73/239/EEC . O.J. No L 228, 16 August 1973 , p. 3 .
 ---pagebreak---                                      - 13 -
Whereas a classification of risks in the different classes of insurrme is
necessary in order to determine , in particular , the activities subject to
compulsory authorization;
Whereas it is desirable to exclude from the application of this Directive
mutual associations which, by virtue of their legal status , fulfil appropriate
conditions as to security and financial guarantees ;
Whereas the Member States have different regulations and practices as to the
simultaneous handling of life assurance and indemnity insurance ; whereas
new undertakings should not be allowed to handle these two classes of
business simultaneously but existing undertakings which are handling these
two classes of business simultaneously at . the time of entry into force of .
the Directive should be allowed to continue to do so both in the country
in which their head, office is situated and in other Member States , on
condition that each cla,ss of business is controlled by a separate mangement ;
whereas special rules are laid doxvn in this Directive as regards separate
managements so as not to place the insured persons in a less favourable
position than if they were insured with an undertaking dealing exclusively
in life assvirance ; v?hereas these rules will be incorporated and euppleraented
in a Directive on the coordination of legislation relating to the winding
up of direct insurance undertakings ;
Whereas life assurance is subject in each Member State to official authorization
and supervision , but it is necessary to define the conditions for the granting
or withdrawal of such authorization ; whereas provision must be made for a
right to apply to the courts should an. authorization be refused or withdrawn ;
Whereas , as regards technical reserves , the same rules may be adopted as in
the case of indemnity insurance , namely, they must be located in the country
where business is carried on and the rules of that country shall govern the
method of calculation, the determination of investment categories and the
valuation of assets ; xfhereas , although it is desirable that these various
subjects sould be coordinated, it is not essential for the purposes of this
Directive and may carried out subsequently ;
                                                                          ./•
 ---pagebreak---                                   - 14 -
tHicreas it is necessary that insurance undertakings should possess , over
and above technical reserves of sufficient amount to meet their under­
writing commitments , a supplementary reserve , to he known as the solvency
margin , and represented "by free assets and -by other firm securities , in
order to provide against bvisiness fluctuations ; whereas , in order to
ensure that the requirements imposed for such purposes are determined
according to objective criteria by which undertakings of the same size :
will be placed on an equal footing as regards competition, it is desirable
to provide that such margin shall be related to the overall volume of
business of the undertaking and to the nature and gravity of the risks
presented bu the various activities falling within the scope of the
Directive ; whereas this margin should vary according to whether the risks
concern investments , death or management only ; whereas it should be
determined either in terms of mathematical reserves and of the capital
which an undertaking has at risk, or of premiums or contributions received,
or in terms of reserves only, or of capital managed by the undertaking;
Whereas it is desirable to require a minimum guarantee fund, in order to
ensure both that undertakings possess adequate resources when they are
set up and that in the subsequent course of business the solvency margin
shall in no event fall below a minimum of security ;
IJhereas it is necessary to make provision for the case where the financial
condition - of the undertaking becomes such that is difficult for it to meet
its underwriting commitments ;
Whereas the coordinated rules concerning the taking-up and pursuit of the
business of direct insurance within the Community should, in principle ,
apply to all undertakings entering the market and, consequently , also to
agencies and branches where the head office of the undertaking is situated
outside the Community ; whereas it is , nevertheless , desirable as regards
the methods of supervision to make special provision with respect to such
 ---pagebreak--- agencies or branches , in view of the fact that the assets of the under­
takings to which they "belong are situated outside the Conmunity ;
Whereas it is desirable to provide for the conclusion of reciprocal
agreements with one or more non-member countries in order to pemit the
relaxation of such - special conditions , whilo observing the principle that
such agencies and branches should not obtain more favourable treatment . than
undertakings within the Community ?
Whereas certain transitional provisions axe required in order , in particular ,
to permit sms.ll and medium-sized undertakings alreacty in existence to adapt
themselves to the requirements which , subject to Article 53 of the Treaty,
are to be introduced by the Member States in pursuance of this Directiva ;
Whereas it is important to guarantee the uniform application of the
coordinated rules and to provide , in this respect , for close collaboration
betwsren the Commission and the Member States in this field :
HAS ADOPTED THIS DIRECTIVE :
 ---pagebreak---                                           - 16 -
    T"t?.e I : General Provisions
                                        Article 1
          This Directive concerns the taking-up of the self-employed activity
    of direct insurance carried on by insurance undertaking established in a
    Member State or which wish to become established there , and the pursuit
    thereof in the form of the activities defined below .
1 . The falloiring kinds of insurance where they are on a contractual basis :
    ( a) Life assurance , that is to say, the branch of insurance which comprises ,
         in particular , assurance on survival to a stipulated age en: .7 , assurance
         on death only, assurance on survival to a stipulated age cr an earlier
         death, life assurance with return of premiums , marriage arsuronce , and
         birth assurance ;                                  .     i
    (b ) Annuities ?
    (c ) Supplementary insurance carried on by life-assurance undertakings, that
         is to say, in particular , insurance against personal injury, including
         incapacity for employment , insurance against death resulting from an
         accident , and insurance against disability resulting from an accident
         or sickness , where these various kinds of insurance are underwritten
         in addition to life assurance ;
    ( d) The type of insurance existing in Ireland and the United Kingdom known ;
         as "permanent health insurance not , subject to cancellation".
2 . The follo~.ri.ng operations , where they are on a contractual basis , are subject
    to supervision by the competent admini strati ve authorities , for the super­
    vision of private insurance and are authorised in the country concerned :
    (a) Tontines, that is to say, operations based on actual mortality whereby
         the whole of the fund accumulated or an annuity is distributed among the
         survivors or paid to the last survivor of a group of persons ;
 ---pagebreak---                                                - 17 -
        (b ) Capital redemption operations , that is to say, operations based on
                actuarial calculation whereby, in return for single or periodic
                payments agreed in advance , commitments of specified duration and
                amount are undertaken ; included in these operations are " pr<?ts hypo-
                thecates par intervention".
        (c ) Management of group pension funds , that is to say, operations the
                purpose of which is the making of payment on survival which are not
                at all times wholly covered by mathematical reserves , and operations
                which consist in assurance undertakings' managing the investments and
                capitalising the reserves of the bodies tliat effect the payments
              . aforesaid .
  3 . Where the national law of a Member State so allows , operations relating to
        human life which are prescribed by or provided for in that State' 3 social -
        insurance legislation, when these are effected by assurance undertakings ,
        except where they concern compulsory insurance cover .
                                               Article 2
                 This Directive does not apply to :
' 1». Subject to - the. application of Article 1 (l)(c ) of this Directive , the
   ■- - classes designated in the Annex to the first Directive for coordinating
 • Λ
        the lairs , regulations and administrative provisions concerning the taking
        up and pursuit of activities in direct insurance othor than life assurance ,
        adopted by the Council on 24 July 1973 » hereinafter referred to as " tho
        first coordinating directive (indemnity insurance )", (l )
2 . The operations of provident and mutual -benefit institutions which provide
        benefits varying with the resources available and require their members
        to contribute at a flat rate .
                                          '                                       •/-
         ( l ) O.J. of the European Communities No L 223, 16 August 1973 . p. 3 .
 ---pagebreak---                                        - 1& -
3 . Subject to -further coordination, operations , other than those referred to
    in paragraph 4 below , for the purpose of providing benefits in respect of
    paid employees or self-employed persons belonging to an undertaking or
    group of undertakings , or a trade or group of trades , in the event of
    death or of discontinuance or curtailment of activity .
4 . Operations relating to conplusory cover under a membership scheme whether
    compulsory (including benefits provided in respect of optional or voluntary
    membership of such scheme ) or optional according to the provisions of the
    law on social insurance , other than the operations referred to in Article l(3 ).
                                      Article 3 .
          Tiiis Directive does not apply to :
1 . Institutions which undertake to provide benefits in the. event of death
    only , where the amount of such benefits is less than 300 u.a .
2 . Mutual associations , where
    - their statutes permit them to call up additional contributions , or to
      reduce their benefits or to claim assistance from other persons who have
      undertaken to provide it ; and
    - tho annual amount of the subscription collected in respect of activities
      covered by this Directive does not exceed 500.000 units of account .
                                                                             r
 ---pagebreak---                                     - 19 -
                                   Article 4
       This Directive shall not apply to the "Versor^ungsverband deutscher
Wirtschaftsorganisationen" unless their statutes are amended as regards
capacity .     !
                                   Article 5
      ,For the purposes of this Directive }
(a) " Unit of account " means that unit which is defined in Article 4 of the
     Statute of the European Investment Bank ;
(b ) "Matching assets " means the representation of underwriting liabilities
     expressed in a particular currency by assets expressed or realizable
     in the same currency ;
(c ) "Localization of assets" means the existence of assets , whether movable
     of immovable,, within a Member State but shall not be construed as
     involving a requirement that movable propert^r be deposited or th?.t
     immovable property be subjected to restrictive measures such as the
     registration of mortgages . Assets represented by claims against debtors
     shall be regarded a.s situated in the Member State where they are to be
     liquidated .
( d) " Capital at risk" means the amount payable on death loss the mathematical
     reserve defined in the main contract ..
 ---pagebreak---                                            - 20 -
    Title II : Rules applicable to undertakings vhose head offices are situated
                  within the Community
    Secti on A : Conditions of admission
                                          Article 6
1 . Each Member State shall make the taking-up of the activities referred to
    in this Directive in its territory subject to official authorization .
2 . Such authorization shall be sought from the competent authority of the
    Member State in question by :
    ( a) Any undertaking which establishes its head office in the territory
         of such state ;
    (b) Any undertaking whose head office is situated in another Member State
         and which opens a branch or agency in the territory of the Member State
         in question ;                                     . 7
    (c ) Any undertaking which, having received the authorization required under
          (a ) or (b ) above , extends its business in the territory of such State
         to other classes ;
    (d) Any undertaking which, having obtained in accordance with Article 7 ( l )
         an authorization for a part of the national territory , extends its
         business beyond such part .
3 . Member States shall not make an authorization subject to the , lodging of a
    deposit or the provision of security .
                                          Article 7
1 . An authorization shall be valid for the entire national territory unless ,
    and in so far as the national legislation permits , the applicant seeks
    pernission to carry out his business only in a part of the national territory .
 ---pagebreak--- An authori nation shall be given for a particular class of insurance .
It shall cover the entire class , unless the applicant desires to cover
only part of the risks pertaining to such class .
It shall be open to each Member State to authorize two or more of the
classes listed in the Annex, where the national law permits such classes
to be dea.lt in simultaneously .
                                     Article 8
Each Member State shall require that any undertaking set up in its
territory for which an authorization is sought shall :
(a) Adopt one of, the following forms :
    - in the case of the Kingdom of Belgium :
       " société aJionyiiie/iiaamioze vennootschap ", " scciêté en commandite par
      actions/vennootschap bij wijze van geldschieting op aandelen",
       "association d'assurance mutuelle/onderlinge verzekeringsmaatschapp
      " société coopérative/cooperative vennootschap";
    - in the case of Denmark :
       "Aktieselskaber" Qoint stock companies ), " gensidige selskaber"
       (mutuals );
    - in the case of the Federal Republic ox Germany :
      "AJrtiengesellschait ", " Versicherungsverein auf Gegenseitigkeit ",
      " Öffentlich-rechtliches Wettbewerbs-Versicherungsunternehmen";
    - m the case of the French Republic :
      for classes I , II , III , V and VI of the Annex, " société anonyme ",
      " société à forme mutuelle à cotisations fixes ", and for class IV
      of the Annex, " société à forme tontinière ";
    - in the case of Ireland :
      " incorporated companies limited by shares or by guarantee or
        unlimited":
 ---pagebreak---                                          - 22 -
          - in the case of the Italian Republic :
            " societa per azioni ", " societa cooperativa", "mutua di assicurazione";
              and public-law institutions within the meaning of Article 1883 of
              the Civil Code ;
         - 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 ",
            " coöperatieve vereniging";
         - 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 ", Lloyd 's underwriters .
         Furthermore , Member States may set up , where appropriate , undertakings
         in any form available under public law provided that such institutions
         have as their object insurance operations in conditions equivalent to
         those undertakings under private lav;;
    (b) Limit its business activities to the activities referred to in this
         Directive and operations directly arising therefrom to the exclusion
         of all other commercial business ;
    (c ) Submit a scheme of operations in accordance with the provisions of
         Article 9°
    (d) Possess the minimum guarantee fund provided for in Article 20 (2).
2 . An undertaking seeking an authorization .to ertend its business to other
    classes or, in the case referred to in Article 6(2) (d), to another part
    of the territory, shall be required to submit a scheme of operations in
    accordance with the provisions of Article 9 as regards such other classes
    or other part of the territory.
 ---pagebreak---  It shall , furthermore , be required to snow 'proof that it possesses the
 solvency margin provided for in Article 19 and the minimum guarantee
 fund referred to in Article 20(2)(a)i
These coordinating measures do not prevent Member States from applying
provisions requiring directors and managers to have technical quali­
 fications or from requiring the approval of the Memorandum or articles
of association, general and special policy conditions , technical bases
for calculating in particular premiums end mathematical reserves and
any other documents necessary for the normal exercise of supervision .
The abovementioned provisions may not require that any application for an
authorization shall be dealt with in the light of the economic requirements
of the market .
                                  Article 9
     The scheme of operations referred to in Article 8 (l)(c ) shall contain
the following particulars or proof concerning :
 ( a) The nature of the risks which the undertaking proposes tc cover ; the
      general and special policy conditions which it proposes to use ;
 (b ) The technical bases that the undertaking proposes to employ for each
      type of transaction, including the data needed to calculate premiums
      and mathematical reserves ;
 (c ) The guiding principles as tc reinsurance ;
( d) The items constituting the minimum guarantee fund;
( e ) Estimates relating to the expenses of installing the administrative
      services and the organization, for securing business ; . the financial •
      resources intended to cover them :
(f) Forecast annual balance -sheets up to the point where the results of
      each year 's operations cease to show a deficit ;
      and, furthermore , for the first four, financial years :
 ---pagebreak--- ( g) The estimated, annual, debit and credit items in the profit and loss
     account , net of transfers   and retrocessions for reinsurance "but
     including acceptances for reinsurance and allowing for annual
     variations in the intangible asset it ens ;
(h) the estimated funds to cover commitments and the solvency margin.
                                  Artr.de 10
Each Member State shall require that an undertalcing having its head office
in the territory of another Member State and seeking an authorization to
open an agency or branch shall ;
(a) Submit its memorandum and articles of association and a list of its
     directors and managers ;
(b ) Produce a certificate issued by the competent authorities of the head
     office country , attesting the classes of insurance which the under-
     talcing is entitled to carry on and that it' possesses the minimum
     guarantee fund or , if higher , the minimua . solvency margin calculated
     in accordance with Article 19 , and stating the nature of the risks
     which it actually covers and the financial resources referred to in
     Article 11 (l ) ( 9 );
(c ) Submit a scheme of operations in accordance with Article 11 ;
( d) Designate an authorized agent having lis permanent residence and abode
     in the host country , and possessing sufficient powers to bind the
     undertaking in relation to third parties and to represent it in.::
     relations with the authorities and. courts of the host country ; if
     the agent has a legal personality, it must have its head office in       -
     the host country and it must in its turn designate an individual to
     represent it who complies with the above conditions . The designated
     agent shall not be refused by the Member State except on grounds
     relating to repute or technical qualifications such as apply to
     directors of undertakings whose head offices are situated in the
     territory of the State in question.
 ---pagebreak---                                           - 25 -
           With regard to Lloyd 's , in the event of any litigation in the host
            country resulting from underwritten commitments , assured persons
           must not be more unfavourably treated than if the litigation had
           been brought against businesses of a more conventional type . The
            authorized agent iaust , therefore , possess sufficient powers to enable
           proceedings to be instituted' against him and must in that capacity
           be able to bind the Lloyd 's underwrit ers concerned,
2 . Each Member State shall require that for the purpose of extending the
    business of the agency or branch , either to other classes or to other
    parts of the national territory in the case provided for in Article 6
    ( 2 ) ( d) , the applicant for the authorization shall submit a scheme of
    operations in accordance with Article 11 and comply with the conditions
    contained in ( l)(b ) above .
3 . These coordinating measures do not prevent Member States from enforcing
    provisions requiring, for all insurance undertakings , approval of the
    general and special policy conditions , technical bases for calculating
    premiums and mathematical reserves in particular , and by other documents
    necessary for the normal exercise of supervision .
4 . The abovementioned provisions may not require that any application for an
    authorization shall be examined in the light of the economic requirements
    of the market .
                                          Article 11
1 . The scheme of operations of the agency or branch referred to in Article 10(l)(c
    and in 10(2 ) shall contain the following particulars or proofs concerning :
    (a) The nature of the commitments which the undertaking proposes to
            undertake in the host country; the general and special policy conditions
            which it proposes to use ;
     (b ) The technical bases which the undertalcing proposes to employ for each
            type of transaction including the data needed to calculate premiums
            and mathematical reserves ;
                                                                               •/.
 ---pagebreak---         (c ) The guiding principles as to reinsurance ;
        (d ) The state of the solvency margin of the -undertaking, referred
             to in Articles 18 to 20 ;
        (e ) Estimates relating to the expenses of installing the administrative
             services and the organisation for securing business and the
             financial resources intended to cover them;
        ( f) The annual forecast balance sheet until the results of each
             years' operations cease to show a deficit ;
        (g) and, furthermore , for the first four financial years , the estimated
             annual debit and credit items in the proft and loss acoount , net
             of transfers and retrocessions for reinsurance but including
             acceptances for reinsurance and' allowing for annual variations
             in the intangible asset items .
   The scheme of operations shall be . accompanied by the balance sheet and
• profit and loss accoitnt of the undertaking for each of the past three
   financial years . If, however , it has not yet been in business for three
   financial years it shall be required to furnish them only for the financial
   years completed .
   With regard, to Lloyd 's , the publication of the balance sheet and the
   profit and loss account shall be replaced by the compulsory presentation
   of annual trading accounts covering the insurance operations , and
 • accompanied by an: affidavit ' certifying that auditors' certificates have
   been supplied in respect of each insurer and showing that the responsibi­
   lities incurred as a result of these operations are wholly covered by the
   assets . These documents must allow authorities to form a view of the state
   of solvency of the Association .
   The scheme of operations , together with the observations of the authorities
   competent to issue authorizations , shall be forxvarded to the competent
   authorities of the head office country . The latter authorities shall
   communicate their Opinion to the former within three months from the receipt
   of the documents ; if their Opinion h~s not been communicated upon the
   expirj1- of this time , it shall be deemed to be favourable .
 ---pagebreak---                                            - 27 -
                                          Article 12
1 . An undertaking which sets up in a Member State may not carry on simul­
      taneously the activities referred to in the Annex to the first directive
      on the coordination of indemnity insurance and the activities listed in
      the Annex to this Directive .                                     1
2 . Any undertaking which, at the time of the entry into force of this
      Directive , is handling both life assurance and indemnity insurance must ,
      where those activities are being carried out within the Community, provide
      separate management for each class of insurance in accordance with
      Article 13 .
3 . Such an undertaking may extend its activities , within the meaning of
      Article 10 , while handling . both classes of insurance , on condition that
      it complies with Article 13 .
                                          Article 13
          . \ .                                   ' 1                         1
1 , The. separate management referred to in Article 12(2 ) must be organized
      so that :                                 ,
      - the simultaneous handling of life assurance and indemnity . insurance
     . ..does not . prejudice , the, interests of the life policyholders ;
   •     profit on the life assurance side accrue to the benefit of the life
         policyholders to the extent provided for in the memorandum and articles
         of association, the general and special policy conditions and the scheme
         of operations .                                .    ..             , . .
2 . Separate accounts shall be kept in respect of life assurance and other
      insurance business , and, particularly, separate balance sheets and separate
      profit and loss accounts so that the cover for the undertaking 's commitments
      to its life policyholders is readily distinguishable .
 ---pagebreak---                                          - 28 -
     Profits , commission for intermediaries and expenditure incurred by the
     undertaking shall be broken down according to the class of business to
     which they are attributable and items common to both classes of business
     shall be entered in accordance with, rules for apportionment to be approved
    by the competent supervisory authority .
3 . (a) The assets of the undertaking shall be divided into two portions , the
          life portion and the indemnity portion, each comprising the assets
          representing the respective technical reserves , solvency margin and
          guarantee fund.
     (b ) Tlie assets representing the life portion shall be entered daily in a
          register which shall be subject to supervision by the competent
          authorities . These assets may be replaced by others of equal value .
          Each transfer of assets from the- life portion to the indemnity portion
          must be approved a posteriori by the supervisory authority .
     (c ) In the event of execution being levied at the suit of one or more
          individual creditors to enforce claims arising out of life assurance
          business , the assets representing the life portion shall be applied
          exclusively in satisfaction of those creditors , and in the event of
          a-. winding-up these assets shall be applied in priority to all other
          claims in satisfaction of all creditors whose claims arise out of life
          assurance business .
                                       Article 1A
         Any decision to refuse an authorization shall be accompanied by the
    precise grounds for doing so and notified to the undertaking in question.
         Each Member State shall make provision for a right to apply to the courts
    should there be any refusal .
         Such provision shall also be made with regard to cases where the competent
    authorities have not dealt with an application for an authorization upon the
    expiry of a period of six months from the date of its receipt .
                                                                               /.
 ---pagebreak---                                       - 29 -
Section B : Conditions for exercise of "business
                                    Articl3 15
    Member States shall collaborate closely with one another in supervising
the financial position of authorized undertakings .
                                    Article 1 6
    The supervisory authority of the Member State in whose territory the head
office of the undertaking is situated must verify the state of solvency of
the undertaking with respect to its entire business . The supervisory
authorities of the other Member States shall provid.e the former with all the
information necessary to enable such verification to be effected.
                                    Article 17
1 . Each Member State in whose territory business is carried on shall require
    the undertaking to establish sufficent technical reserves , including
    mathematical reserves .
    The amourlt of such reserves shall be determined according to the rules
    fixed by the State , or , in the absenco of such rules , according to the
    established practices in such State .                           .
2 . Technical reserves , including mathematical reserves , shall be required
    to be covered by equivalent and matching assets localised in each country
    where business is carried on.    Member States may, however , permit
    relaxations in the rules as to matching assets and the localization of
    assets .
    Having regard to its special position, the Grand Duchy of Luxemburg may,
    pending coordination of legislation on the winding-up of undertakings ,
    retain the system of guarantees for technical reserves including mathe­
    matical reserves existing at the time of entry into forte of this
    Directive .
 ---pagebreak---                                       - 30 -
     The regulations of the country where the business is carried on shall
    determine the nature of such r.ssets and, where appropriate , the extent to
    which they may be used for the purpose of covering the technical reserves ,
    including mathematical reserves , and shall also determine the rules for
    valuing cuch assets .
3 . If a Member State allows any technical reserves , including mathematical
    reserves , to be covered by claims against reinsurers , it shall fix the
    percentage so allowed.-   In such case , it may not' require the assets rep­
    resenting such claims to be localized in its territory, notwithstanding
    the provisions of paragraph 2 .
4« The supervisory authority of the Member State in whose territory the head
    office of an undertaking is situated shall verify that its balance sheet
    shows in respect of the technical reserves , including mathematical reserves ,
    assets equivalent to th'i underwriting liabilities assumed in all the
    countries where it undertakes business ,
                                    Article 18
    Each liember State shall require every undertaking whose head office is
situated in its territory to establish an adequate solvency margin in respect
of its entire business .
    The solvency margin shall correspond :
1 . to the assets of the undert aking, free of all foreseeable liabilities , less
    any intangible items .   In particular the following shall be considered :
    - the paid up share capital or , in the case of a mutual concern , the
       effective initial fund ,
    - one half of the share capital or the initial fund which is not yet paid
       up , once the paid up part reaches 25$ of this capital or fund,
    - reserves , statutory reserves and free reserves , not corresponding to
       underwriting liabilities ,
    - any carry-forward of profits ;
2 . to profit reserves appearing in the balance sheet insofar as these reserves
    may be used to cover any losses which may arise ;
                                                                        • ••/•••
 ---pagebreak--- upon application, with appropriate supporting evidence by the unclert aking:
a) where the mathematical reserves are calculated on the basis of margins
     which, allovdng for future prospects , are higher than those considered
     neoessary, to an amount equal to the difference between the mathematical
     reserves calculated on the higher bs.sis and on the bafcis of margins
     considered to be necessary ; the latter shall be uniformly fixed by
     the supervisory authority for all undertakings carrying on business in
     its territory ; it shall communicate them to the supervisory authorities
     of other Member States ;
b ) to an amount equal to 5&?° of the current value of future profits of the
   . undertaking ; the current value of future' profits is obtained by multi­
     plying the estimated annual profit by a factor which represents the
     average residual duration of the contract d and takes account of their
     importance 5 the estimated annual profit is the average of the profits
     for the last five years ;
c ) where Zillmerizing is not practised or whore Zillmerizing falls to
     reach the cost of writing policies- included in the premium , to the
     difference between the mathematical reserve where Zillmerising is
     either not practised or only partially practised and a mathematical
     reserve Zillmerized at a rate equal to the cost of writing policies
     included in the premium ; however , this difference may not exceed
     3.5$ where Zillmerization is not practised, or 3«5$ less the rate of
     Zillmerization used , where there is partial Zillmerization, of capital
     at risk and it shall be reduced, should the occasion arise , by the
     amount of the undepreciated costs of writing policies appearing in the
     balance sheet ;
d ) to any hidden appreciation resulting from under-valuatioh of asset
     items and over-valuation of liability items other than mathematical
     reserves insofar as such appreciation is not exceptional in character .
 ---pagebreak---                                  Article 19
Subject to the provisions of Article 20 the solvency margin shall be deter­
mined. as shown below according to the class of insurance practised.
a) for insurance in Class I of the Annex to this Directive, other than that
    referred to in subparagraphs b ) and c ) below, it shall be equal to the
    sum of the following two results :
    - first result :
      t$o of the matheistical reserves relating tot direct business and
      reinsurance .acceptances ;
    - second resuit :
      the figure representing y'o of the capital at risk for whi ch the under-
      talcing is responsible multiplied by the ratio existing in respect of
      the last financial yerr between the amount of capital at risk for which
      the undertaking remains responsible a,fter transfers and retrocessions for
      reinsurance and the amount of capital at risk without deducting reinsuranc
      this ratio may in no case be less them 50/&»
b ) For assurance on death, which is temporary or for a period not exceeding
    five years, referred to in Class I of the Annexe to this ^Directive and
    for supplementary insurance referred to in Class III , it shall be equal
    to the result of the following calculation :
    - the premiums or contributions ( inclusive of charges ancillary to premiums
      or contributions ) due in respect of all direct business in the last fin­
      ancial year for all financial years , shall be aggregated,
    - to this aggregate there shall be added the amount of premiums accepted
      for all reinsurance in the last financial year,
    - from this sum there shall then be deducted the total amount of premiums
      or contributions cancelled in the last financial year , as well as the
      total amount of taxes and levies pertaining to the premiums or contri­
      butions entering into the aggregate .
 ---pagebreak---           The amount so obtained shall be divided into two portions , the first
         portion extending up to 10 millioo units of account , the second comprising
          the excess j 18$ and 1 6fo of these portions respectively shall be calculated
          and added together .
         The sum so calculated shall be multiplied by the ratio existing in respect
         of the last financial year between the amount of claims remaining to be
         borne by the undertaking after deduction of transfers and retrocessions
         for reinsurance and the gross anount of claims ; this ratio may in no case
         be less than 50
    o ) For permanent health insurance not subject to cancellation existing in the
         United Kingdom and Ireland , referred to in Class I of the Annex to this
         Directive , and for capital redemption operations in Class V, it shall be
         equal to 4-f° of the mathematical reserves relating to this type of insurance
         or operation.
    d ) For insurance connected with investment funds referred to in Class II ,
         tontines referred to in Class IV and group pension funds referred to in
         Class VI , it shall be equal to 1jo of the capital managed.
                                          Article 20
1 . One third of the solvency margin shall constitute the guarantee fund . •. It shall
    consist , to the extent of at least 5C$ j - of items lifted in Article 18 ( l ) and
    ( 2 ).                                  .
2 . a ) The guarantee fund may not , however , b3 less tha5&j600,000 units of account
         in the case where all or some of the risks are included in one of the
         classes listed in the Annex .
    b ) The minimum guarantee fund referred to in a ) should consist of the items
         listed in Article 18 ( l ) and ( 2 ).
 ---pagebreak---                                     - 34 -
                                  Article 21
1 . Member States shall not prescribe any rules as to the choice of the assets
    in excess of those representing the technical reserves referred to in
    Article 17 .
2.   Subject to the provisions of Jlrticle 17 ( 2 ), Article 24 ( 1 ) and ( 3 ) and
    Article 25 ( l ) last subparagraph, Member .States shall not restrain the
    free disposal of the assets , whether movable or immovable property, forming
    part of the assets of authorized businesses .
    The Federal Republic of Germany and the Kingdom shall make all necessary
    provisions to prevent the existence of "Treuh'indor " in the former country
    and "Tillibmand " in the latter from restricting the effect of the afore­
    mentioned subparagraph .
3 . These provisions shall not preclude any measures which Member States ,
    while observing the rules prevailing in the country where the business is
    carried on, as required under Article 17 ( 2 ), and while safeguarding the
    interests of the insured , are entitled to take as owners or members or
    associates   of the undertakings in question .
                                  Article 22
1 . Member States shall gradually reduce the scope of the obligation imposed
    on undertakings    to effect partial reinsurance , in respect cf business
    covered by Article 1 , with one or more of the agencies designated by
    national rules , so as to bring about the complete disappearance of such
    obligation at the end of the transitional" period referred to in Article 33 .
                                                                          • • •jm » m
 ---pagebreak---                                      - 35 -
2 . The ratio currently in force shall "be reduced by 25% forthwith.
3 . Moreover, where , for the purpose of determining the proportion of "business
    to be compulsorily reinsured, account is taken of the period of time for
    which the agency or branch has been established in the host country,
     account shall also be taken of the financial years during which the under-
    talcing has been carrying on the classes of insurance referred to in Article 1
    in the Member State in i/hich the head office is situated . The supervisory
    authority in that State shall then issue a certificate , of the same kind;
    as that referred to in Article 10 ( 1 ) b ), in respect of the entire period
    during which the undertaking has carried on the classes of insurance
    concerned .
                                ■ Article 23
1 . Each Member State shall recfuire every undertaking whose nead office is
    sitxiated in its territory to produce an annual account, covering all types
    of operation , of its financial situation and solvency.
2 . Kember States shall require undertakings operating in their territory to
    render periodically the returns , together with statistical documents , which
    are necessary for the purposes of supervision.     The competent supervisory
    authorities shall furnish each other with the documents and information
    necessary for exercising supervision.
                                  Article 24
1 . If an undertaking does not comply with the provisions of Article 17, the
    supervisory authority of the country where it carries on its business may
    prohibit the free disposal of assets in that country after having informed
    the supervisory authorities of the country where the head office is situated
    of its intention .
                                                                       • • • /* •
 ---pagebreak---                                         - 36· -
2 . For the purposes of restoring the fin?.ncial situation of an undert iking
     whose solvency raargin has fallen below the minimum' required under Article 19 »
     the supervisory authority of the head-office country 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 head-o:?fice country r-i^all
     require the undertaking to subuit a short-term finance scheme for xts
     approval .
     It may also restrict or prohibit tha free disposal of the assets of the
     undent aking. It shall inform tlie authorities of other Member S;.rtos in
   . wlicae territories .the . undertaking is autlw.riz'xl c f a:iy asa3?:;P t^id -tho
     1 avb or shall , at the request of the former , t?ke the same measures .
4. The competent super        scry authorities may further take all n^as'ires
     n3ces-3axy to safeguard the interests of the insured in the cases provided
     for in ( 1 ) and ( 3 ).
5 . The supervisory authorities of other Member States in whoso territory the
     undertaking in qurs 5 :; on has also been authorized shall col ] aoorute for the
     purpose of implementing the provisions referred, to in ( l ) to ( 4 )>
                                      AvfcT.le 25
 '1 . "Each Member State shall make it possible for an ur/lsrt aking
     to assign all or part of its portfolio of policies if the assignees possess
     the necessary solvency margin, due account being taken of the assignment .
     The supervisory authorities concerned shall , consult each other before
     approving such assignment .
2 . Once approved by the competent national authority, such assignment may
     automatically be relied upon against the subscribers concerned.
                                                                            • « • /• a
 ---pagebreak---                                     - 3.7 -
3 . Where an undertaking is simultaneously handling life assurance and
    indemnity insuran.ee , each Member State shall ensure that , in the event
    of an assignment of all or part of its portfolio , such assignment does
    not prejudice the interests of the life policy-holders and that in
    particular the assets and liabilities be transferred separately for each
    of the classes of insurance concerned .
Section C : Withdrawal of authorization
                                  Article 26
1 . Hie authorization granted by the competent authority of the Member State
    in whose territory the head office is situated may be withdrawn by such
    authority if the undertaking :
    a ) no longer fulfils the conditions of admission •
    b ) has been unable * within the time allowed, to take the measures contained
        in the restoration plsn or finance scheme referred to in Article 24 ;
    c ) fails seriously in its obligations under the national regulations .
    In the event of the withdrawal of the authorization, the supervisory
    authority of the head-office country shall notify suoh withdrawal to
    the supervisory authorities of other Member States which have issued an
    authorization to the undertaking ; thoy shall , thereupon, also withdraw
    their authorizations .   The supervisory authority of the head-office
    country shall , in conjunction with such other authorities , take all
    necessary measures to safeguard the interests of the insured and , in
    particular , shall restrict the free disposal of the assets of the under­
    taking if such restriction has not been already imposed in accordance
    with the provisions of Article 24 ( l ) and ( 3 )> subparagraph 2 ,
 ---pagebreak---                                      - 38 -
2 . An authorization gran-tod to an agency or branch of an unlertaldng vmo'Je
     head office is situated in another Member State may "be withdraws. . if the
     agency or branch :
     a ) no.-longer fulfils the conditions for admission ;
     b ) fails seriously in its obligations under the regulations of the country
         where it carries on its business , with respect ir, particular to the
         establishment of technical reserves as defined in Article 17 •
     Before withdrawing the authorization the supervisory authorities of the
     coimtry where business is caxricd on shall consult the supervisory
     authority of the' country where the head office is situated .   If they
     deem it necessary to suspend the business of such agency or branch before
     consultation is concluded, they shall immediately advise the supervisory
     authority of the country where the head office is situa/ted.
3 . Any decision to withdraw an authorization or suspend business shall be
    'supported by precise reasons rnd notified to the undertaking in question .
     Each Eember State shall moke provision for a right to apply to the courts
     against such a decision.
 ---pagebreak---                                         - 39 -
Title III : Rules applicable to agencies or branches established within the
                 Community and belonging to undertakings whose head offices are
                 outside the Community
                                      Article 27
1 . Each Member State shall make acoess to the businesses referred to in
     Article 1 by any undertaking whose head office is outside the Community
     subject to an official authorization.
2 . A Member State may grant an authorization if the undertaking fulfils at
     least the following conditions ;
     a) It is entitled to undertake insurance business under its national lawj
     b ) It establishes an agency or branch in the territory of such Member
         State ;
     c ) It undertakes to establish at the place of management of the agency
         or branch accounts specific to the business which it undertakes there ,
         and to keep there all the records relating to the business transacted;
     d ) It designates an authorized . agent , to be approved by the competent
         authorities :
     e ) It possesses in the country where it carries on its business assets of
         an amount equal to at least one half of the minimum cmount prescribed
         in Article 20 ( 2 ), in respect of the guarantee fund , and deposits
         one-fourth of the minimum amount , as security;
     f ) It undertakes to keep a margin of solvency in accordance with the
   ,     requirements referred to in Article 29 ;
     g ) It submits a scheme of operations in accordance with the provisions
         of Article 11 ( l ) and ( 2 ).
                                                                       I 4 • /* a «
 ---pagebreak---                                   - 40 -
                                Article 28.
Member States shall require undertakings to establish adequate technical
reserves to cover the underwri ting liabilities assumed in their terri­
tories .  Member States shall see that the agency, or branch covers such
technical reserves , including mathematical reserves , by means of assets
which are equivalent to such reserves ?jid are , to the extent fixed by the
State in question , matching assets .
The law of the Member' States' shall be applicable to the calculation of
technical reserves , the determination of categories of investments , and
the valuation of assets .
The I-Iember State in question shall require that the assets representing
the technical reserves shall be localized in its territory.
                               Article 29
1 . Each Member State shall require for agencies or branches established
    in its territory a solvency margin consisting of assets free of all
    foreseeable liabilities , less any intangible items .    The solvency
    margin shall be calculated in accordance with the provisions of
    Article 19°   However , for the . purpose of calculating this margin,
    account shall be taken only of the premiums or contributions , mathe­
    matical reserves and capital at risk pertaining to the business
    effected by the agency or branch concerned.
2 . One-third of the solvency margin shall constitute the guarantee fund .
    The guarantee fund may not be less than one half of the minimum
    required under Article 20 ( 2 ) a ). The initial deposit lodged in
    accordance with Article 27 ( 2 ) e ) shall be counted towards such
    guarantee fund.'
                                                                    • • « I« a •
 ---pagebreak--- The assets representing the solvency margin must be kept within the
country whore the business is carried on up to the amount of the
guarantee fund, and the excess, within the CoMiiunity.
                          Article 30'
Any undertaking which, having obtained an authorization from one
Member State , obtains an authorization from one or more other Member
Stated to establish other agencies or branches therein may apply for
one or more of the following advantages :
a ) That tho solvency margin referred to in Articlo 29 be calculated
    in relation to the entire business which it undertakes within the
    Community ;  in such case , account shall be taken of the premiums
    or contributions, mathematical reserves and capital at risk
    relating to the business effected by all the agencies or branches
    established within the Community;
b ) Th?,t it be dispensed from lodging the deposit required under
    Article 27 ( 2 ) e ), in such States also ; ,
c ) That the assets representing the guarantee fund be kept in any
    one of the Member States in which it carries out business .
Should at least two of tho Member States in question approve the
application in whole or in part , the competent authority of the
Member State in whose territory the oldest establishment of the
applicant is situated shall verify , the state of solvency of the
undertaking with respect to . the entire business carried on by it
within the Member States which approve the application .    However ,
at the request of the undertaking and with the unanimous approval
 ---pagebreak---                                     - 42 -
    of the Member States concerned, such verification may be carried out by
    the competent authority of another Member State .   The authority carrying
    out the verification shall obtain from the other Member States th<3
    necessary information regaraing the agencies or branches established in
    their territories .
3 . Tlie advantages conferred by this Article may be withdraw! upon the
    initiative of one or more of the Member States concerned .
                                 Article 31
1 . Agencies and branches of undertakings referred to in this Title which are
    established in the territory of a Member State after the entry into force
    of this Directive in that Member State , shall limit their business either
    to life assurance or to indemnity insurance .
    However , agencies and branches which , at the time of entry into force of
    this Directive , are handling both classes of business simultaneously, may
    continue to do so but must comply with Article 13 «
2 . The provisions of Articles 23 and 24 shall also apply in relation to
    agencies and branches of undertakings to which this Title applies .
    As regards the application of Article 24, the supervisory authority of
    the oldest establishment or the one that carries out in its place the
    verification of the overall solvency of branches or agencies shall be
    assimilated to the authority of the territory in which the head office
    of a Community undertaking is situated.
                                                                      « • t /a • «
 ---pagebreak--- 3 . In the case of a withdraw?! of authorization by the authority rcforrod to
     in Article 30 ( 2 ), this authority shall notify the authorities of the other
     Member States where the undertaking operates and the latter supervisor;/
     authorities shcvll take the appropriate measures -  If the reason for th j
     withdrawal of the authorization is the inadequacy of the overall state
     of solvency as fixed "by the Member States which agreed to the request
     referred to in Article 30 , the Member States which gave their approvjJ.
     shall also withdraw their authorizations .
                                   Article 32
The Community nay, by means of agreements concluded pursuant to the Treaty
with one or more third countries , agree to the application of provisions
different to those provided for in this Title , for the purpose of ensuring,
under conditions of reciprocity, adequate protection for insured persons in
the Member States .
Title IV : Transitional eJid other provisions
                                  Article 33
1 . Member States shq.ll allow undertakings referred to in Title II which at
     the entry into force of the implementing measures to this I&rective
   , provide insurance in their territories in one or more of the classes
     referred to in Article 1 a period of five years, commencing with the
     date of notification of this JOirective , in order to comply with the
     requirements of Articles 18 to 20 .
2 . Furthermore , Member States may :
     a) allow any undertakings referred to in ( l ), which upon the expiry of
        the five-year period have not fully established the margin of solvency,
        a further period not exceeding two years in which to do so provided
      . that such undertakings have , in accordance with Article 24 , submitted
        for the approval of the supervisory authority the measures which they
        propose to take for such purpose ?
                                                                    ... fa * .
 ---pagebreak---                                           n 44 ^
      b ) e::empt undertakings referred to in ( l ) whose annual premium or cont­
            ribution income upon the expiry of the period of five years falls short
            of six times the amount of the minimum guarantee fund required under
            Article 20 ( 2 ) a ), from the requirement to establish such minimum
            guarantee fund before the end of the financial year in respect of
            which the premium or contribution income is as much as six times such
          '-minimum guarantee fund .
            The maximum period thus granted to these undertakings to establish
            a. minimum guar<?ntee fund shall in no case exceed ten years from the
            date of notification of this Directive .
3 . Undertakings desiring to extend their operations within the meaning of
      Article 8 ( 2 ) or Article 10 ( 2 ) may not do so unless they comply
      immediately with the rules of this Directive .
4 * A company having a structure different from any of those listed in
      Article 8 may continue , for a period of three years from the notification
      of this Directive , to carry on its present business in the legal form
      in which it is constituted at the time of such notification .       Undertakings
      sot up in the United Kingdom 'by Royal Charter' or 'by private Act' or
       • by special public Act' may continue to carry on their business in their
      present form for an unlimited period .
 ,    Undertakings in Belgium which , in accordance with their objects , carry
      on the business of life assurance , intervention mortgage loans or savings
    . operations in accordance with !To.4 of Article 15 of the provisions
      relating to the supervision of private savings banks , coordinated by
      the 'arrete royal 1 of 23 June 1967 > may continue to undertake such
      business , excluding savings operations which must cease no later than
      throe j'-ears from the date of notification of this Directive .
                                                                              • • * /• ■ •
 ---pagebreak---     The Member States in question shall draw up a li~.t of such undertakings
    and communicate it to the other Member States end the . Commission ,
                                              .   »
                                                •   t
5 . The insurance undertakings referred to in Article 12 ( 2 ) shall have five
    years from the date of notification of this Directive in which to comply
    with Article 13 .
6 . At the request of undertakings which fulfil the obligations contained in
    Articles 17 to 20 , Member States shall abolish restrictive measures such
    as mortgages , deposits or securities established under the current rules .
Member States shall allow agencies or branches referred to in Title n which ,
at the entry into force of the implementing measures to this Directive , are
undertaking one or more classes referred to in Article 1 and do not extend
their business within the meaning of Article 10 ( 2 ) a, maximum period of five
years , from the date of notification of this Directive , in order to comply
with the conditions of Article 29 .                   : ' •
                                Article 35
IXiring a period which terminates at the time of the entry into force of an
agreement concluded with a third country pursuant to Article 32 and at the
latest . upon the expiry of a period of four years after the notification of
this Directive , each Member State may retain in favour of undertakings of
that country established in its territory the rules applied to them on
1 January 1973 in respect of matching assets and the localization of tech­
nical reserves , provided that notification is given to the other Member
States and the Commission and, that the limits of relaxations granted
pursuant to Article 17 ( 2 ) in favour of the undertakings of Member States
established in its territory are not exceeded.
 ---pagebreak---                                    •ττ 46 τ
Title V ; ilnal provisions
                                Article 36
The Commission and the competent authorities of the Member States shall
collaborate closely for the purpose of facilitating the supervision of
direct insurance within the Community o*id of examining any difficulties
which may arics in the application of this Directive .
                                Article 37
1 . The Commission shall submit to the Council , within six years from tha
    date of notification of this Directive , a report on the effects of the
    financial requirements imposed by this Directive on the situation on the
    insurance markets of the Member States .
2 . The Commission shall , as and when necessary, submit interim reports to
    the Council before the end of the transitional period provided for in
    Article 33 ( l )-
                                Article 33
Member States shall ciaend their national provisions to comply /with this
Directive within 16 months of its notification and shall forthwith inform
the Commission thereof .
Tho provisions thus amended shall , subject to Articles 33 to 35 > he applied
within 30 months from the date of notification .
 ---pagebreak---                                Article 39
Upon notification of thic Directive , Member States shall ensure that the
texts of the main provisions of a legislative , regulatory or administrative
nature which they adopt in the field covered by this Directive are communi­
cated to the Commission .
                               Article 40
The Annex shall form an integral part of this Directive .
                               Article 41
This Directive is addressed to the Member States .
                   Done at Brussels ,
                             For the Council
                              The President
 ---pagebreak---                        A IT RR s x
        Classification ox risks according to
                classes of insurance
  I.  Life
 II . Insurance connected with investment funds
III . Supplementary insurance
 IV.  Tontines
  V.  Capital redemption operations
 VI » I-Ianagemont of group pension funds