CELEX: 51990PC0348
Language: en
Date: 1990-08-31
Title: PROPOSAL FOR A THIRD COUNCIL DIRECTIVE ON THE COORDINATION OF LAWS, REGULATIONS AND ADMINISTRATIVE PROVISIONS RELATING TO DIRECT INSURANCE OTHER THAN LIFE ASSURANCE AND AMENDING DIRECTIVES 73/239/EEC AND 88/357/EEC

COMMISSION OF THE EUROPEAN COMMUNITIES
                                      C0MC90) 348 final - SYN 291
                                      Brussels,  31 August 1990
                          Proposal for a
                     THIRD COUNCIL DIRECTIVE
   on the coordination of laws, regulations and administrative
     provisions relating to direct insurance other than life
   assurance and amending Directives 73/239/EEC and 88/357/EEC
                  (presented by the Commission)
 ---pagebreak---                                     - 2  -
                          EXPLANATORY MEMORANDUM
i. arjiawriuLzja           »• {tcm/.a&vvif ^
A) The completion of the internal market in insurance is now one of the
   Commission's priority objectives given the Increasing importance of
   this boom industry and the work already done in other fields with a
   view to creating a single financial market.
   In the direct non-life Insurance sector, the Second Directive,
   Directive 88/357/EEC, has already made a significant contribution
   towards the formation of the internal market. That Directive lays
   down rules designed to facilitate freedom to provide services in
   respect of direct non-life insurance in the form of two separate sets
   of arrangements. The first, intended for large risks and based on the
   approach - as mapped out in the White Paper - of home country control,
   provides for application of the law of the country of establishment of
   the insurer covering the risk. The second set of arrangements
   concerns "mass risks" and is based on the application of the
   supervisory rules of the country in which the risk insured is located
   (host country control).
   When the Second Directive was adopted, the Commission formally
   undertook to present at the earliest opportunity proposals which would
   permit the application of the principle of home country control to all
   direct non-life insurance business and its subjection to a single set
   of legal arrangements.
 ---pagebreak---                                 - 3 -
For the achievement of this third stage, which will result in the full
completion of the internal market, the strategy adopted is that
provided for in the White Paper:
(a) coordination of the essential rules on the prudential and
     financial supervision of direct non-life insurance business;
(b) mutual recognition, on the basis of such harmonization at
     Community level, of the authorizations granted to insurance
     undertakings and of the prudential supervision systems of the
     different Member States;
Co) the grant of a single authorization valid throughout the
     Community and supervision of an undertaking's entire business by
     its home Member State (home country control).
This strategy has already been used to complete the internal market in
other areas of financial services. Such is the case with UC1TS
(Directive 85/611; OJ L 375, 31.12.1985), hanking (Seoond Directive
89/646, OJ L 386, 30.12.1989) and Investment services (OJ C 43,
22.2.1989), In which considerations of the protection of savers,
investors and consumers are as much to the fore as they are in the
insurance sector. It is therefore considered justified to apply to
all financial institutions a regime based on the same principles.
Qnoe this objective has been attained, the free movement of insurance
products will be possible within the Community and it will afford
every person seeking insurance the opportunity of turning to any
Community insurer in order to find the cover best suited to his needs,
while providing him with adequate protection.
 ---pagebreak---                                - 4 -
One introduction of this regime into the direct non-life insurance
sector involves substantial amendment of the rules currently in force
under the First and Second Directives. Those Directives make no
provision either for a single authorization system or for genuine home
country oontrol. Nor has any coordination been carried out as yet as
regards the essential harmonization of prudential supervision rules
concerning insurance companies' technical provisions.
This proposal for a Third Directive «Vlresses these matters and amends
the first two Directives so as to produce a cohesive system applicable
to all direct non-life insurance business, whether it be transacted
under conditions of establishment or under conditions of provision of
services.
The structure of this proposal for a Directive is that already adopted
by the Second Banking Directive and by the proposal for a Directive on
investment services. It consists, therefore, of five titles:
     TITLE I:      Definitions and scope
                   (Articles 1 - 3 )
     TITLE H :     The taking-up of the business of insurance
                   (Articles 4 - 7 )
     TITLE m :     Harmonization of conditions governing pursuit of
                   business (Articles 8 - 27)
     TITLE IV:     Provisions relating to freedom of establishment and
                   freedom to provide services (Articles 28 - 41)
     TITLE V:      Final provisions (Articles 42 - 46)
 ---pagebreak---                                          - 5 -
B) Hairnrml ration nf tfrp -rnlffl ooirernlng th* **y»in1ry».1 prnxHglnrtfg nf
   undertakings nftrrying on tfr*    H V C H T * ^ 0 fflj-rfy>*TTYTTH1** iTypiTwrra
   The Introduction of a system of a single authorization and home
   oountry control calls for harmonization of Member States' rules on the
   definition and calculation of technical provisions and on the currency
   matching, valuation, diversification and localization of the assets
   covering the technical provisions.
   As regards the definition and calculation of technical provisions, the
   Commission considers that the provisions of the proposal for a Council
   Directive on the annual accounts and consolidated accounts of
   insurance undertakings (OJ C 131 of 18.5.1987) already achieve such
   harmonization as is essential and necessary to permit mutual
   recognition and home oountry control.
   As regards the assets covering the technical provisions, this proposal
   for a Directive lays down coordinated rules on their admissibility,
   diversification and valuation and on currency matching requirements.
   The requirement that assets be located in the Member State in which
   business is carried on is deleted to take account of the measures
   adopted in the field of the liberalization of capital movements. For
   the same reason, the requirement that a minimum of assets be invested
   in specific categories can no longer be maintained.
   - Law ajzplloahlft to remtaa/rto and policy oondltlonfi
   This proposal for a Directive does not undertake any harmonization of
   the substantive law applicable to contracts and policy conditions.
   The work carried out within the Council in this connection in recent
   years has shown that such harmonization is not essential to
 ---pagebreak---                                - 6 -
achieve at this stage. The system proposed in this Directive is based
on the rules laid down in the Second Directive on choice of law
applicable to insurance contracts. This system makes it possible to
ensure satisfactorily the requisite consumer protection because, in
principle, the Member State in which the risk is situated can if it so
wishes apply its own law to an insurance contract covering a mass
risk.
On the other hand, the Commission considers that all large risks must,
owing to their specific characteristics, enjoy complete freedom of
choice of law. This approach is in keeping with the case law of the
Court of Justice, which has held that there is no need for special
protection in respect of the insurance of large risks. What Is more,
some Member States granted such freedom to all large risks when they
incorporated the Second Directive Into their law.
At the same time, the Commission considers that, in order that they
might find the cover best suited to their specifio needs, it is of the
utmost Importance that persons seeking insurance should have access to
every insurance product lawfully marketed in the Community provided it
does not conflict with legal provisions protecting the general good in
force in the Member State in which the risk is situated.
As regards the verification of Insurance policies and contract
documents, the Commission considers that the systems to be used should
be tailored to the requirements of a genuine single market. With this
in mind, the Commission proposes that every system for the prior
vetting of such documents should be abolished and replaced by
ex post facto communioation systems, which also make it possible to
afford policy-holders the requisite degree of protection.
 ---pagebreak---                                         - 7 -
-    AbniAtinn nf ffa prohibition Of thlft fit
hllfilnftSfi by way nf T»1fh*. nf ^ ^ H f i > n n p n t «rrf Vy taay Of frf**™i «n
provide servioes
The Second Directive authorized, in the interests of protecting
policy-holders, Member States to prohibit the simultaneous pursuit in
their territory of insurance business by way of establishment and by
way of freedom of servioes as far as the covering of mass risks is
concerned. This option was justified by the situation which
prevailed, when the Second Directive was adopted, with regard to the
harmonization of the essential rules on technical provisions and the
law governing insurance contracts and policy conditions.
This proposal for a Directive brings about the coordination considered
necessary to afford policy-holders the requisite degree of protection.
At the same time, and as with other financial servioes, it introduces
into the insurance sector the system of a single authorization and
prudential supervision of all business by the home Member State. The
option is therefore abolished by this proposal for a Directive.
-    HftljfrtilfP* «fltll +ftlTl countries
This proposal contains no provisions on the treatment to be granted to
insurance undertakings from third countries seeking authorization to
do business in the Community. The relevant arrangements have already
been Introduced in the amenrled proposal for a Directive on freedom to
provide servioes in motor insurance (OQM(90)278 of 20.06.1990), on
which the Council adopted a common position on 20 June of this year.
The arrangements provided for in that proposal for a Directive apply
to the whole direct non-life insurance sector.
 ---pagebreak---                                      - 8 -
   -  Exercise of lafrlgragrvMiY prrore
   This proposal for a Directive is silent about the procedure to be
   followed for the exercise of the implementing powers it confers on the
   Commission. The question is dealt with in a separate proposal for a
   Directive which will apply to all directives concerning life and
   non-life Insurance providing for such implementing powers (CCM(90)344
   of 11.07.1990).
C) Three factors help explain the urgency of action at CcmmTnlty level
   along the U n e s of that proposed in this proposal for a Third
   Directive.
   The first is a major political factor, the Single European Act. When
   this was signed, Member States expressed their firm political will to
   take, before 1 January 1993, the decisions needed to create a genuine
   internal market.
   The second factor oonoerns the development of financial services and
   their increasing importance. Within the Community, this development
   has already led to adoption of the provisions needed to complete the
   internal market in the field of credit institutions and tXHTS.
   Such financial institutions will thus be able to propose throughout
   the Community products benefiting from a "European passport", thereby
   creating a distortion of competition to the detriment of those
   insurers with whom they enter, in the case of certain products,
   directly into competition.
   The insurance industry is currently at a disadvantage compared with
   other financial servioes when it comes to facing the challenge of the
   single market. Insurance undertakings are to a large extent still
   obliged to operate in twelve isolated markets subject to different
   rules and procedures as regards the taking-up and pursuit of fcusiness,
   whether it be by way of establishment or by way of freedom of
 ---pagebreak---                                             - 9-
         services. This involves a variable degree of intervention in relation
         to insurance products and the freedom of insurers and those seeking
         insurance to enter into insurance contracts. This state of affairs
         can no longer be tolerated if the Community's commitments as far as
         attaining the objectives of the EEC Treaty is oonoerned are to be
         fulfilled.
         The third factor is the judgments delivered by the Court of Justice on
         4 December 1986. While sanctioning the application to insurance of
          freedom to provide services as a fundamental principle of the Treaty,
          the Court sought to reconcile the exercise of that freedom with the
         requirements of the protection of persons seeking Insurance. It
         confirmed that, once the necessary coordination of insurance
         undertakings' technical provisions, the assets covering those
         provisions and policy conditions has been carried out, all
         seekers/consumers of insurance will enjoy an adequate and sufficient
         level of protection, and the entire business can then be made subject
         to a uniform regime based an the principle of home oountry control.
II)     raiMKMPAW     CK TOW AOTTHTJg;
                                 TVyflnl^lopf? «rri scope
A r t i c l e 1 - Tftf^-MnnB
This article contains definitions of pertain terms used in the proposal for
a Directive, the aim being to clarify their meaning and hence contribute to
a better understanding of the Directive.
 ---pagebreak---                                                - 10 -
Article 2 - Scope
This article defines the scope of the proposal for a Directive. The scope
coincides with that of the First Directive (Directive 73/239/EBC). In
other words, it excludes life assurance in its entirety and the operations
covered by Directive 79/267/EBC, mutuals with a clearly defined, restricted
local basis which, by virtue of their legal status, fulfil speciflo
conditions of security and offer specific financial guarantees, and bodies
governed by public law enjoying a monopoly of the insurance of certain
risks (Articles 2 - 4 of Directive 73/239/EBC).
Artlrilft g - MflmhPT» S t a t e s ' JTtfmT^jw> mQpnrpnM ret
This provision is designed to adapt the monopolies existing in certain
Member States in respect of the insurance of pertain risks to the
requirements of a genuine integrated market.
It is inconceivable that, within the Community, part of its territory
should escape, owing to the existence of exclusive rights in the
transaction of pertain classes of insurance, from the full application of
the Treaty's provisions on right of establishment and freedom to provide
servioes. The monopoly enjoyed by certain bodies in this respect must
therefore be abolished in order that persons seeking insurance in that part
of the Community may also be free to choose from among the insurance
products offered to them by any Community Insurer.
 ---pagebreak---                                          - 11 -
                                     TITLE II
                 The taklng-up of the business of insurance
AUTffiRIZATICM QDMDITIC1TS
Arttnlftg 4 «nd R - Thg «inglq f y i t ^ r l ^ t l n "
These articles introduce the fundamental concept of the single insurance
licence by amending Articles 6 and 7 of the First Directive. Article 6 as
amended now specifies that the authorization to take up the business of
direct insurance shall be granted by the competent authorities of the home
Member State. This system still has as its premiss that an official
authorization is a pre-condition for the taklng-up and pursuit of insurance
business. Article 7 has been amended to specify that that authorization
shall be valid throughout the Community. This extended territorial scope
will apply both to establishment and the provision of insurance servioes on
a cross-border basis (paragraph 1). The role of the competent authorities
of the home Member State (which has been defined in Article 1 as the
Member State of establishment of the head offioe of the insurance company
covering the risk) is consistent with the principle of home oountry
supervisory control of the financial position of the company, Including its
Insurance activities In the Member States which are undertaken by way of
branching or servioes (see Article 8). The task of supervising the
company's entire business falls to the insurer's home authorities, which
are those that granted the authorization.
The authorization will continue to be given for a particular class of
insurance as listed in point A of the Annex to the First Directive. The
option for Member States to also grant authorization for a group of classes
and auxiliary risks Included in classes other than that of the principal
risk has been maintained in this proposal (paragraph 2 ) .
Also any undertaking seeking to extend its business to other classes will
be required to request a new authorization in accordance with the procedure
laid down in Article 6 of the First Directive (point b ) .
 ---pagebreak---                                     - 12 -
Article 5 of the proposal furthermore brings to an end the derogation for
the Federal Republic of Germany which allowed it to prohibit the
sumultaneous undertaking of health insurance with any other class of
insurance. It is considered that this final specialization requirement is
no longer justified in view of the fact that further coordination in the
form of the insurance accounts Directive, the harmonization of technical
provisions as set out in Title m , Chapter 2 of this proposal for a
Directive and the coordinated standards on permissible assets, valuation,
diversification and rules on currency matching will provide sufficient
protection of insured persons.
Furthermore, the possibility for Member States to apply their legal
provisions justified by the general good constitutes sufficient guarantee
for those Member States granting authorization to private insurers offering
private health Insurance in substitution for the social health insurance
system to require in pertain oases that the conditions of insurance offered
are at least as good as those of the social health Insurance system
(Artical 43a).
Article 6
The home Member State must require any company seeking authorization to
fulfil the conditions laid down in Article 8 of the First Directive. That
is to say to adopt a specific legal form, to which this proposal adds the
legal form of the European Company, to limit its business activities to the
business of insurance, submit a scheme of operations and possess a minimum
guarantee fund. It is now proposed to bring the authorization requirements
for undertakings engaging in mass risks into line with those for large
risks as set out In the Second Directive.
An additional mandatory condition, which was facultative in the First
Directive, has been added to the requirements, concerning adequate
technical qualifications and soumuess of the managers and directors of any
company seeking authorization. These conditions are considered necessary
to safeguard the general quality of business of an insurance company, as
well as the day-to-day management running the company (paragraph 1 ) .
 ---pagebreak---                                    - 13 -
An important step forward concerning authorization conditions is the
proposal to abolish the possibility for Member States to require the prior
approval or systematic notification of general and special policy
conditions, scales of premiums, or forms and other printed documents which
the undertaking uses in its dealings with policy-holders (paragraph 3).
Member States may only require non-systematic notification of such
information in exercising their supervisory tasks but this may not amount
to a prior condition for an undertaking to be able to carry on its
activities. Two exceptions to this system are allowed. Firstly for
premium rates which function as part of a general price control system. In
this exceptional case it is proposed that prior notification or approval of
proposed increases in those States will be allowed. Secondly, the
technical and quality checks on staff and equipment of undertakings active
in the field of tourist assistance, as introduced in the Second Directive,
will continue to apply.
Article 6a
This provision replaces Article 9 of the First Directive and sets out the
requirements for the scheme of operations. In accordance with the amended
Article 8 of the First Directive, insurance undertakings seeking
authorization will no longer need to state in their scheme of operations
the tariffs which they propose to apply for each category of business they
engage in.
Article 7
The ownership and control of an insurance undertaking by non-insurance
interests is an issue of concern for the Community supervisors, especially
in a period when highly complex group structures are a widespread
phenomenon. Thus the risks of cross-financing and conflicts of interest
are particuarly evident in an environment of vast changes in the structure
of financial systems. For these reasons the current proposal stimulates
 ---pagebreak---                                      -U -
that the competent authorities, before granting an authorization, should be
informed of the indentity of shareholders and members holding a qualified
participation in the proposed insurance undertaking as well as of the
amount of such participations. This applies to direct or Indirect
shareholders or members and irrespective of whether they are physical or
legal persons. This procedure enables the competent authority to appraise
the suitability of the shareholders and members and if necessary to reject
any particular group structures as improper at the moment of the setting-up
of the institution. Closely linked with this provision is Article 14 of
the present proposal which provides for an information procedure regarding
the prospective acquisition of an insurance undertaking which is already in
operation.
                                   TTTTiB TTT
         Harmonization of conditions governing pursuit of basinets
Chapter 1
Article 8 - Supervision Of tfrfi Ving-i™*» nf in«nrMvv>
The introduction of a system of a single official authorization granted by
the competent authorities of the home Member State and valid throughout the
Community calls for devolution of the power of supervision, and of the
means to that end, on the competent authorities which granted the
authorization so as to guarantee full compliance with the conditions
governing the pursuit of business by 1fce insurance undertaking, whether it
be by way of establishment or by way of freedom of servioes.
Article 8 of this proposal for a Directive contains a new provision which
replaces Article 13 of the First Directive. It specifies that the
financial supervision of an insurance undertaking, Including that of the
activities it carries on either through branches or by way of freedom of
servioes, is to be the responsibility of the competent authorities of the
home Member State, that is to say, the authorities which granted the
authorization to the undertaking.
 ---pagebreak---                                        - 15 -
In addition, this provision specifies what the financial supervision of the
undertaking consists of: it includes verification of (a) the undertaking's
solvency, (b) the establishment of sufficient technical provisions for the
undertaking's entire business and (o) the matching of assets in accordance
with the provisions existing in that respect in the home Member State,
which are coordinated in this proposal for a Directive,
lastly, the existence of sound administrative and accounting procedures and
adequate internal oontrol mechanisms is a guarantee of an orderly and
healthy pursuit of insurance business. This proposal for a Directive
therefore requires the home Member State to ensure that this need is
satisfied.
A-rMnlft Q - On--hly*-ppot monltp-HTig nf V^arinhgg
This proposal for a Directive provides for the possibility for the
authorities of the insurance undertaking's home Member State to carry out,
after having first informed the authorities of the Member State of
establishment, on-the-spot monitoring of the branches of the undertakings
they have authorized, with a view to obtaining the information necessary to
ensure the financial supervision of the undertakings whose entire business
they supervise.
This provision also meets a need for consistency in the approach adopted by
the Community for the completion of the internal market In financial
servioes. The Second Banking Directive contains a similar provision
(Article 15). The same applies to the proposal for a Directive on
investment servioes in the securities field (Article 19).
Article 10 - Sanctions
This article introduces into the First Directive the obligation on the part
of the Member States to impose adequate penalties on insurance undertakings
or their directors and managers where they infringe the rules on
supervision.
 ---pagebreak---                                         - 16 -
Article 11 - Transfers of portfolios
The Second Directive on direct insurance other than life assurance
(88/357/EBC) contains a set of complex and detailed provisions on the
transfer of portfolios tailored to the legal regimes introduced in respect
of the taking-up and pursuit of the business of direct non-life insurance,
both by way of establishment and by way of freedom of servioes. The
introduction of a new, single legal regime for all insurance business,
irrespective of the way in which it is pursued, means that the provisions
on portfolio transfer have to be adjusted.
A-rhinira ip. «3Yi ift - withdrawal of authorization wrrï firent al rftnrwgry
Article 12 adapts to the system of a single official authorization and
supervision of all insurance business by the authorities of the insurer's
home Member State the provisions of Article 20 of the First Directive
concerning the powers of the competent authorities to adopt measures to
ensure the solvency of an insurance undertaking.
This same aim of adaptation to the single official authorization system is
pursued by Article 13, which amends Article 22 of the First Directive, on
the conditions under which the authorization granted to the insurance
undertaking may be withdrawn.
Article 14 - Supervlglnn nf major shareholders or members
This article introduces into the insurance sector spécifie provisions the
purpose of which is to ensure that the prudent and sound management of an
insurance undertaking is not nailed into question by the existence of major
holdings.
 ---pagebreak---                                      - 17 -
TO that end, Article 14 lays down an obligation to furnish information in
two sets of circumstances. First of all, shareholders or members who
propose to acquire, directly or Indirectly, a qualifying holding in an
insurance undertaking must first inform the competent authorities of the
size of the intended holding. The same applies where natural or legal
persons wish to Increase their qualifying holding so that it exceeds
certain thresholds or the Insurance undertaking becomes their subsidiary
(Article 14(1)). This obligation to furnish information is also provided
for in the event of a reduction in or disposal of a qualifying holding
causing it to fall below the thresholds laid down (Article 14(2)).
Moreover, in order to ensure the effectiveness of supervision, insurance
undertakings must, on becoming aware of them, inform the competent
authorities of any acquisitions or disposals of holdings in their capital
that cause holdings to exceed or fall below the thresholds laid down. They
must also inform the competent authorities each year of the names of
shareholders and members possessing qualifying holdings and the sizes of
such holdings as shown by the information received at annual general
meetings or as a result of compliance with the spécifie rules to which
companies listed on stock exchanges are subject (Article 14(3)).
If the competent authorities consider that the influence exercised by
shareholders or members works to the detriment of the prudent and sound
management of the insurance undertaking, the Member States may take a
series of measures to put an end to that state of affairs (Article 14(4)).
Those measures will also be taken where the obligation to furnish
information in advance is not complied with or where the competent
authorities have opposed the acquisition of the shareholding.
Chapter H
Article IP -flomftoountry control, Of tff^lOA1 pmv1«1nna rat* Inrastment
Paragraph 1 of this article introduces the principle of home oountry
control for the definition and calculation of technical provisions.
 ---pagebreak---                                     - 18 -
Technical provisions will be required to be defined, and calculated
according to the rules laid down in Articles 21-26, 40 and 52-57 of Council
Directive... on the annual accounts and consolidated accounts of insurance
undertakings.
For non-life insurance, these technical provisions are:
(i)     imearned premiums,
(11)    unexpired risks,
(ill)   life insurance provisions,
(iv)    provisions for outstanding claims (including combined provisions),
(v)     provision for bonuses and rebates,
(vi)    equalization provisions, if required by national law or regulation.
At the meetings held with national experts in November 1989 and
January 1990 there was broad agreement on the Commission proposal that the
harmonization of national regulations concerning the definition and
calculation of technical provisions included in the proposed insurance
accounts Directive is sufficient to allow mutual recognition and home
country control in this respect.
This view is supported by the CEA.
Paragraph 2 of this article introduces the principle of home oountry
control for the investment of technical provisions.
Technical provisions will be required to be invested aooording to the rules
laid down in Articles 17-21 of this proposal for a Directive.
 ---pagebreak---                                                - 19 -
Those rules cover:
(i)           a general principle for the investment of technical provisions,
(11)          the admissibility of investments,
(iii)         the diversification of investments,
(iv)          currency matching requirements.
Furthermore, paragraph 2 of this article extends the requirement of
localization of assets In the oountry where the business Is carried on to a
localization within the European Community. This extension is to be seen
both in the context of freedom of capital movements within the European
Community, which is fully applicable to institutional investors, and in the
context of the negative effects of national localization on the investment
performance and regional diversification of Insurance companies'
Investments.
Article 16
Article 23 of the Second Directive, which provides for home country control
of technical provisions in the case of large risk business and host oountry
control in the case of mass risk business, is deleted.
A r t i c l e 17 - Investment, nf -hftfihnl n*1 pmnrtglnnfi
This article establishes a general principle for the investment of
technical provisions, which is to be found in the current legislation of
most Member States.
Articles 18(2) and 19(3) of this proposal for a Directive provide that,
under special circumstances and on a oase-by-oase basis, the home
Member State may allow exceptions to the rules on the admissibility and
diversification of investments. These exceptions may, however, only be
allowed when the home Member State is satisfied that the general
requirement of Article 17 is fulfilled.
 ---pagebreak---                                        - 20 -
This article contains a list of assets in which the home Member State may
allow insurance undertakings to invest their technical provisions.
The list of admissible assets is to be regarded as a minimum requirement.
This means that the home Member State is free to prohibit certain
categories of investments Included on the list, but only for insurance
undertakings having their head office in its territory. In order to
provide the list with a sufficient degree of flexibility, paragraph 2 of
this article allows Member States to permit other categories of investments
on a oase-by-oase basis and subject to Article 17 of this proposal for a
Directive.
Article 19 - m versification of investments
T M S article lays down a set of rules on the diversification of
investanents. Again, the diversification rules laid down in paragraph 1 are
to be regarded as a minimum. Home Member States are thus free to impose
lower fwqgimmn percentages for certain or all categories of investments, hut
only for Insurance undertakings whose head office is in their territory.
For some categories of Investments, especially government bonds, there are
no maximum percentages. For other categories, however, especially debt
securities and other bonds 1sfg»fld by undertakings, secured loans to natural
persons, transferable shares and other variable yield participations, units
in UCITs, etc. paragraph 1 establishes a set of maximum percentages both
for the category of investments and for units of any one undertaking, any
one piece of real property, etc.
Paragraph 2 provides that no Member State may require insurance
undertakings to invest in particular categories of investments, which is
still common supervisory practice in some Member States, especially as
regards government bonds.
The purpose of the final paragraph is to make the diversification rules
sufficiently flexible by allowing the home Member State to permit higher
percentages on a case-by-case basis and subject to Article 17.
 ---pagebreak---                                         - 21 -
Article 20 - Valuation of investments
This article states that, under certain conditions, Member States may allow
hidden reserves resulting from the undervaluation of assets as cover for
technical provisions. The purpose of this article is to allow
Member States which currently require purchase price valuation of assets to
pit their undertakings on an equal competitive footing with undertakings of
those Member States which allow or require the valuation of investments on
the basis of current values.
Art.1ril.ft 21 - nivrrgrmy Tnfttrihlng
This article amends the rules on currency matching laid down in the
Second Directive by
(i)         leaving the choioe of covering technical provisions up to 20% by
            non-matching assets to insurance undertakings rather than to
            Member States (as provided in the Second Directive)
(11)        allowing Member States to provide that, when a commitment has to be
            covered by assets expressed in the currency of a Member State, the
            currency matching requirement is considered to be satisfied when
            the assets are expressed in ecus. The limit of 50% for
            ecu-denominated assets laid down in the Second Directive is
            deleted.
Article 22 - SubordiTfttfti loan capital
This article updates the list of assets reoognized for the purpose of
covering the solvency margin by Including subordinated loan capital. The
conditions under which subordinated loan capital may be recognized as own
°unds are identical to those laid down in the Council Directive 89/299/CEE
(JO L.124 of 5.5.1989) on the own funds of credit institutions.
 ---pagebreak---                                           - 22 -
Article 23
This article amends Article 18 of the First Directive in order to bring it
into line with the principle of home oountry control.
Chapter 3
Article 24 - (Zoloft of law applicable to the oontraot
In the Interests of protecting the consumer, Article 7 of the Second
Directive restricted the freedom of choice of law applicable to the
contract, leaving complete freedom of choice only in respect of "transport"
risks.
For want of harmonization of contract law, which would not, as the work
carried out within the Council in this field in recent years has shown, be
essential to achieve at this stage, it is desirable in order to protect
policy-holders In need of special protection, that is to say mass risks, to
permit those Member States which so wish to apply their law to contracts
relating to mass risks located in their territory.
On the other hand, the insurance of large risks concerns contracts linked
to the international trade, the field in which the greatest freedom of
choice must be left to the Member States.
It is along these lines that Article 7 of the Second Directive, which lays
down the rules governing the oholoe of law applicable to non-life insurance
contracts, Is amended and simplified.
A r t i c l e 25 - Legal pmylfHpra* prn**y*.1 Tig -hhft gftnftra.1 gnnrt
The measures taken by a Member State to protect its consumers must,
according to the case law of the Court of Justice, be in proportion to the
objective pursued.
This article gives effect to that principle by specifying that any person
seeking insurance can conclude a contract authorized by the law of a
Member State provided the contract does not conflict with legal provisions
protecting the general good in the Member State in which the risk is
situated.
 ---pagebreak---                                             - 23 -
Article 26 - Abolition of the prior approval of pgv»ni™nn fy*tiffl and priH<rlftg
Consumer protection also Includes the right to the widest possible choice
of innovative insurance products at the most reasonable prices. This right
is given practical effect In regard to supervision by the abolition of any
prior approval of premium scales and policies and by the replacement of
such approval by a system better suited to the requirements of mutual
recognition linked to the needs of the internal market.
The prior authorization system is tantamount to Issuing a "quality label",
and it is Inconsistent with the logic of the single market to confer on the
supervisory authority of a Member State the right to give its endorsement
to, or withhold its endorsement from, products developed and already
distributed in other Member States.
This holds true all the more in relation to the approval of premium scales:
with the principle of the single licence, the supervisory authority of the
home Member State vouches for the overall solvency of the undertaking and
it is for that authority to ensure that the undertaking's financial policy
does not jeopardize that solvency. This approach does not deny the
supervisory authority of the State in which the risk is situated the right
to protect its consumers: that authority can still prove ex post facto and
non-systematically that such and such a clause of a contract freely entered
into is not in keeping with a legal provision protecting the general good.
This "shifting of the burden of proof" will have the effect of making
insured persons more aware of their responsibilities vis-a-vis the products
offered to them, and hence of Increasing the real level of their
protection.
A r t i c l e 27 - nnmpnlg^ory flpttinwinft
Compulsory insurance exists where the Member State imposing the obligation
to take out insurance has a paramount Interest to safeguard. This is the
case, for example, with certain civil liability Insurances, the insurance
 ---pagebreak---                                          - 24 -
being then a guarantee that a third party who is the victim of an accident
will be compensated for any Injury or damage sustained through no fault of
his own.
Such considerations of the general good justify, by way of derogation from
the principle laid down in Article 26, Member States retaining the
possibility of requiring systematic notification of policies relating to
compulsory Insurance so that they may ascertain that products offered for
sale in their territory Indeed correspond to the substance of the
obligation they have imposed.
                                      HZLB-IY-
               Provisians relating to freedom of establishment and
                             freedom to provide servioes
Mj-^riiftp pfi *HY? afl - Freedom o? «B^KHrihm«n+.
Article 28 contains a set of detailed provisions amending Article 10 of the
First Directive and organizing coopération between the competent
authorities of the Member States, based on home country control, in the
context of freedom of establishment.
In this context it is stipulated that an insurance undertaking wishing to
establish a branch in another Member State shall notify the authorities of
its home oountry, providing at the same time the required information (e.g.
scheme of operations, amount of the guarantee fund, state of the solvency
margin, names and addresses of managers) (Article 10 paragraphs 1 - 3 ) .
After examining the notification the competent authority may, if it has
reason to doubt the viability of a project or the adequacy of the
structures of the insurance urdertaking, refuse to send the information to
the prospective host authorities. In any case it should give reasons for
its refusal to the institution within three months of receipt of the
notification (Article 10(3)).
 ---pagebreak---                                          - 25 -
Article 29 repeals Article 11 of the First Directive, thereby abolishing
the detailed requirements the scheme of operations should fulfil for
setting up a branch In another Member State. These requirements are now
limited to, notably, the types of business the branch intends to carry on
and information on the structural organization of the branch.
Articles SQ - 52 - Frffirtom to provlflf? services
These articles set out the procedure to be followed and coopération between
the home and host oountry authorities with regard to freedom to provide
servioes. The relevant provisions of the Second Directive are amended and
extended to cover not only "large risks" but all non-life Insurance
husiness and thus to set up a single regime for the whole business of
insurance; those articles of the Second Directive which have become
superfluous are to be deleted (Article 33).
Thus any insurer wishing to pursue non-life business by way of cross-border
servioes must indicate to the home authorities the Member State in which it
is intended to provide servioes and the business that will be pursued there
(Article 14 of the Second Directive, as amended). The host oountry
authorities will be provided with Information regarding the undertaking's
solvency margin, the classes of business the undertaking is allowed to
transact and the nature of the risks it proposes to oover (Article 16 of
the Second Directive as amended).
Artlolft m - Trahirai «dfrghmPnts. abolition of the prohibition of the
simultaneous pursuit offrif?1nessby way of establishment and by way of
freedom of services
This proposal for a Directive Is designed to achieve such coordination as
is essential, necessary and sufficient to introduce a uniform system of
supervision applicable to all direct non-Ufe insurance business,
irrespective of the way in which it is transacted, be it by establishment
or by freedom of servioes. This calls for repeal of the exceptions laid
down in Article 12(2) and (3) of the Second Directive concerning the scope
of the provisions on the taking-up and pursuit of business by way of
freedom to provide servioes.
 ---pagebreak---                                        26 -
For the same reasons, the option which Member States have of pcrohibiting
the simultaneous pursuit of mass risk business by way of establishment and
fcy way of freedom of servioes is also abolished (Article 13 of the
Second Directive).
Article 15 of the Second Directive, which lays down the prior authorization
arrangements governing the pursuit of mass risk business on a servioes
basis, must also be repealed on identical grounds. Henceforth the only
legal regime applicable to the taklng-up of business under ooxxlitions of
freedom to provide servioes, both for large risks and for mass risks, is
that provided for in Articles 30 - 32 of this proposal.
Article 34 - Approval of contract documents used by the insurer
This article contains provisions oonoerning the means Member States may use
to verify whether the policies and contract documents an insurer proposes
to use in the course of his business comply with their legal provisions
protecting the general good. The article takes up the principle laid down
in Articles 8 and 28 of this proposal for a Directive. The Member State in
which the risk is situated cannot, therefore, require prior approval of
such documents as that would hinder considerably the free movement of
products and the development of innovative products. For the purpose of
monitoring compliance with those provisions, the Member State may require
only non-systematio communioation of policies and contract documents.
These arrangements are better suited to the requirements of the single
market and ensure an effective level of protection of policy-holders.
Article 35 - finnfrtlons
Article 19 of the Second Directive Introduced rules on the adoption of
measures A"* sanctions against insurance undertakings which infringe the
provisions applicable to them when carrying on business by way of freedom
to provide services.
 ---pagebreak---                                       - 27 -
The rules are based on the principles of devolution of the general power to
adopt measures and sanctions on the home Member State and on collaboration
between the different Member States concerned. The host Member State
retains, however, the possibility of adopting directly measures against an
undertaking operating in its territory in order to prevent or punish
irregularities committed by that undertaking in its territory. The same
applies where the measures taken by the home Member State are insufficient
or non-existent.
Within the framework of a single authorization system steps must also be
taken to ensure compliance with the rules applicable to insurance business,
whether it be carried on by way of establishment or by way of freedom of
servioes. It is therefore necessary to extend the arrangements provided
for in Article 19 of the Second Directive to cover all business.
Article 36 - Advert.isHiY
This article allows any duly authorized Insurance undertaking full access
to all the normal means of mass-advertising of its servioes and products
within the Community. This is fully in accordance with the case law of the
Court of Justice, as expressed, for instance, in Cases 352/85,flo^d,ran
Article 3? - TfrpiAHty of trea-t^Pnt ,j^ th* event of the winding-up of an
iTtfarrvmfiP mvtertalHng
This provision establishes the principle of equality of treatment of all
insurance creditors in the event of the winding-up of an insurance
undertaking without any distinction being made on grounds of the
nationality of insured persons or beneficiaries or on grounds of the way In
which insurance contraots are underwritten. The principle has already been
incorporated in other insurance directives, notably the Second Directive.
 ---pagebreak---                                      - 28 -
Article 38 - Provision of information to the pel Icy-holder
This article extends to contracts entered to into with a branch the
arrangements for the provision of information to the policy-holder provided
for in the Second Directive in respect of freedom to provide servioes.
As a result, any policy-holder will have to be informed, before any
commitment is entered into, of "Use Member State in which the head office
and, where appropriate, the branch of the undertaking with which the
contract is to be ooncluded is established.
Article 39 - Statistical information
This article provides that every undertaking will have to furnish the
supervisory authority of its home Member State with information on its
turnover in each Member State, whether it be achieved through an
establishment or under conditions of freedom to provide servioes.
The supervisory authorities of the Member States in whose territory the
insurer in question operates may ask the supervisory authority of the home
Member State to supply them with such Information, which is essential if
they are to have proper knowledge of the relative size of the various
markets.
Article 40 - Participation In n1ai^-^**.lg*ngrvh «nhgmftg
This article extends to business done by way of establishment the principle
laid down in the Second Directive in respect of freedom of servioes
according to which Member States retain the possibility of requiring any
insurance undertaking operating in tfceir territory to participate, on a
non-discriminatory basis, in schemes designed to guarantee the payment of
insurance claims by an insurer.
Article 41 - Taxation __
T M p article extends to the establishment regime the system provided for In
the Second Directive In respect of freedom to provide servioes.
 ---pagebreak---                                            - 29 -
This proposal for a Directive thus states that, subject to future
harmonization, the principle to be applied in respect of Indirect taxes and
parafiscal charges is that of the territoriality of the tax, that is to say
the application of the system of taxation of the Member State In which the
risk is situated and for the benefit of that State.
Moreover, each State will apply to undertakings operating in its territory,
whether by way of establishment or by way of freedom to provide servioes,
its own national provisions canoerning measures to ensure the collection of
such taxes.
                                          TITLE V
                                     FXHAL EHOVISICNS
Artlrilft 4P. - TTT^IgmPfp-frtTg ppyers. Of tfllft ffrfnml fibrin
This provision Indicates the articles of the First Directive and of this
proposal for a Directive which may be adapted when the moment is right.
The procedures for adapting those articles are set out in the Council
Directive setting up a Committee on Insurance.
Article 43 - Safeguard clauses
This article contains a provision which states that this Directive does not
affect rights acquired by authorized branches and in the field of freedom
of servioes.
Article 43a - Health Insurance as a substitute for social security
 In many Member States residents are allowed, under certain conditions, to
conclude a health Insurance policy with a private Insurer Instead of being
covered by the social health insurance system.                Such private insurers not
only seek to offer additional cover to the social system; In fact, their
rôle constitutes an alternative to the social health Insurance system and
their cover may be set out In non-life or life assurance contracts.
 ---pagebreak---                                   - 30 -
The evident link between such contracts and the social health security
system clearly Justifies Member States to require from private insurers
that the oover they offer is a least equal to that offered by the social
system, as laid down in legislation which may vary between Member States.
For example, a non-termination clause prohibiting an insurer to end a
contract for reasons of age of the insured person or deterioration of his
health condition is a provision which is in the general good and is
essential for the protection of those tftat are not eligible for cover by
social health insurance. Member States oonoerned may require from the
Insurer to create a special technical provision to counterbalance such a
clause and meet its annuity character of oover based on constant premium or
uniform appreciation.
Although such a requirement limits the possibilities for an insurer to
offer his products throughout the whole Community, it is already guaranteed
in particular by article 25 of the present proposal of directive which
states that In order to be able to be marketed in a Member State, insurance
contracts may "not conflict with legal provisions protecting the general
good in the Member State in which the risk is situated".
However, taking into account the sensitivity and social repercussions of
health insurance, it is necessary to allow Member States oonoerned specific
means to verify that the guarantee offered by the social system is indeed
respected by all insurance companies active in this field.
To this end it is proposed to assimilate health insurance which substitutes
a social health insurance system to obligatory insurance. This
assimilation is Justified fcy the fact that in practice all residents of the
Member States oonoerned are covered by health insurance, either via the
social health system or through private insurance. In accordance with the
provisons of article 27, concerning all obligatory Insurance, the Member
States In which the risk is situated may require that the general and
special contractual conditions substituting the social health insurance
cover be subject to prior systematical oommunlcation.
 ---pagebreak---                                      - 31 -
This possibility for supervisory authorities of a Member State to obtain on
a systematical basis information on health insurance contracts marketed on
their territory can be considered as limiting the freedom of establishment
and provision of services. This limitation is necessary, having regard to
its objective of protection of the insured persons, tut also sufficient to
further apply to this branch of insurance the general regime of the present
proposal of directive based on the logical requirements of the internal
market.
Consequently, supervisory authorities will have at their disposal on a
systematic basis all the information necessary to verify that such
contracts do not contain provisions providing the insured with a cover that
does not at least equal the cover of the social security health system.  It
will also be possible to have avail, if necessary in case of urgency, to
the measures provided for in article 35 of the directive. Under these
conditions there is no longer any reason to submit insurers to a
specialization requirement for health insurance or to general prior
approval of contracts and to presume also that they are not themselves
capable of respecting the rules of general good imposed upon them.
Article 43b - Right of app^l,
This article provides for a right to apply to the Courts in respect of
decisions taken by competent authorities in the field covered by the
Directive.
Articles 44 - 46 - Implementation of the Directive
These articles contain the final provisions.
The date of entry into force should not be later than 31 December 1992.
 ---pagebreak---                                             - 32 -
                                       Proposal for a
                                  THIRD COUNCIL DIRECTIVE
       on the coordination of laws, regulations and administrative provisions
                relating to direct Insurance other than life assurance
                   and amending Directives 73/239/EEC and 88/357/EEC
    THE COUNCIL OF THE EUROPEAN COMMUNITIES,
    Having regard to the Treaty establishing the European Economic Community,
    and In particular Articles 57(2) and 66 thereof,
    Having regard to the proposal from the Commission,
    In cooperation with the European Parliament,
    Having regard to the opinion of the Economic and Social Committee,
    1.    Whereas   It is necessary to complete the          Internal market    In direct
    Insurance other than life assurance, from the point of view of both freedom
    of establishment and freedom to provide services, so as to make it easier
    for Insurance undertakings whose head office is in the Community to cover
    risks situated In the Community-,
    2.    Whereas the Second Council Directive 88/357/EEC of 22 June 1988 on the
    coordination of laws, regulations and administrative provisions relating to
    direct   Insurance other than life assurance and laying down provisions to
    facilitate    the   effective   exercise   of   freedom   to  provide   services   and
                                       1
    amending Directive 73/239/EEC,        hereinafter called the "Second Directive",
    has contributed substantially to the formation of the Internal market In
    direct     Insurance    other    than    life   assurance    by   already     granting
    policy-holders who, by virtue of their status, their size or the nature of
    the   risk   to   be   Insured,   do   not   require  special    protection    In  the
    Member State    In which    the   risk   Is situated    complete   freedom   to avail
    themselves of the widest possible Insurance market;
(5) 1   OJ No L 172, 4.7.1988, p. 1.
 ---pagebreak---                                             - 33 -
3.    Whereas the Second Directive therefore represents an Important stage
In the merging       of  national    markets   into a single,     Integrated   market;
whereas It must be supplemented by other Community instruments with a view
to enabling all policy-holders, irrespective of their status, their size or
the nature of the risk to be           insured, to have recourse to any         Insurer
having his head office       In the Community and carrying on business there,
whether he conducts business by way of freedom of establishment or by way
of   freedom    to    provide   services,     while   guaranteeing     them   adequate
protection;
4.     Whereas     the  approach     adopted   consists    in  bringing    about   such
harmonization as is essential, necessary and sufficient to achieve mutual
recognition    of   authorizations     and   prudential   control   systems,    thereby
making   it possible to grant a single authorization valid throughout               the
Community and apply the principle of home country control;
5.    Whereas, as a result, the taking-up and pursuit of the business of
insurance is henceforth to be subject to the grant of a single official
authorization     issued by the authorities of the Member State           in which the
 insurance  undertaking     has   its head    office;   whereas   such   authorization
enables the undertaking to carry on business everywhere in the Community,
whether under conditions of freedom of establishment or under conditions of
freedom to provide services;         whereas the host Member State may no longer
require insurance undertakings which have already been authorized                in the
home Member State and which wish to carry on insurance business there to
seek a fresh authorization;        whereas the First and Second Directives should
therefore be amended along those lines;
6.     Whereas   responsibility     for monitoring    the financial    health of    the
 insurance undertaking,     including    its state of solvency, the establishment
of sufficient technical provisions and the covering of those provisions by
matching assets, henceforth        lies with the competent authority of its home
Member State;
 ---pagebreak---                                            - 34 -
7.    Whereas the home Member State may lay down stricter rules than those
provided for      In Articles 7, 14, 18, 19(1) and (3) and 20 In respect of
Insurance undertakings authorized by its own competent authorities;
8.    Whereas this Directive fits into the pattern of Community               legislation
                                                                   2
already set by the first Council Directive 73/239/EEC,               as last amended by
the   Second   Directive      88/357/EEC,   and   by   Council   Directive    .../.../EEC
of          on   the annual     accounts and consolidated        accounts of    insurance
               3
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 insurance undertaking throughout the Community,
whether   it be carried on by way of freedom of establishment or by way of
freedom to provide services;          whereas, In particular, they must be able to
introduce appropriate safeguards or            Impose sanctions aimed at preventing
Irregularities       and     infringements     of    the    provisions    on    Insurance
supervision;
10.     Whereas the creation of a single market without              Internal frontiers
involves    access     to   all   insurance   business     other  than   life   assurance
throughout the Community and hence the possibility for any duly authorized
insurer    to cover      any   of  the  risks    referred    to  In the Annex      to  the
First Directive;       whereas    to  that   end   it   is necessary    to   abolish   the
monopoly enjoyed by certain bodies In certain Member States in respect of
the coverage of certain risks;
   2 0J No L 228, 16.8.1973, p. 3.
   3 0J No L
 ---pagebreak---                                         - 35 -
11.    Whereas   It Is necessary to adjust the provisions on transfers of
portfolios to bring them      into line with the single authorization system
Introduced by this Directive;
12.    Whereas   Directive          [on  the annual      accounts and   consolidated
accounts of insurance undertakings] has already brought about the necessary
harmonization of     the Member States' provisions on         the formation of    the
technical provisions insurers are required to establish in order to cover
their commitments;     whereas this makes It possible to grant the benefits of
mutual recognition of those provisions;
13.    Whereas the rules concerning the valuation of the assets used to
cover   the technical    provisions and their      diversification, the rules on
localization and currency matching rules must be coordinated             In order to
facilitate mutual     recognition of Member States' provisions;        whereas such
coordination must take account of the measures adopted In the field of the
liberalization of capital movements        in Council Directive 88/361/EEC 4 and
the work undertaken by the Community with a view to achieving Economic and
Monetary Union;
14.    Whereas, however, the home Member State may not require              insurance
undertakings to invest the assets covering their technical provisions in
particular categories of assets, such a requirement being Incompatible with
the free movement of capital measures provided for in Directive 88/361/EEC;
15.    Whereas owing to the coordination brought about by this Directive the
opportunity    given    by  Article 7(2)(c)    of    the   First Directive    to  the
Federal Republic of Germany      to prohibit    the simultaneous     transaction of
health    Insurance   and  other   classes   is   no   longer   justified   and  must
therefore be abolished;
4   OJ NO L 178, 8.7.1988 p. 5.
 ---pagebreak---                                          - 36 -
16.   Whereas the list of items of which the solvency margin required by
the First Directive may be made up must be supplemented to take account of
new financial instruments and of the facilities granted to other financial
Institutions for the constitution of their own funds;
17.    Whereas   within   the   framework  of   an   integrated   Insurance   market
policy-holders who, by virtue of their status, their size or the nature of
the  risk   to  be   insured,    do  not  require    special   protection    in  the
Member State   in which    the risk   is situated     should  be granted    complete
freedom of choice of law applicable to the Insurance contract;
18.   Whereas It Is neither necessary nor appropriate to harmonize contract
law at present;    whereas, for want of such harmonization, the opportunity
afforded to the Member States of imposing the application of their law to
insurance contracts covering risks situated in their territory is likely to
provide sufficient    safeguards for policy-holders who do require special
protection;
19.    Whereas within    the framework of an       internal market    it is In the
policy-holder's Interest that he should have access to the widest possible
range of   Insurance products available       in the Community     so that he can
choose that which Is best suited to his needs;         whereas it Is therefore for
the Member State    In which the risk     is situated to ensure that there Is
nothing  to prevent    all   the  insurance products offered      for sale    In the
Community  from being marketed      in its territory as      long as they do not
conflict with the legal provisions protecting the general good In force In
that Member Statein which the risk is situated.
 ---pagebreak---                                             - 37 -
20.    Whereas Member States must ensure that the             insurance products and
contract documents used for covering, whether by way of establishment or by
way of freedom to provide services, risks located In their territory comply
with such specific       legal provisions protecting the general          good as are
applicable;     whereas the systems of supervision to be employed must be in
keeping   with    the  requirements    of   an   integrated   market;   whereas  their
employment may not, however, constitute a prior condition for carrying on
Insurance business;      whereas from this standpoint systems of prior approval
of policy conditions are unjustified;          whereas it is necessary as a result
to provide for other systems which are better suited to the requirements of
a   single    market    and   which   enable    every    Member State    to  guarantee
policy-holders adequate protection;
20a.     Whereas some Member States allow, under certain conditions, their
residents    to conclude     health  insurance contracts with        private  insurers
Instead of and replacing the cover provided for by the statutory social
security system;      whereas the nature and social effect of such contracts
justify the supervisory authorities of the Member State where the risk is
situated In applying to such insurance contracts the regime laid down for
compulsory Insurances and In thus requiring systematic notification of the
general and special policy conditions for reasons of verification In order
to ensure that such contracts offer at least the same guarantees as those
provided    for    in  the   statutory    social   security    system-,  whereas  such
verification     should not be a precondition         for  the activity of offering
 insurance;
21.    Whereas within the framework of a single market no Member State may
continue to prohibit the simultaneous carrying-on of insurance business in
 its territory under conditions of establishment and under conditions of
freedom to provide services;        whereas the option given to Member States in
this connection by the Second Directive should therefore be abolished;
 ---pagebreak---                                           - 38 -
22.    Whereas provisions should be made for a system of penalties to be
Imposed when,     In the Member State       in which   the   risk   Is situated,     the
insurance undertaking does not comply with the provisions protecting the
general good that are applicable to it;
23.    Whereas some Member States do not subject          Insurance transactions to
any form of indirect taxation, while the majority apply special taxes and
other forms of contribution, Including surcharges intended for compensation
bodies;    whereas the structure and rate of these taxes and contributions
vary considerably     between  the Member States      in which     they are    applied;
whereas it Is desirable to avoid a situation in which existing differences
 lead   to   distortions   of   competition      in   insurance     services    between
Member States;     whereas, pending subsequent harmonization, the application
of the tax system and of other forms of contribution provided for by the
Member State    In which   the   risk    is situated    Is   likely   to  remedy    such
mischief and whereas it is for the Member States to establish the method of
ensuring that such taxes and contributions are collected;
24.    Whereas technical adjustments to the detailed rules laid down in this
Directive may be necessary       from time to time to take account of              fresh
developments in the insurance industry;          whereas the Commission will make
such     adjustments    as   and    when     necessary,     after     consulting     the
Committee on Insurance     set   up   by                  in   the   exercise   of   the
 implementing powers conferred on it by the Treaty;
25.    Whereas it is necessary to lay down specific provisions designed to
ensure a smooth transition from the legal regime existing at the time of
application of this Directive to the regime introduced by it, taking care
not    to   place    an  additional      workload   on   Member States'       competent
authorities,
HAS ADOPTED THIS DIRECTIVE:
 ---pagebreak---                                  - 39 -
                                TITLE I
                         Definitions and scope
                               Article 1
For the purposes of this Directive:
(a) "First Directive" means Directive 73/239/EEC;
(b) "Second Directive" means Directive 88/357/EEC;
(c) "Insurance undertaking" means an undertaking which has received
    official authorization in accordance with Article 6 of the First
    Directive;
(d) "branch" means an agency or branch of an insurance undertaking,
    having regard to Article 3 of the Second Directive-,
(e) "home Member State" means the Member State In which the head office
    of the insurance undertaking covering the risk is situated;
(f) "Member State of the branch" means the Member State in which the
    branch covering the risk is situated;
(g) "Member State of provision of services" means the Member State in
    which the risk is situated, as defined in Article 2 (d) of the
    Second Directive, if it is covered by an undertaking or a branch
    situated In another Member State;
 ---pagebreak---                                            - 40 -
    (h) "control" means the relationship between a parent undertaking and a
        subsidiary,     as   defined    in    Article    1   of    Council     Directive
                   1
        83/349/EEC , or      a similar     relationship    between     any   natural    or
        legal person and an undertaking;
    (I) "qualifying    holding" means      a direct   or    indirect     holding   In an
        undertaking which represents 10% or more of the capital or of the
        voting rights or which makes it possible to exercise a significant
        Influence    over   the  management     of  the    undertaking      in which     a
        holding subsists.
            For   the    purposes   of   this    definition,     In    the   context    of
            Articles 7 and 14 and of the other levels of holding referred
            to In Article 14, the voting rights referred to In Article 7
            of   Council      Directive     88/627/EEC 2    shall     be    taken    into
            consideration;
    (j) "parent   undertaking"     means   a parent    undertaking       as defined     in
        Articles 1 and 2 of Direct Ive 83/349/EEC;
    (k) "subsidiary"     means    a   subsidiary     undertaking       as   defined     in
        Articles 1    and 2 of     Directive 83/349/EEC;       any   subsidiary     of   a
        subsidiary undertaking shall also be regarded as a subsidiary of
        the parent undertaking which Is at the head of those undertakings.
                                        Article I
    1.  This   Directive    shall    apply   to   the  classes      of    insurance    and
        undertakings referred to In Article 1 of the First Directive.
    1   OJ No L 193, 18.7.1983, p.1.
    2   OJ No L 348, 17.12.1988, p.62.
(6)
 ---pagebreak---                                    - 41 -
2.  This Directive   shall not  apply  to operations, undertakings or
    entitles to which the First Directive does not apply, nor to the
    entities referred to In Article 4 of that Directive.
                               Article 3
Notwithstanding Article 2(2), Member States shall take every step to
ensure that monopolies in respect of the taklng-up of the business of
certain classes of insurance, granted to entitles established in their
territory, are abolished by the date mentioned In Article 44, second
paragraph of this Directive.
 ---pagebreak---                                    - 42 -
                                 TITLE II
               The taklng-up of the business of Insurance
                                Article 4
Article 6 of the First Directive is replaced by the following:
"Article 6
    The taking-up of the business of direct insurance shall be subject
    to prior official authorization.
        Such authorization shall be sought from the authorities of the
        home Member State by:
        a)    Any undertaking which establishes its head office in the
              territory of such state;
        b)    Any undertaking which, having received the authorization
              required under a) above, extends   Its business to other
              classes."
                                Article 5
Article 7 of the First Directive is replaced by the following:
 ---pagebreak---                                      - 43 -
"Article 7
1.  An authorization shall be valid for the whole Community.          It shall
    permit an undertaking to carry     on business there, either by way of
    right of establishment or by way of freedom to provide services.
2.  An  authorization    shall   be  granted   for  a   particular   class  of
    Insurance.    It shall cover the entire class, unless the applicant
    wishes to cover only part of the risks pertaining to that class, as
    listed in point A of the Annex.
        However :
        (a)    Member States may grant authorizations for the groups of
               classes indicated In point B of the Annex, attaching to
               them the appropriate denomination specified therein;
        (b)    an authorization granted      for one class or a group of
               classes shall also be valid for the purpose of covering
               ancillary    risks   included    in  another    class   if  the
               conditions    specified   in   point   C  of   the  Annex   are
               fulfilled."
 ---pagebreak---                                    - 44 -
                                Article 6
Article 8 of the First Directive is replaced by the following:
"Article 8
1.  Each Member State shall require that any undertaking set up in Its
    territory for which an authorization Is sought shall:
        (a)   Adopt one of the following forms:
               In  the  case   of   Belgium:   "société    anonyme/naamloze
              vennootschap",       "société      en     commandite       par
              actions/commanditaire      vennootschap     op      aandelen",
              "association         d'assurance       mutelle/onderI Inge
              verzekeringmaatschappi J",         "société
              coopérât Ive/coôperat levé vennootscap";
               In the case of     Denmark:   "aktleselskaber",    "gensidige
              selskaber";
               in  the  case   of   the  Federal    Republic   of   Germany:
              "AktlengeselIschaft",      "Verslcherungsvereln            auf
              GegenseltIgkeit",    "OffentIich-rechtIiches     Wettbewerbs-
              verslcherungsunternehmen";
 ---pagebreak---                       - 45 -
In   the  case  of   France:   "société   anonyme",   "société
d'assurance mutuelle";
in the case of Ireland: Incorporated companies limited by
shares or by guarantee or unlimited;
In the case of      Italy: "société per azlonl", "société
coopérât I va", "mutua dl ass I curazlone";
In the case of Luxembourg: "société anonyme", "société en
commandite    par    actions",   "association     d'assurances
mutuelles", "société coopérative";
In the case of the    Netherlands: "naamloze vennootschap",
"onder11nge waarborgmaatschapp i J";
In   the   case   of   the  United   Kingdom:    "Incorporated
companies    limited    by  shares    or   by   guarantee   or
unlimited", "societies registered under the         Industrial
and   Provident   Societies   Acts",   "societies   registered
under the Friendly Societies Act", "the association of
underwriters known as Lloyds".
In the case of the Greece:              "Avwvuun     eiatpela"-
 "AXXnXao*aXiOTiKÔ<: ouveiaipiouoc".
 in the case of      Spain:  "sociedad   anon Ima", "sociedad
mutua", "sociedad coopérât Iva";
 In the case of Portugual: "sociedade anon Ima", "mutua de
seguros".
 ---pagebreak---                                      - 46 -
       Insurance undertakings may also adopt the form of a European
       company  (SE), as provided for        in Council Regulation .../EEC1
       and Council Directive .../EEC.2
       Furthermore,    Member    States   may   set  up,   where    appropriate,
       undertakings under      any form of known public-law form provided
       that   such    institutions     have    as   their    object     Insurance
       operations   in    conditions    equivalent    to    those   under   which
       private-1 aw undertakings operate;
       (b)   Limit    its    business    activities    to     the   business    of
              insurance and operations directly arising therefrom, to
              the exclusion of all other .commercial business;
       (c)   Submit     a   scheme   of    operations     in    accordance    with
             Art icle 9;
       (d)    Possess    the  minimum    guarantee    fund     provided   for   In
             Article 17(2);
       (e)    Be run by technically qualified persons of good repute.
2. An undertaking    seeking    authorization     to extend     its business    to
   other classes shall be required to submit a scheme of operations in
   accordance with Article 9.
 ---pagebreak---                                      - 47 -
   It shall, furthermore, be required to show proof that It possesses
   the solvency margin provided for in Article 16 and, If with regard
   to  such  other   classes   Article 17(2)    requires   a   higher   minimum
   guarantee fund than before, that it possesses such minimum.
3. Nothing   In   this   Directive     shall   prevent   Member States     from
   maintaining    in   force    or    introducing    laws,    regulations    or
   administrative provisions requiring the approval of the memorandum
   and articles of association        and  the communication of      any other
   documents necessary for the normal exercise of supervision.
   Member States shall not, however, lay down provisions requiring the
   prior approval or systematic notification of general            and special
   policy conditions, scales of premiums and forms and other printed
   documents which an undertaking Intends to use in its dealings with
   policy-holders.    They may require only non-systematic notification
   of  those   conditions    and   other   documents   for    the  purpose   of
   verifying   compliance   with    laws,   regulations   and   administrative
   provisions in respect of Insurance contracts, and this requirement
   may not constitute a prior conditions for an undertaking to be able
   to carry on its activities.
 ---pagebreak---                                     - 48 -
        Member States may not retain or Introduce prior notification or
        approval of proposed increases in premium rates except as part
        of a general price control system.
        Nothing    in this Directive    shall   prevent   Member States  from
        subjecting     undertakings    requesting      or   having   obtained
        authorization for class 18 in point A of the Annex to checks on
        their   direct  or  indirect  resources     in staff  and  equipment,
         including   the qualification of     their   medical  teams and  the
        quality of the equipment available to the undertakings to meet
        their commitments arising from this class of insurance.
4.  The abovementIoned provisions may not require that any application
    for authorization shall be dealt with in the light of the economic
    requirements of the market.
1  OJ No L
2  OJ No L
                                 Article 6a
Article 9 of the First Directive is replaced by the following:
"Article 9
The scheme of operations referred to in Article 8(1)(c) shall contain
the following particulars or proof concerning:
        (a)    the nature of the risks which the undertaking proposes to
               cover ;
         (b)   the guiding principles as to reinsurance;
        (c)    the Items constituting the minimum guarantee fund;
 ---pagebreak---                                      - 49 -
         (d)    estimates    relating    to    the   cost  of   Installing     the
                administrative services and the organization for securing
                business; the financial resources Intended to meet such
                cost and, if the risks to be covered are classified under
                class 18   in point    A of     the Annex,   the means    at   the
                undertaking's    disposal     for   providing   the    assistance
                promised;
         and, in addition, for the first three financial years:
         (e)    estimates relating to expenses of management          other than
                costs of Installation, and in particular current general
                expenses and commissions;
         (f)    estimates relating to premiums or contributions and to
                claims;
          (g)   a forecast balance sheet;
         (h)    estimates relating to the financial resources intended to
                cover underwriting liabilities and the solvency margin."
                                   Article 7
The competent     authorities of    the home Member State shall        not   grant
authorization for taking up the business of insurance before they have
been informed of the Identities of the shareholders or members, whether
direct   or   Indirect, natural    or   legal    persons, who   have   qualifying
holdings and of the amounts of those holdings.
Those   same   authorities   shall   refuse    authorization   if,   taking   into
account    the need   to ensure the sound and prudent         management    of an
Insurance undertaking, they are not satisfied as to the suitability of
the said shareholders or members.
 ---pagebreak---                                    - 50 -
                                 TITLE III
        Harmonization of conditions governing pursuit of business
                                 Chapter 1
                                 Article 8
Article 13 of the First Directive is replaced by the following:
"Article 13
1.  The financial   supervision of an    insurance undertaking,   including
    that of the activities it carries on either through branches or by
    way    of  freedom   to   provide   services,   shall   be   the   sole
    responsibility of the home Member State.
2.  The financial supervision shall include verification, with respect
    to the entire business of the insurance undertaking, of Its state
    of solvency, the establishment of technical provisions and of the
    assets covering them,    in accordance with the rules     laid down or
    practices followed in the home Member State pursuant to Articles 15
    to 23 of this Directive.
 ---pagebreak---                                     - 51 -
        Where the undertakings In question are authorized to cover the
        risks classified under class 18 in point A of the Annex, the
        supervision    shall   extend  also    to monitoring    the  technical
        resources which the undertakings must have at their disposal In
        order   to   carry   out   the   assistance   operations    they   have
        undertaken to perform, where the law of the home Member State
        provides for the supervision of such resources.
3.  The competent authorities of the home Member State shall            require
    every   insurance   undertaking    to   have  sound   administrative    and
    accounting procedures and adequate internal control mechanisms".
                                  Article 9
Article 14 of the First Directive is replaced by the following:
"Article 14
    Member States    of   establishment    shall   provide   that,   where   an
    insurance undertaking authorized In another Member State carries on
    Its activities through a branch, the competent authorities of the
    home Member State may, after having first         informed the competent
    authorities of the Member State of the branch, carry out themselves
    or  through   the   intermediary   of  persons   they   appoint   for  that
    purpose on-the-spot     verification of the     Information necessary to
    ensure the financial supervision of the undertaking."
 ---pagebreak---                                   - 52 -
                                   A r t i c l e 10
The following Article 19a is inserted in the First Directive:
"Article 19a
    Without   prejudice     to  the       procedures   for    the   withdrawal   of
    authorizations and the provisions of criminal              law, Member States
    shall provide that their respective competent authorities may, as
    against insurance undertakings or those who effectively control the
    business of Insurance undertakings which breach              laws, regulations
    or administrative provisions concerning the supervision or pursuit
    of their activities, adopt or impose in respect of them penalties
    or measures aimed specifically at ending observed breaches or the
    causes of such breaches."
                                   Article 11
1.  Article 11 of the Second Directive is deleted.
2.  Each Member State shall, under the conditions laid down by national
     law,  authorize     Insurance       undertakings    whose     head office   is
    established   In   Its territory         to transfer  all   or  part  of  their
    portfolios of contracts, whether concluded by way of freedom of
    establishment   or   by way of        freedom   to provide    services, to an
    accepting office established in the Community,             If the supervisory
    authorities   of   the   home    Member State     of   the   accepting   office
    certify  that  the    latter possesses the necessary           solvency margin
    after taking the transfer into account.
 ---pagebreak---                                       - 53 -
3. Where a branch proposes to transfer all or part of its portfolio of
   contracts, whether concluded by way of freedom of establishment or
   by  way   of   freedom    to   provide    services,     the   Member State     of
   establishment shall be consulted.
4. In   the  circumstances     referred    to    in  paragraphs 2     and   3,   the
   supervisory      authorities    of    the     home    Member State      of    the
   transferring      undertaking    shall    authorize     the    transfer     after
   obtaining    the   agreement   of   the   supervisory     authorities    of   the
   Member States in which the risks are situated.
5. The supervisory      authorities of the Member States consulted             shall
   inform the competent      authorities of the home Member State of the
   transferring     insurance undertaking of their opinion within              three
   months of receipt of the request for an opinion;             if no response is
   forthcoming    by    the  end   of   that    period,    the   opinion    of   the
   authorities consulted shall be deemed to be favourable.
6. A transfer    authorized     in accordance with       this Article     shall   be
   published, under the conditions laid down by national               law, in the
   Member State in which the risk is situated.            Such transfer shall be
   automatically valid against the policy-holders, the insured persons
   and any other person having rights and obligations arising out of
   the contracts transferred.
   This   provision    shall  not   affect    the   right   of  Member States     to
   provide policy-holders with the option of cancelling the contract
   within a given period after the transfer."
 ---pagebreak---                                - 54 -
                             Article 12
Article 20 of the First Directive is replaced by the following:
"Article 2Q
    1.   If an undertaking does not comply with the provisions of
    Article 15, the authority of its home Member State may prohibit
    the   free   disposal   of   assets   after   having    Informed   the
    supervisory authorities of the Member States in which the risks
    are situated.
    2.   For the purposes of restoring the financial situation of an
    undertaking whose solvency margin has fallen below the minimum
    required under Article 16 (3), the surpervisory authority of
    the home Member State shall require a plan for the restoration
    of a sound financial position to be submitted for its approval.
    3.   If the solvency margin falls below the guarantee fund as
    defined   in Article 17, the supervisory authority of the home
    Member State shall require the undertaking to submit a short-
    term finance scheme for its approval.
     It may  also restrict or     prohibit   the free disposal     of  the
    assets of the undertaking.      It shall inform the authorities of
    other   Member   States   in  whose   territories   the   undertaking
    carries on business of any measures and the latter shall, at
    the request of the former, take the same measures.
    4.   The competent supervisory authorities may further take all
    measures necessary to safeguard the interests of the Insured in
    the cases provided for In (1) and (3).
    5.   Each Member State shall also take the measures necessary to
    be able to prohibit the free disposal of assets located In Its
     territory    at   the   request    of    the   undertaking's     home
    Member State."
 ---pagebreak---                                      - 55 -
                                 Article 13
Article 22 of the First Directive is replaced by the following:
"Article 22
1.  An  authorization    granted   to   an   Insurance  undertaking    by   the
    competent authority of the home Member State may be withdrawn by
    that authority if the undertaking:
        (a)   does not make use of the authorization within 12 months,
              expressly    renounces the authorization or has ceased         to
              engage in business for more than six months, unless the
              Member State     concerned    has   made   provision    for   the
               authorization to lapse in such cases;
         (b)   no longer fulfils the conditions for admission;
        (c)    has been unable, within the time allowed,          to take the
              measures    contained   In the restoration     plan or    finance
               scheme referred to in Article 20;
         (d)   fails seriously In Its obligations under the regulations
               to which it is subject.
         In  the   event    of  withdrawal     of   the  authorization,     the
        supervisory   authority of     the home Member State     shall   notify
        such withdrawal     to the supervisory     authorities of   the other
        Member States, which
 ---pagebreak---                                   - 56 -
       shall take appropriate measures to prevent the undertaking from
       commencing new operations In their territory, whether by way of
       freedom of establishment or by way of          freedom   to provide
       services.  The home Member State supervisory authority shall,
       in conjunction   with   those authorities, take      all   necessary
       measures to safeguard the interests of the         Insured and, In
       particular, shall restrict the free disposal of the assets of
       the undertaking   In accordance    with   Article 20(1) and (3),
       second subparagraph.
2. Any decision to withdraw an authorization shall be supported by
   precise reasons and notified to the undertaking in question.
   Each Member State shall make provision for a right to apply to the
   courts against such a decision."
                              Article 14
1. Member States  shall   require   any  natural   or   legal   person  who
   proposes to acquire, directly or indirectly, a qualifying holding
   in an insurance undertaking to inform the competent authorities of
   the home Member State, Indicating the size of the intended holding.
   Such a person must likewise inform the competent authorities of the
   home Member State If he proposes to increase his qualifying holding
   so that the proportion of the voting rights or of the capital held
   by him would reach or exceed 20%, 33% or 50% or so that the
   insurance undertaking would become his subsidiary.
 ---pagebreak---                                        - 57 -
   The competent     authorities of the home Member State shall                have a
   maximum of three months from the date of the notification provided
   for in the first subparagraph to oppose such a plan if, In view of
   the need to ensure sound and prudent management of the                   Insurance
   undertaking, they are not satisfied as to the suitability of the
   person   referred     to  in the   first    subparagraph.       If   they   do  not
   oppose the plan referred to in the first subparagraph, they may fix
   a maximum period for its implementation.
2. Member   States     shall   require    any   natural    or   legal     person   who
   proposes    to   dispose,    directly    or   indirectly,     of    a   qualifying
   holding   In an insurance undertaking first to inform the competent
   authorities of the home Member State, indicating the size of his
    Intended holding.      Such a person must likewise inform the competent
   authorities If he proposes to reduce his qualifying holding so that
   the proportion of the voting rights or of the capital held by him
   would   fall    below    20%,  33% or      50% or    so    that    the    insurance
   undertaking would cease to be his subsidiary.
3. On becoming aware of them, insurance undertakings shall                 inform the
   competent authorities of the home Member State of any acquisitions
   or disposals of holdings In their capital             that cause holdings to
   exceed   or    fall    below  one    of   the   thresholds      referred     to   In
   paragraphs 1 and 2.
 ---pagebreak---                                        - 58 -
    They shall also, at least once a year, inform them of the names of
    shareholders   and members    possessing     qualifying  holdings   and   the
    sizes of such holdings as shown, for example, by the information
    received at the annual general meetings of shareholders and members
    or  as a result    of  compliance with       the regulations   relating    to
    companies listed on stock exchanges.
/
 4. Member States shall require that, where the influence exercised by
    the persons referred to in paragraph 1 is likely to operate to the
    detriment   of  the prudent    and sound management      of  the   insurance
    undertaking,   the competent     authorities of     the home Member State
    shall take appropriate measures to put an end to that situation.
    Such measures may consist, for example,          in injunctions, sanctions
    against directors and managers, or the suspension of the exercise
    of   the  voting   rights   attaching      to   the  shares  held    by   the
    shareholders or members in question.
    Similar measures shall apply to natural or legal persons failing to
    comply with the obligation to provide prior           information, as laid
    down   in  paragraph 1.    If   a    holding    Is  acquired   despite    the
    opposition of the competent authorities, the Member States shall,
    regardless of any other sanctions to be adopted, provide either for
    exercise of the corresponding voting rights to be suspended, or for
    the   nullity   of  votes   cast    or   for   the  possibility   of    their
    annulment.
 ---pagebreak---                                  - 59 -
                               CHAPTER 2
                               Article 15
Article 15 of the First Directive Is replaced by the following:
"Article 15
1. The home Member State shall require every Insurance undertaking to
    establish sufficient technical provisions in respect of Its entire
    bus Iness.
    The amount of such technical provisions shall be determined
    according to the rules laid down in Articles 21 to 26, 40 and 52 to
    57 of Council Directive     on the annual accounts and consolidated
    accounts of Insurance undertakings.( )
2. The home Member State shall require every Insurance undertaking to
    cover the technical provisions in respect of its entire business by
    matching assets in accordance with Article 6 of the Second
    Directive. In respect of business written in the European
    Community, these assets must be localised in a Member State of the
    European Community. The home Member State may, however, permit
    relaxations In the rules on the localization of assets.
( ) OJ No
 ---pagebreak---                                    - 60 -
                                 Article 16
Article 23 of the Second Directive Is deleted.
                                 Article 17
Assets representing the technical     provisions shall be invested having
regard to the kind of business transacted, and the nature and duration
of the assets, including possible future variations In their yield and
va Iue.
                                 Article 18
1. The home Member State shall allow every insurance undertaking to
     cover   the   technical   provisions   from  amongst   the   following
     categories of assets.
         (a)    debt securities, bonds and other money market instruments
                Issued  by   a State or   local  authority;   loans  to or
                guaranteed by a State or local authority;
         (b)    debt securities, bonds and other money market instruments
                Issued by undertakings-,  secured loans to or guaranteed
                by undertakings;
         (c)    secured loans to natural persons other than those listed
                under (h);
 ---pagebreak---                            - 61 -
(d) transferable shares and other transferable variable yield
    participât ions;
(e) units   in   undertakings    for  collective   investments  In
    transferable securities and other investment pools;
(f) hedging instruments, such as options, futures, swaps-,
(g) land and buildings;
(h) loans guaranteed by mortgage on land, buildings, ships or
    aircraft ;
(I) cash   at    bank   and   in   hand,  deposits   with   credit
    inst itut ions;
(j) reinsurance amounts of technical provisions, determined
    in accordance with      the stipulations of    the underlying
    reinsurance contracts;
(k) deposits with and debts owed by ceding undertakings;
(I) debts owed by policy-holders and       intermediaries arising
    out of direct and reinsurance operations, up to 30% of
    premiums earned in the financial year;
(m) accrued    interest   and  rent   and other  prepayments   and
    accrued income;
 ---pagebreak---                                   - 62 -
       (n)   deferred acquisition costs;
       (o)   amounts   receivable    as   a   result   of   salvage   and
             subrogation;
       (p)   recognized tax recoveries;
       (q)   claims against guarantee funds;
       (r)   tangible fixed assets, other than land and buildings;
       (s)   reversionary interests.
2. Notwithstanding paragraph 1, in particular circumstances and at the
   Insurance undertaking's request, the home Member State may, on the
   basis of   a duly  motivated   decision,  allow other   categories  of
   assets for the purpose of covering technical provisions, subject to
   Article 17.
                               Article 19
1. The home Member State shall require every insurance undertaking to
   invest no more than:
       (a)   50% of   the total   of the technical   provisions, net of
             reinsurance,   in   the   category   of  assets   listed   in
             Article 18(1)(b);
 ---pagebreak---                             - 63 -
(b) 50% of    the total of the technical          provisions, net of
    reinsurance,     in   the   categories     of  assets    listed  in
    Article 18(1) (g) and (h), taken together;
(c) 80% of    the total of the technical          provisions, net of
    reinsurance,     in   the   categories     of   assets   listed  In
    Article 18(1)(d),(e) and (f), taken together, of which no
    more   than   10% shall     comprise    the   category   of  assets
    listed    in   Article 18(1)(f)      or    unlisted    transferable
    shares      and     other     transferable       variable     yield
    participations taken together;
(d) 5% of    the   total   of  the   technical    provisions, net    of
    reinsurance,      in   the   category     of   assets    listed  in
    Article 18(1)(c);
(e) 10% of    the total     of the technical      provisions, net of
    reinsurance, in any one piece of land or buildings, or a
    number of pieces of such        buildings;
(f) 10% of    the total     of the technical      provisions, net of
    reinsurance, in any one loan guaranteed by a mortgage on
     land, buildings, ships or aircraft;
(g) 10% of    the total     of  the technical     provisions, net of
    reinsurance, taken together in transferable shares, other
    transferable     variable    yield  participations,      debentures
    and other bonds of any one undertaking and loans to any
    one undertaking;
 ---pagebreak---                                       - 64 -
2.  Member States shall not require insurance undertakings to invest in
    particular categories of assets or to localize their assets          in a
    particular Member State.
3.  Notwithstanding paragraph 1, in particular circumstances and at the
    insurance undertaking's request, the home Member State may, on the
    basis of a duly motivated decision, allow exceptions to the rules
     laid down   In points (a) to (g) of paragraph 1 of        this Article,
    subject to Article 17.
                                   Article 20
At  the  request    of,  and  upon   proof  being  shown  by,  the  Insurance
undertaking,    the   home  Member State   may  allow   any  hidden  reserves
resulting   from  the undervaluation of assets as cover        for  technical
provisions in so far as those hidden reserves are not of an exceptional
nature.
If hidden reserves are recognized as cover for technical provisions, an
adequate amount of latent taxes and selling expenses shall be deducted.
                                   Article 21
Numbers 8 and 9 of Annex 1 to the Second Directive are replaced by the
fo11owIng:
"8.   Insurance undertakings may hold non-matching assets to cover an
amount not exceeding 20% of their commitments in a particular currency.
 ---pagebreak---                                     - 65 -
9.  Each  Member State   may  provide   that,  when  under   the   preceding
procedures a commitment   has to be covered by assets expressed       in the
currency of a Member State, this requirement shall also be considered
to be satisfied when the assets are expressed in ECU."
                                Article 22
Article 16(1) of the First Directive is replaced by the following:
"1.  The home Member State shall require every Insurance undertaking to
establish  an   adequate  solvency   margin   in  respect  of    its  entire
business.
The solvency margin shall correspond to the assets of the undertaking
free of any   foreseeable   liabilities,  less any   intangible   items.  In
particular the following shall be considered:
    the paid-up share capital or, in the case of a mutual concern, the
    effective Initial fund;
    one-half of the share capital or the Initial fund which is not yet
    paid-up, once the paid-up part reaches 25% of this capital or fund;
    reserves (statutory reserves and free reserves) not       corresponding
    to underwriting liabilities;
 ---pagebreak---                             - 66 -
any carry-forward of profits;
In  the   case  of  a   mutual  or  mutual-type   association     with
variable   contributions, any    claim which   it has    against   its
members by way of a call for supplementary contribution, within
the financial   year, up to one-half of the difference        between
the maximum contributions and the contributions actually called
in, and subject to an overriding limit of 50% of the margin-,
at the request of, and upon proof being shown by, the insurance
undertaking, any hidden reserves resulting from undervaluation
of assets,   in so far as those hidden reserves are not of an
exceptional nature;
subordinated   loan capital, up to an overriding     limit of 25% of
the margin, if the following criteria are met:
      there must be a binding agreement by which, in the event
      of    bankruptcy     or   liquidation   of     the    Insurance
      undertaking,    the subordinated   loan capital    ranks   after
      the claims of all other creditors and is not to be repaid
      until all other debts outstanding at that time have been
      sett led;
      only fully paid-up funds may be taken into account;
      the original    maturity must   be of at    least   five years,
      after which the subordinated     loan capital may be repaid;
       if its maturity is not fixed, it shall be repayable only
      subject    to five years' notice    unless   It  is no   longer
 ---pagebreak---                                     - 67 -
              considered as own funds or unless the prior consent of
              the home Member State is specifically required for early
              repayment.    The home Member State may     grant  permission
              for  the   early   repayment  of  such   loans  provided  the
              request   is made on the initiative of the Issuer and the
              solvency of the insurance undertaking in question is not
              affected;
              the extent to which subordinated loan capital may rank as
              own funds must be gradually reduced during at least the
              last five years before the agreed repayment date;
              the loan agreement must not include any clause providing
              that    in   specified    circumstances,   other   than   the
              winding-up of the     insurance undertaking, the debt will
              become repayable before the agreed repayment date."
                                Article 23
Article 18 of the First Directive Is replaced by the following:
"Article 18
1.  Member States shall not prescribe any rules as to the choice of the
    assets  In excess of those representing      the technical   provisions
    referred to In Article 15.
 ---pagebreak---                                   - 68 -
2. Subject to   Article 15(2), Article 20(1), (3) and (5) and the last
   subparagraph of Article 22(1), Member States shall not restrain the
   free disposal of the assets, whether movable or Immovable property,
   forming part of the assets of authorized businesses.
3. Those   provisions    shall   not   preclude    any  measures    which
   Member States, while safeguarding the interests of the Insured, are
f  entitled   to   take  as  owners,  members   or   associates  of   the
   undertakings in question."
 ---pagebreak---                                    - 69 -
                                 CHAPTER 3
                                 Article 24
Article 7(1) of the Second Directive is replaced by the following:
"1. The  law applicable to contracts of      insurance referred to by this
    Directive   and covering   risks within     the Member States     shall    be
    determined in accordance with the following provisions.
        (a)   Where   a   policy-holder   has   his   habitual   residence     or
              central    administration    within    the   territory    of    the
              Member State    in which   the   risk    is situated,    the    law
              applicable to the insurance contract shall be the law of
               that Member State.
        (b)   Where the contract     covers either a risk situated          in a
              Member   State other   than the Member      State  in which     the
              policy-holder    has   his  habitual     residence   or   central
              administration, or where the contract covers two or more
               risks situated in different Member States, the freedom of
              choice of the law applicable to the contract shall extend
               to the laws of those Member States and to the country in
              which   the policy-holder     has his habitual     residence or
              central administration.
        (c)   Notwithstanding    subparagraphs     (a)   and  (b), where      the
              Member States referred     to   in those subparagraphs       grant
              greater freedom of choice of the law applicable to the
              contract, the parties may take advantage of that freedom.
 ---pagebreak---                                         - 70 -
(d) Notwithstanding subparagraphs (a) and (b), when the risks covered
    by the contract are limited to events occurring            In a Member State
    other   than the Member State        in which   the risk    is situated,    the
    parties may always choose the law of the former State.
(e) For the risks referred to in Article 5(d) of the First Directive,
    the parties to the contract may choose any law.
(f) The fact that, in the cases referred to in subparagraph (a) or (e),
    the parties     have  chosen    a   law shall   not, where     all  the other
    elements relevant to the situation at the time of the choice are
    connected with one Member State only, prejudice the application of
    the mandatory rules of       law of that Member State, which means the
    rules from which the law of that Member State allows no derogation
    by means of a contract.
(g) The   choice   referred   to   in the    preceding   subparagraphs    must   be
    expressed or demonstrated with reasonable certainty by the terms of
    the contract or the circumstances of the case.            If this Is not so,
    or  If no choice has been made, the contract shall be governed by
    the   law of    the country,      from  amongst   those   considered    in the
    relevant    subparagraphs     above,    with  which    It   is  most   closely
    connected.     Nevertheless, a severable part of the contract             which
    has a closer connection with another country, from amongst                those
    considered    in the relevant subparagraphs, may by way of exception
    be governed by the law of that other country.             The contract shall
    be   rebuttably    presumed   to    be most   closely    connected   with   the
    Member State in which the risk is situated.
 ---pagebreak---                                       - 71 -
(h) Where a State Includes several territorial units, each of which has
     Its own rules of law concerning contractual obligations, each unit
     shall be considered a country for the purposes of identifying the
     law applicable under this Directive.
     A Member State    in which various territorial units have their own
     rules of law concerning contractual obligations shall not be bound
     to apply   this Directive     to conflicts between       the  laws of   those
     units."
                                   Article 25
The Member State    in which the risk      is situated shall not prevent       the
policy-holder from concluding a contract conforming with the rules of
the home Member State, as       long as     it does not    conflict    with  legal
provisions protecting the general good in the Member State in which the
r isk Is situated.
                                   Article 26
Member States    shall   not   lay   down    provisions   requiring     the  prior
approval   or  systematic    notification     of  general    and  special   policy
conditions, scales of premiums, or forms and other printed               documents
which   an  insurance undertaking      intends to use     in   its dealings with
policy-holders.    They may require only non-systematic notification
 ---pagebreak---                                          - 72 -
of those conditions and other documents for the purpose of verifying
compliance   with  laws, regulations           and   administrative     provisions   in
respect of insurance contracts, and this requirement may not constitute
a  prior   condition   for   an  undertaking          to be   able   to   cary  on  its
act ivltles.
Member States   may    not   retain     or      Introduce   prior    notification    or
approval of proposed      increases    in premium rates except           as part of a
general price control system.
                                   A r t i c l e 27
1.   Article 8(4)(b) of the Second Directive is deleted.
2.   Notwithstanding any provision to the contrary, a Member State which
     imposes an obligation to take out              insurance may require that the
     general  and  special    conditions         of   the  compulsory     Insurance  be
     communicated   to   the  supervisory         authority    of  that   Member State
     before being circulated.
 ---pagebreak---                                        - 73 -
                                     TITLE IV
              Provisions relating to freedom of establishment
                       and freedom to provide services
                                   Article 28
Article 10 of the First Directive is replaced by the following:
"Article 10
1.  An  insurance undertaking wishing to establish a branch        In another
    Member State    shall   notify   the competent  authorities of   its home
    Member State.
2.  The Member States shall require every Insurance undertaking wishing
    to   establish   a   branch   in   another Member State  to  provide  the
    following    information when effecting the notification referred to
     in paragraph 1 :
          (a)   the Member State in whose territory it plans to establish
                a branch;
         (b)    a scheme of operations setting out      Inter al la the types
                of business envisaged and the structural organization of
                the branch ;
          (c)   the address In the Member State of the branch from which
                documents may be obtained;
 ---pagebreak---                                       - 74 -
       (d)    The name of the person responsible for the management of
              the branch and possessing sufficient powers to bind the
              undertaking in relation to third parties and to represent
               it in relations with the authorities and courts of the
              host Member State.       With regard to Lloyd's, In the event
              of any    litigation    in the Member State of establishment
              resulting from underwritten commitments, insured persons
              must   not    be   more   unfavourably    treated   than   if   the
               litigation had been brought against businesses of a more
              conventional type.      The authorized agent must, therefore,
              possess sufficient       powers to enable proceedings        to be
               instituted against him and must in that capacity be able
               to bind the Lloyd's underwriters concerned.
3. Unless   the competent      authorities of    the home Member State       have
   reason to doubt the adequacy of the administrative structure or the
   financial    situation    of   the   insurance   undertaking,   taking    into
   account the activities envisaged, they shall within three months of
   receipt of the Information referred to in paragraph 2 communicate
   that information to the competent authorities of the            Member State
   of   the   branch    and     shall   inform    the   undertaking    concerned
   accordingly.
   The home Member State competent authorities shall also communicate
   the  amount    of  the   guarantee    fund   and   solvency  margin   of   the
   Insurance undertaking, calculated          in accordance with Articles 16
   and 17.
 ---pagebreak---                                        - 75 -
    Where the competent authorities of the home Member State refuse to
    communicate    the   information     referred     to   in paragraph 2     to  the
    competent authorities of the Member State of the branch they shall
    give reasons for their refusal to the undertaking concerned within
    three months of receipt of all the information.                That refusal or
    failure to reply shall be subject to a right to apply to the courts
    in the home Member State.
4.  Before   the   branch    of   an    insurance     undertaking    commences    Its
    activities, the competent        authorities of the Member State of the
    branch   shall,    within    two months      of   receiving    the    information
    mentioned    in paragraph 3,      if necessary        indicate  the    conditions
    under which, in the Interest of the general good, those activities
    must be carried on in the Member State of establishment.
5.  On receipt of a communication from the competent authorities of the
    Member State of     the branch, or,        if no communication       Is received
    from them, on expiry of the period provided for in paragraph 4, the
    branch may be established and commence its activities.
6.  In the event of a change         in any of the particulars communicated
    pursuant   to paragraph 2(b), (c) or (d), an             insurance undertaking
    shall   give    written    notice     of    the    change   to   the    competent
    authorities of the home Member State and Member State of the branch
    at  least one month before making the change so as to enable the
    competent authorities of the home Member State to take a decision
    pursuant    to  paragraph 3     and    the    competent    authorities    of  the
    Member State    of   the   branch    to   take    a  decision   on    the  change
    pursuant to paragraph 4."
                                    Article 29
Article 11 of the First Directive is deleted.
 ---pagebreak---                                        - 76 -
                                   Article 30
Article 14 of the Second Directive is replaced by the following:
"Article 14
Any undertaking   intending to carry on business for the first time by
way of freedom to provide services shall               first    inform the competent
authorities of the home Member State, indicating the Member State or
Member States within the territory of which               it contemplates providing
services and the nature of the risks it proposes to cover".
                                   A r t i c l e 31
Article 16 of the Second Directive is replaced by the following:
"Article 16
1.  The   competent     authorities        of     the    home    Member State    shall
    communicate, within one month of the notification provided for In
    Article 14,    to   the   Member State          or   Member States    within   the
    territory of which the undertaking               intends to carry on business
    under conditions of freedom to provide services:
         (a)   the    amount    of     the      solvency     margin    calculated   in
               accordance     with      Articles 16        and    17  of   the   First
               Direct Ive;
         (b)   the classes which the undertaking has been authorized to
               transact ;
         (c)   the nature of the risks which the undertaking proposes to
               cover in the Member State of provision of services.
At   the  same   time,   they    shall        inform    the   undertaking    concerned
accordingly.
 ---pagebreak---                                   - 77 -
2.  Where the competent  authorities of the home Member State do not
    communicate the information referred to in paragraph 1 within the
    period laid down, they shall give the reasons for their refusal to
    the undertaking  within  that  same period.  The  refusal  shall  be
    subject to a right to apply to the courts in the home Member State.
3.  The undertaking may commence activities as from the certified date
    on which  it is informed of the communication provided for    in the
    first subparagraph of paragraph 1."
                               Article 32
Article 17 of the Second Directive Is replaced by the following:
"Article 17
Any amendment which the undertaking intends to make to the information
referred to In Article 14 shall be subject to the procedure provided
for In Articles 14 and 16."
                               Article 33
Articles 12(2) and (3), 13 and 15 of the Second Directive are deleted.
 ---pagebreak---                                      - 78 -
                                  Article 34
1. Article 18(1) of the Second Directive is deleted.
2. Member States of the branch or of provision of services shall not
   lay down provisions requiring the prior approval            of general    and
   special policy conditions, scales of premiums and forms and other
   printed   documents which     an undertaking     intends to use.     For  the
   purpose of verifying compliance with          their   national   provisions,
   they shall require of any undertaking wishing to carry on insurance
   business    in   their   territory,    whether    by  way   of   freedom   of
   establishment    or   by  way   of  freedom   to   provide   services,   only
   non-systematic notification of the conditions it proposes to use,
   although this requirement may not constitute a prior condition for
   an undertaking to carry on its activities.
3. Member States of the branch or of provision of services shall not
   retain or     introduce   prior   notification   or  approval   of  proposed
    increases   in premium    rates   except  as   part   of  a general    price
   control system.
                                  Article 35
1. Article 19 of the Second Directive Is deleted.
2. Any undertaking carrying on business under conditions of freedom of
   establishment or freedom to provide services shall submit              to the
 ---pagebreak---                                        79 -
   competent authorities of the Member State of the branch and/or of
   the Member State of provision of services all documents requested
   of it for the purposes of this Article in so far as undertakings
   whose head office is In those Member States are also obliged to do
   so.
3. If the competent authorities of a Member State establish that an
   undertaking with a branch or providing services in Its territory is
   not complying with the legal provisions applicable to It in that
   State, they shall require the undertaking concerned to put an end
   to the irregular situation.
4. If the undertaking     in question fails to take the necessary steps,
   the   competent    authorities   of   the  Member State     concerned    shall
   inform    the   competent     authorities    of   the   home    Member State
   accordingly.    The    latter   authorities     shall,   at    the   earliest
   opportunity,    take   all  appropriate    measures   to  ensure    that   the
   undertaking concerned puts an end to that Irregular situation.             The
   nature of those measures shall be communicated            to the competent
   authorities of the Member State concerned.
5.  If, despite the measures taken by the home Member State or because
   such measures prove      inadequate or are lacking      in that State, the
   undertaking persists in violating the legal provisions In force in
   the Member State concerned,       the   latter may, after      Informing   the
   competent   authorities of the home Member State, take appropriate
   measures to prevent or punish further irregularities, Including, In
   so far as     Is strictly necessary, the prevention of           the further
   conclusion of new insurance contracts by that undertaking              In its
   territory. Member States shall ensure that In their territories It
    is possible    to   serve  the   legal   documents   necessary    for   these
   measures on Insurance undertakings.
 ---pagebreak---                                      - 80 -
6. The  foregoing    provisions    shall    not    affect   the   power      of   the
   Member States    concerned   to   take    -    in  the  case    of    urgency    -
   appropriate measures to prevent or punish Irregularities committed
   within their territories.       This shall      include the possibility of
   preventing insurance undertakings from continuing to conclude new
   insurance contracts within their territories.
7. If the undertaking which       has committed       the  irregularity       has an
   establishment or possesses property In the Member State concerned,
   the competent    authorities of the       latter may,     In accordance with
   national legislation, apply the administrative penalties prescribed
   for that offence by way of enforcement against that establishment
   or property.
8. Any  measure    adopted   pursuant    to     paragraphs 4    to    7    involving
   penalties or restrictions on the carrying-on of insurance business
   must  be properly    Justified and     communicated      to the undertaking
   concerned.   Provision shall be made for a right to apply in respect
   of any such measure to the courts in the Member State in which it
   was adopted.
9. Every two years the Commission shall submit to the Council a report
   summarizing   the   number   and   type     of   cases   in  which,      in   each
   Member State,     decisions      refusing       authorization        have     been
   communicated   under Article 28 or measures have been               taken under
   paragraph 4.   Member States shall cooperate with the Commission by
   providing It with the information required for the report.
 ---pagebreak---                                     - 81 -
                                Article 36
Nothing   in this Directive shall   prevent  insurance undertakings with
head offices   in other Member States from advertising     their  services
through all available means of communication      in the Member State or
Member State of provision of services, subject to any rules governing
the form and content of such advertising adopted in the interest of the
general good.
                                Article 37
1.  Article 20 of the Second Directive is deleted.
2.   In  the  event  of   an   insurance  undertaking   being   wound  up,
    commitments arising from contracts underwritten through a branch or
    by way of freedom to provide services shall be met in the same way
    as those arising from that undertaking's other insurance contracts,
    without distinction of nationality as far as the insured and the
    beneficiaries are concerned.
                                Article 38
1.  Article 21 of the Second Directive is deleted.
2.  Where Insurance is offered by way of freedom of establishment or by
    way of freedom to provide services, the policy-holder shall, before
     any commitment Is entered into, be informed of the Member State In
     which the head office or branch with which the contract      is to be
     concluded is established.
 ---pagebreak---                                     - 82 -
   Any  document    issued   to  the    policy-holder   must   contain   the
   information referred to in the first subparagraph.
   The requirements in the first two subparagraphs shall not apply to
   the risks referred to In Article 5(d) of the First Directive.
2. The contract or other document granting cover, together with the
   insurance proposal    where  it   is binding  upon  the proposer, must
   specify the address of the head office, or, where appropriate, of
   the branch of the insurance undertaking which grants the cover.
                                Article 39
1. Article 22 of the Second Directive is deleted.
2. Every Insurance undertaking shall inform the supervisory authority
   of  Its  home  Member State,    separately   In  respect  of   operations
   effected by way of freedom of establishment and in respect of those
   effected by way of freedom to provide services, of the amount of
   the  premiums,   without   deduction   of  reinsurance,   receivable   by
   Member State and by group of classes.
       The groups of classes are defined as follows:
              accident and sickness (1 and 2 ) ;
              motor (3, 7 and 10, the figures for class 10 being given
              separately);
 ---pagebreak---                                   - 83 -
             fire and other damage to property (8 and 9 ) ;
             aviation, marine and transport (4, 5, 6, 7, 11 and 12);
             general IiabiIity (13);
             credit and suretyship (14 and 15);
             other classes (16, 17 and 18).
       The  supervisory   authority   of  the  home  Member State    shall
       forward this information to the supervisory authorities of each
       of the Member States concerned which so request.
                               Article 40
1. Article 24 of the Second Directive is deleted.
2. Nothing  in   this  Directive   shall  prejudice  the  right   of   the
   Member States    to   require   undertakings   operating    in    their
   territories by way of freedom of establishment or by way of freedom
   to provide services to join and participate in any scheme designed
   to guarantee the payment of insurance claims to policy-holders and
   injured third parties, on the same terms as undertakings authorized
   there.
 ---pagebreak---                                         - 84 -
                                    Article 41
1. Article 25 of the Second Directive is deleted.
2. Without prejudice to any subsequent harmonization, every              Insurance
   contract   shall    be subject exclusively      to the    indirect   taxes and
   parafiscal    charges on      insurance premiums    in the Member State        in
   which the risk      is situated within the meaning of Article 2(d) of
   the   Second   Directive,     and   also, with   regard    to  Spain,   to   the
   surcharges legally established in favour of the Spanish "Consorclo
   de Compensaclôn de Seguros" for the fulfilment of               Its functions
   relating to the compensation of losses arising from extraordinary
   events occurring in that Member State.
   Notwithstanding      the   first   indent  of Article 2(d) of      the   Second
   Directive,     and   for    the   purposes   of  this   paragraph,     moveable
   property contained       in a building situated      in the territory of a
   Member State, except       for goods    in commercial   transit, shall      be a
   risk situated      in that Member State, even      If the building and        its
   contents are not covered by the same Insurance policy.
   The   law applicable to the contract pursuant           to Article 7 of the
   Second    Directive      shall    not   affect   the   fiscal     arrangements
   applicab le.
   Each Member State shall, subject to future harmonization, apply to
   those undertakings which carry on business In Its territory,                  its
   own national provisions for measures to ensure the collection of
    indirect    taxes    and    parafiscal    charges   due    under   the    first
   subparagraph.
 ---pagebreak---                                      - 85 -
                                   TITLE V
                              Final provisions
                                 Article 42
1. The  technical   adjustments    to be made       to  the    First   and   Second
   Directives and to this Directive         in the following areas shall be
   adopted  in accordance with the procedure laid down in Article                ...
   of Council Directive ... (Committee on Insurance):
              amendments   to   the   list   set   out   in   the Annex     to  the
              Directive, or adaptation of the terminology used in that
              list   to   take   account     of   developments      on   Insurance
              markets;
              clarification    of   the    items   constituting      the   solvency
              margin listed in Article 16(1) of the First Directive to
              take    account    of    the     creation     of    new    financial
              instruments;
              alteration of the minimum guarantee fund provided for in
              Article 17(2) of the First Directive to take account of
              developments in the economic and financial field;
              amendments   to the    list of admissible         assets which may
              cover the technical provisions, set out In Article 18 of
              this Directive, and of         the rules on      the spreading      of
               investments laid down in Article 19 of this Directive;
 ---pagebreak---                                             - 86 -
                changes   to   the   exceptions           to   the   matching   principle,
                provided for in Annex 1 to the Second Directive, to take
                account   of    the    development           of   new   currency     hedging
                Instruments;
                clarification     of    the       definitions       in order     to   ensure
                uniform application of the First                  and Second     Directives
                and of this Directive throughout the Community;
                consolidation of       the First          and   Second    Directives,    and
                this Direct ive.
                                    A r t i c l e 43
1.  Branches which have commenced their activities, in accordance with
    the provisions     in force     in their Member State of                establishment,
    before    the   entry    Into    force         of    the    provisions     adopted     In
    implementation of      this Directive shall be presumed                  to have been
    subject to the procedure        laid down in Article 10(1) to (5) of the
    First  Directive.     They   shall      be governed,         from the date of       that
    entry   Into force, by Articles 15, 19(a), 20 and 22 of the First
    Directive and by Article 35 of this Directive.
2.  Articles 30 and 31 shall not affect                  rights acquired by        insurance
    undertakings    transacting     business          by way     of   freedom   to   provide
    services before the entry        Into force of the provisions adopted In
     implementation of this Directive.
                                    Article 43a
Notwithstanding any provision to the contrary, a Member State in which
contracts covering     the risks mentioned              in class 2 of part A of          the
Annex to the first Directive may be concluded In place of cover under a
statutory   social   security    system,         may    apply    to such    contracts     the
regime laid down for compulsory           insurances in Article 8 of the Second
Directive, as amended by Article 27 of this Directive.
 ---pagebreak---                                      - 87 -
                                Article 43b
Member   States  shall  ensure  that       decisions   taken   in respect   of  an
insurance    undertaking    in  pursuance         of    laws,   regulations    and
administrative provisions adopted in accordance with this Directive may
be subject to the right to apply to the Courts.
                                 Article 44
Member States shall amend their national provisions to comply with this
Directive not later than ... and shall forthwith inform the Commission
thereof.
The provisions amended in accordance with the first subparagraph shall
be applied not later than ...
These provisions shall make express reference to this Directive.
                                 A r t i c l e 45
Upon notification of this Directive, Member States shall communicate to
the   Commission    the   texts   of        the   main   laws,   regulations    or
administrative provisions which they adopt in the field covered by this
Direct ive.
                                 A r t i c l e 46
This Directive Is addressed to the Member States
Done at Brussels,                           For the Council
 ---pagebreak---                                       - 88 -
                           FICHE FINANCIERE
La présente proposition de   troisième directive sur l'assurance directe autre
que l'assurance sur la vie n'entraîne pas de coût pour le budget de la Communuaté
 ---pagebreak---                                   - 89 -
             COMPETITIVENESS AND EMPLOYMENT IMPACT STATEMENT
I.What Is the main reason for Introducing the measure?
The completion of the Internal market in the direct non-life insurance
sector in accordance with the principles laid down In the White Paper In
order to create a true single market in this Important financial service
sector.
The first and second Directives have already gone a long way towards
realizing this fundamental    Community objective.   The second Directive
established   the necessary   conditions  to enable   Community   Insurance
undertakings to cover under the freedom of services regime those risks
 located within the Community which do not involve a need for special
protection ("large risks").    At the same time Insurance buyers Insuring
these   large risks can have access to the widest       possible  Community
 insurance market to find the cover most suited to their requirements.
However, some coordination     work  at Community  level   is necessary  to
arrive at the same regime for Insurance contracts entered Into by other
smaller consumer policyholders ("mass risks").
The regime that     Is proposed  is based on that already used      for the
 creation of the Internal market     for banking and Investment    services
 (Second Banking Directive and proposal    for a Directive on Investment
 services): introduction of a single licence system and of the concept of
 home-country control. When this new proposal for a Directive Is adopted
 all direct non-life Insurance will be subject to a single regime which
 will enable   Insurance undertakings to offer their products throughout
 the Community and insurance buyers to have access to the widest possible
 market in order to find the most appropriate product.
 ---pagebreak---                                       - 90 -
II. Features of the businesses in question - In particular:
      Are many SME concerned?
yes,   particularly    as   Insurance    buyers    who  will    benefit     from    the
completion of the single market;
      Are there any regional concentrations?
eligible for regional aids In the Member States?
eligible under the European Regional Development Fund?
The measures put forward In the proposal for a Directive are unlikely to
affect unevenly the Community's regions.
III. What direct obligations does this measure impose on businesses?
In   line with   the policy     followed   for other    financial     services     this
proposal   for a Directive      Introduces in the direct non-life           insurance
sector the system of the single administrative authorization valid for
all   the   undertaking's    activities     throughout    the   Community      and   of
prudential supervision by the authorities of the Member State of origin
(home country control).
This development will      simplify considerably       the present     situation as
regards    the  taklng-up    and   pursuit     of  these   activities,      currently
characterized    by  a   multiplicity     of   authorizations     and   of   controls
according to the manner In which business is conducted.
Home   country   control    regarding    the    obligation    to   hold    sufficient
technical reserves and their valuation and representation by matching
assets    localized  in the Community        will  replace    the multiplicity       of
regimes that exist at present by coordinated rules.                The solidity of
 Insurance   undertakings    will   be  strengthened    and    guaranteed     and   the
protection of Insurance polIcyholderT wl11 be reinforced as a result.
 ---pagebreak---                                   - 91 -
IV. What indirect obligations are local authorities llkelv to Impose on
businesses?
Within the limits laid down In the proposal for a Directive, the Member
States' authorities may adopt rules to ensure that the measures they
apply under the Directive are complied with.   In particular, the Member
State In which the Insured risk Is situated may require that     Its own
legal rules designed to protect the public good are respected on its
territory.
V. Are there anv special measures In respect of SMEs?
The first   Directive 73/239/EEC already set out    a number  of special
arrangements for small or medium-sized Insurance undertakings.   Article
3 states that the Directive does not apply to certain small and medium-
sized   mutual  undertakings.  In  addition  the  Directive  allows  the
required minimum guarantee fund to be reduced by one quarter In the case
of mutuals or mutuaI-type undertakings.
The proposal for a third Directive does not amend this treatment granted
to certain Insurance undertakings.
As regards Insurance policyholders which can be considered as mass risks
the proposal for a third Directive provides for rules to guarantee that
they are afforded the necessary and adequate protection when they enter
 Into Insurance contracts.
 ---pagebreak---                                    - 92 -
VI. What Is the likely effect on ;
 the competitiveness of businesses?
Community Insurance undertakings will be subject to coordinated rules
/governing the taklng-up and pursuit of the business of direct non-life
 Insurance. As a result of the creation of a single market they will be
 able to offer their Insurance products anywhere In the Community to any
 policyholder. An Increase In competition between Insurance undertakings
 can thus be anticipated.
 SME buyers of Insurance will benefit from a wider product range from
which they will be able to choose the product most suited to their
 requirements in terms of cover and price proposed.
 employment?
 there will be no direct effect.
 VII. Have both sides of industry been consulted?
 opinions have been obtained from the European Insurance Committee (CEA),
 BEUC and from BIPAR, the International Bureau of Producers of Insurance
 and Reinsurance.
  In general the comments have been positive (unions, employers).
 The CEA supports the approach taken In this proposal for a Directive,
 notably as regards the coordination of technical reserves and of the
 rules concerning the representation, valuation and localization of the
 asse'«* representing those reserves.
 ---pagebreak---  ---pagebreak---  ---pagebreak---                                                                                 ISSN 0254-1475
                                                                 COM(90) 348 final
                                                      DOCUMENTS
EN                                                                                         18
                                   Catalogue number : CB-CO-90-427-EN-C
                                                               ISBN 92-77-63831-1
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