Category Archives: Financial services: insurance

European policy in the field of insurance seeks to put in place a common framework enabling insurers to operate, establish themselves and provide services freely within the European Union. It also aims to protect insured parties, particularly individuals, for whom it is often crucial that insurers deliver on their commitments. Specific provisions apply to different sectors of activity, such as life and travel insurance.

Internal Market

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See also

Living and working in the internal market.
Overviews of European Union: Internal market.
Further information: the Internal Market and Services Directorate-General of the European Commission.

Taking-up and pursuit of the business of insurance and reinsurance

Taking-up and pursuit of the business of insurance and reinsurance

Outline of the Community (European Union) legislation about Taking-up and pursuit of the business of insurance and reinsurance

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Internal market > Single market for services > Financial services: insurance

Taking-up and pursuit of the business of insurance and reinsurance (Solvency II)

Proposal

Proposal for a Directive of the European Parliament and of the Council of 10 July 2007 on the taking-up and pursuit of the business of Insurance and Reinsurance – Solvency II.

Amended by:

Proposal for a Directive of the European Parliament and of the Council of 26 February 2008 on the taking-up and pursuit of the business of Insurance and Reinsurance – Solvency II (recast).

Summary

The solvency of insurers guarantees compensation of policyholders for losses. However, existing rules in this field are outdated. They do not take into account the risks and vary from one Member State to the next. This is why the new ‘Solvency II’ regime takes into account recent developments in prudential supervision, actuarial science and risk management. This proposal includes the recasting of fourteen Directives and the insertion of new provisions. It applies to life and non-life insurers as well as to reinsurers. However, some insurance companies, such as small insurance companies and pension funds, are not included. The Commission will look at the question of the solvency of pension funds during its review of Directive 2003/41/EC, due to take place in 2008. In addition, the proposal for a Directive will not change the arrangements that apply to financial conglomerates, for which the Commission will also review the existing legislation (Directive 2002/87/EC) in 2008.

Adjusting the proposal to take account of changes in Community law

Following the entry into force on 21 September 2007 of Directive 2007/44/EC amending Council Directive 92/49/EEC and Directives 2002/83/EC, 2004/39/EC, 2005/68/EC and 2006/48/EC as regards procedural rules and evaluation criteria for the prudential assessment of acquisitions and increase of holdings in the financial sector, differences became apparent between the texts of those Directives and the first proposal [COM(2007) 361]. In addition, in December 2007, the Council and the European Parliament reached a political agreement on the ‘Rome I’ Regulation. The provisions of that Regulation on the law applicable to contractual obligations will also affect this proposal. For these reasons, the initial proposal for the ‘Solvency II’ Directive has been amended [COM(2008) 119].

Objectives

The objectives of Solvency II are to:

  • eliminate the differences in the national rules that Member States apply to (re)insurance companies;
  • improve the operation of the single market by laying down coordinated rules on the supervision of insurance groups;
  • protect creditors by establishing procedures for the reorganisation and winding-up of insurance undertakings.

The new regime is broken down into three complementary pillars relating to:

  • quantitative requirements;
  • qualitative requirements and supervision rules;
  • supervisory reporting and public disclosure.

Pillar I: Quantitative requirements

Companies must meet the quantitative requirements dealt with in the following six sections:

  • valuation of assets and liabilities;
  • technical provisions;
  • own funds;
  • Solvency Capital Requirement;
  • Minimum Capital Requirement;
  • investment rules.

The first section relates to the valuation standards introduced for assets and liabilities. It indicates how the balance sheet must be calculated in Member States.

The second section establishes technical provisions in order for the companies to fulfil their obligations towards policyholders.

The following section relates to the availability of financial resources (own funds) serving as a buffer against risks and absorbing losses. To calculate own funds, it is sufficient to identify the amounts, classify them according to their nature and then examine the limits associated with the calculation of the amounts eligible for supervisory purposes.

The fourth section relates to the Solvency Capital Requirement, i.e. the capital needed by a company to limit the probability of ruin. This capital is monitored on a continuous basis and calculated at least once a year.

The Minimum Capital Requirement is the level of capital below which policyholders’ interests would be endangered. To continue to operate, companies must therefore hold eligible basic own funds calculated quarterly.

The last section relates to investment, management and monitoring of assets held by the companies. These activities must be in the best interest of policyholders.

Pillar II: Qualitative requirements and supervision

Solvency II requires supervision to ensure, above all, policyholder protection, taking account of financial stability and fair markets. Supervisory Authorities must assess the financial condition, the progress made and the methods used by the companies. They have the right of access to the data and the premises of insurance companies and reinsurers, including with regard to outsourced and sub-outsourced activities. For their part, the Supervisory Authorities must act in good time and respect the principle of proportionality.

A failure to comply with the qualitative and quantitative requirements may have severe consequences for the financial soundness of an insurance company and the supervisory review aims to identify institutions with financial, organisational or other features that expose them to high risk.

On the subject of governance, requirements across the banking, securities and (re)insurance sectors must be consistent. The requirements include, among other things, risk management, solvency, control and internal audit. It is the undertaking’s administrative or management body that takes final responsibility for complying with the quality and control requirements.

Pillar III: Supervisory reporting and public disclosure

The proposal maintains the acquis communautaire obliging companies to submit all information to the supervisory authorities. In line with the Lamfalussy approach, it introduces the principles with which supervisory reporting must comply.

Undertakings must publish an annual report, after approval by their management body, on their financial condition and solvency. They must update its information and may disclose additional information on a voluntary basis.

Promotion of supervisory convergence

The major challenge for the Financial Services Committee is fostering convergence of supervisory practices. Such convergence includes application of single market rules and Community legislation and enhancement of consistent supervision.

The Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) also plays a key role in fostering consistent application of this proposal and convergence of supervisory practices in Europe.

Group supervision

The way in which (re)insurance groups are supervised is a crucial factor for the success of the single market and the Solvency II regime. The proposal introduces the concept of ‘group supervisor’ and, for each group, a single authority will be appointed with concrete decision-making and coordination powers. These powers (group solvency, transactions, risk concentration, etc.) are exercised in cooperation with local supervisors.

References And Procedure

Amended proposal Official Journal Procedure
COM(2008) 119 Codecision COD/2007/0143

Insurance companies: annual accounts

Insurance companies: annual accounts

Outline of the Community (European Union) legislation about Insurance companies: annual accounts

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Internal market > Single market for services > Financial services: insurance

Insurance companies: annual accounts

Document or Iniciative

Council Directive 91/674/EEC of 19 December 1991 on the annual accounts and consolidated accounts of insurance undertakings [Official Journal L 374, 31.12.1991].

Summary

The Directive applies to all insurance companies or firms except small mutual associations.

A precise layout for the balance sheet is prescribed. There are special provisions relating to certain balance-sheet items.

A precise layout for the profit-and-loss account is prescribed. There are special provisions relating to certain items in the profit and loss account.

Valuation rules are laid down. Pending further coordination, Member States may either impose a specific set of rules or leave companies a choice between alternative rules contained in the Directive.

Certain requirements are set out relating to the content of the notes on the accounts, e.g. gross premiums broken down by category of activity (accident and health, motor, fire, etc.) and by geographical market.

A number of provisions are included on the presentation of consolidated accounts.

Rules on the publication of accounts and annual reports. It must be possible to obtain a copy of these documents upon request at a price not exceeding their administrative cost.

References

Act Entry into force – Date of expiry Deadline for transposition in the Member States Official Journal
Directive 91/674/EEC 23.12.1991 01.01.1994 OJ L 374, 31.12.1991
Directive 2003/51/EC 17.07.2003 01.01.2005 OJ L 178, 17.07.2003
Directive 2006/43/EC 29.06.2006 29.06.2008 OJ L 157, 09.06.2006
Directive 2006/46/EC 05.09.2006 05.09.2008 OJ L 224, 16.08.2006

Related Acts

Directive 2006/46/EC of the European Parliament and of the Council of 14 June 2006 amending Council Directives 78/660/EEC on the annual accounts of certain types of companies, 83/349/EEC on consolidated accounts, 86/635/EEC on the annual accounts and consolidated accounts of banks and other financial institutions and 91/674/EEC on the annual accounts and consolidated accounts of insurance undertakings [Official Journal L 224, 16.08.2006].

Council Directive 2006/43/EC of 17 May 2006 onand consolidated accounts, amending Council Directives 78/660/EEC and 83/349/EEC and repealing Council Directive 84/253/EEC [Official Journal L 157, 09.06.2006].
This Directive aims to increase the credibility of financial reporting and to enhance the European Union’s (EU) protection against financial scandals. It establishes, among other things, a requirement for external quality assurance, provisions on public supervision, the application of international standards, the duties of statutory auditors and the principles of independence applicable to statutory auditors.

Directive 2003/51/EC of the European Parliament and of the Council of 18 June 2003 amending Council Directives,,and 91/674/EEC on the annual and consolidated accounts of certain types of companies, banks and other financial institutions and insurance undertakings [Official Journal L 178, 17.07.2003].
This Directive aims to harmonise the accounting rules applying to companies and other bodies not subject to European Parliament and Council Regulation (EC) No 1606/2002 on the application of international accounting standards to listed companies (around 5 million such companies). It thus removes any discrepancy between the accounting directives and the Regulation on the application of international accounting standards (IAS) since it makes it possible to apply the IAS accounting options to companies that retain the accounting directives as their basic legislation. The Directive also clarifies the treatment of off-balance-sheet financing (debts and loans) and extends beyond the financial aspects the risk analysis made in companies’ management reports. It also spells out the compulsory content of an audit report.

Commission Recommendation of 30 May 2001 on environmental issues in the annual accounts and annual reports of companies [C(2001)453/EC – Official Journal L 156, 13.06.2001].
This Recommendation advocates that the annual accounts and annual reports of companies take environmental issues into account as regards accounting entries and the evaluation and disclosure of information.
It clarifies the accounting rules applicable and indicates how to improve the quality, transparency and comparability of environmental data in annual company accounts and reports. The lack of a shared set of rules for the disclosure of environmental issues in financial information makes it very difficult to make valid comparisons between companies. The Recommendation helps and encourages companies to improve the environmental information made available to regulating authorities, investors, financial analysts and the general public. It is applicable to the accounting directives on certain forms of companies (Fourth and Seventh Directives), banks and insurance companies. It also takes into account the provisions requiring companies quoted on the stock exchange to apply international accounting standards (IAS) as of 2005.

Insurance undertakings: supervision

Insurance undertakings: supervision

Outline of the Community (European Union) legislation about Insurance undertakings: supervision

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Internal market > Single market for services > Financial services: insurance

Insurance undertakings: supervision

Document or Iniciative

Directive 98/78/EC of the European Parliament and of the Council of 27 October 1998 on the supplementary supervision of insurance undertakings in an insurance group [See amending acts].

Summary

The Directive applies to insurance undertakings * with their registered office in the European Union (EU).

The Directive requires Member States to extend supervision (“supplementary supervision”) to all other entities that could have a bearing on the financial and operating position of a supervised insurance undertaking, including undertakings related to * or participating in * the insurance undertaking. Its scope extends to the following enterprises with which an insurer may have a parent/subsidiary relationship, or in which a participation * exists:

  • reinsurance undertakings *;
  • holding companies * (a distinction is made between financial holding companies with subsidiaries operating principally or exclusively in the insurance sector and mixed-activity holding companies with a broader range of activity);
  • non-member-country insurance and reinsurance undertakings *.

The Member States or the competent authorities * responsible for exercising supplementary supervision may waive supervision if it is deemed inappropriate or if the undertaking is of negligible interest.

Adequate internal mechanisms must exist for the production of relevant information in each insurance undertaking subject to supplementary supervision.

The competent authorities may carry out within their territory, themselves or through the intermediary of persons whom they appoint for that purpose, on-the-spot verification of information received by them.

Should the competent authorities of a Member State wish to verify information concerning an insurance undertaking situated in another Member State, they must ask the competent authorities of that other Member State to have that verification carried out.

Intra-group transactions must not jeopardise the solvency of the insurance undertaking. This applies to transactions between an insurance undertaking and its parent or subsidiaries as well as to transactions with an enterprise in which an insurance undertaking holds a participation.

The competent authorities are informed of intra-group transactions by way of an annual reporting requirement. Only significant transactions (loans, investments, etc) must be notified. The competent authorities must take appropriate measures at the level of the insurance undertaking when its solvency cannot be adequately guaranteed.

The Member States must ensure that an adjusted solvency calculation is carried out in compliance with Annex I to the Directive.

Directive 2002/87/EC amends the Directive in order to establish common standards for the prudential supervision of financial conglomerates and to create a level playing field and legal certainty for the financial institutions concerned.

The aim of Directive 2005/1/EC is to ensure institutional and legal coherence with the approach taken in the financial services industry. As of its entry into force, the European Insurance and Occupational Pensions Committee, established by Decision 2004/9/EC, replaces the Insurance Committee as the advisory body responsible for supporting the Commission in this area.

This Directive is repealed by the Directive on the taking-up and pursuit of the business of insurance and reinsurance as of 1 November 2012.

Key terms used in the act
  • Insurance undertaking: an undertaking which has received official authorisation in accordance with Article 6 of Directive 73/239/EEC.
  • Related undertaking: an undertaking which is either a subsidiary or another undertaking in which a participation is held.
  • Participating undertaking: either a parent undertaking or another undertaking which holds a participation.
  • Participation: participation within the meaning of Article 17, first sentence, of Directive 78/660/EEC or the holding, directly or indirectly, of 20 % or more of the voting rights or capital of an undertaking.
  • Reinsurance undertaking: an undertaking, other than an insurance undertaking or a non-member-country insurance undertaking, the main business of which consists in accepting risks ceded by an insurance undertaking, a non-member-country insurance undertaking or other reinsurance undertakings.
  • Insurance Holding Company: a parent undertaking the main business of which is to acquire and hold participations in subsidiary undertakings, where those subsidiary undertakings are exclusively or mainly insurance undertakings, reinsurance undertakings or non-member-country insurance undertakings, one at least of such subsidiary undertakings being an insurance undertaking.
  • Non-member-country insurance undertaking: an undertaking which would require authorisation in accordance with Article 6 of Directive 73/239/EEC if it had its registered office in the Community.
  • Competent authorities: the national authorities which are empowered by law or regulation to supervise insurance undertakings.

References

Act Entry into force Deadline for transposition in the Member States Official Journal

Directive 98/78/EC

5.12.1998

5.6.2000

OJ L 330 of 5.12.1998

Amending act(s) Entry into force Deadline for transposition in the Member States Official Journal

Directive 2002/87/EC

11.2.2003

10.8.2004

OJ L 35 of 11.2.2003

Directive 2005/1/EC

13.4.2005

13.5.2005

OJ L 79 of 24.3.2005

Directive 2005/68/EC

10.12.2005

10.12.2007

OJ L 323 of 9.12.2005

Successive amendments and corrections to Directive 98/78/EC have been incorporated in the basic text. This consolidated version  is for reference purpose only.

Related Acts

Council Directive 2005/68/EC of 16 November 2005 on reinsurance and amending Council Directives 73/239/EEC, 92/49/EEC as well as Directives 98/78/EC and 2002/83/EC [Official Journal L 323 of 9.12.2005].

This Directive specifically mentions Directive 98/78/EC in Article 59 and provides for specific amendments in the fields of “supplementary supervision of insurance and reinsurance undertakings” (application, scope and competent authorities). Specific rules are laid down for access to information, cooperation between competent authorities and intra-group transactions.

Reorganisation and winding-up of insurance undertakings

Reorganisation and winding-up of insurance undertakings

Outline of the Community (European Union) legislation about Reorganisation and winding-up of insurance undertakings

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Internal market > Single market for services > Financial services: insurance

Reorganisation and winding-up of insurance undertakings (until November 2012)

Document or Iniciative

European Parliament and Council Directive 2001/17/EC on the reorganisation and winding-up of insurance undertakings.

Summary

Background

The measure forms an integral part of the Financial Services Action Plan (FSAP) and fills a major gap in the financial services legislation. Its adoption comes at a time when financial services and personal investment are booming. The Directive was first proposed in 1987 but has involved a considerable amount of work, in particular owing to the complexity of Member States’ insolvency rules.

Status

As matters stand, if an insurance undertaking with branches in other Member States has to be wound up, the authorities of each Member State in which the undertaking is represented may open separate winding-up proceedings. This can lead to conflicts of jurisdiction, and policyholders are not always treated equally. Similarly, if an undertaking has to be reorganised, the approaches can differ from one Member State to another. The Directive is designed to guarantee consumer protection, irrespective of the place of residence.

Principle of home country control

If an undertaking with branches in other Member States fails, the winding-up will be subject to a single bankruptcy proceeding initiated in the Member State where the insurance undertaking has its registered office (known as the home State). The proceedings will thus be governed by a single bankruptcy law. This approach is consistent with the home country control principle that is the basis for the European insurance directives (life and non-life insurance).
The home country’s legislation will assess the definition of branch and the way in which the assets and liabilities held by independent persons who have a permanent authority to act as agent for an insurance undertaking should be treated.

Scope

The Directive applies to undertakings having their head office inside the EU, European branches of insurance undertakings having their head office in a third country and creditors residing in the EU.
It will also apply to winding-up proceedings, whether or not they are founded on insolvency or are voluntary or compulsory, and collective proceedings as defined in the laws of the home Member State.

Principles of unity and universality

Only the competent authorities of the home Member State are empowered to take decisions on winding-up proceedings (principle of unity). These proceedings will produce their effects and be recognised by all Member States. All the assets and liabilities of the insurance undertaking should as a general rule be taken into consideration in such proceedings (principle of universality).

Principle of coordination

The supervisory authorities of the home Member State and those of all the Member States must be informed as a matter of urgency of the opening of winding-up proceedings.

Publication

The decision to open winding-up proceedings must have appropriate publicity within the EU. In addition to publication of the decision, known creditors residing in the European Union must be individually informed of the decision and kept regularly informed of the progress of proceedings.

Protection of creditors and equal treatment

The Directive provides for the protection of insured persons, policyholders, beneficiaries and any injured party having a direct right of action against the undertaking on an insurance claim. Member States may choose between two methods of protection: either granting insurance claims absolute precedence, or granting insurance claims a special rank which may be preceded by only claims on salaries, social security and rights in rem. Nothing impedes a Member State from establishing a ranking between different categories of insurance claims. In any event, creditors must be treated in the same way without any discrimination on the grounds of nationality or residence.

Withdrawal of authorisation

The opening of winding-up proceedings entails withdrawal of the authorisation to conduct business granted to the insurance undertaking.

Exceptions

The Directive provides for exceptions to the principle of the home country as regards the effects of the winding-up on certain contracts and rights (e.g. those of staff), third parties’ rights in rem, reservations of title, set-off, regulated markets, detrimental acts, third party purchasers and lawsuits pending.

Professional secrecy

All persons required to receive or divulge information connected with procedures of communication are bound by professional secrecy.

Third countries

The host Member State of a branch of an insurance undertaking whose head office is located in a third country is regarded as the home Member State. If the parent undertaking has branches in several Member States, each branch must be treated independently (coordination between competent authorities, supervisory authorities, administrators and liquidators).

This directive is repealed by the Directive on the taking-up of the business of insurance and reinsurance from 1° November 2012.

REFERENCES

Act Entry into force Deadline for transposition in the Member States Official Journal

Directive 2001/17/EC

20.04.2001

20.04.2003

OJ L 110 of 20.04.2001

Legal expenses insurance

Legal expenses insurance

Outline of the Community (European Union) legislation about Legal expenses insurance

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Internal market > Single market for services > Financial services: insurance

Legal expenses insurance (until November 2012)

Document or Iniciative

Council Directive 87/344/EEC of 22 June 1987 on the coordination of laws, regulations and administrative provisions relating to legal expenses insurance.

Summary

Legal expenses insurance covers the costs of legal proceedings and other services relating to settlement of the claim. This Directive does not apply to risks in connection with sea-going vessels.

Obligation on insurance undertakings to provide for a separate contract or a separate section of a single policy for legal expenses insurance.

Obligation on insurance undertakings either:

  • to have separate management for legal expenses insurance;
  • to entrust the management of claims in respect of legal expenses insurance to an undertaking having separate legal identity; or
  • to afford the insured person the right to entrust the defence of his interests, from the moment that he has the right to claim from his insurer under the policy, to a lawyer of his choice. In all cases the insured must have the right to choose his lawyer where recourse is had to a lawyer.

In the event of a conflict of interest or a disagreement over settlement of the dispute, the insurer must inform the insured person of his right to choose his lawyer freely and of the possibility of using the arbitration procedure.

This Directive is repealed by the Directive on the taking-up and pursuit of the business of insurance and reinsurance as of 1 November 2012.

References

Act Entry into force Deadline for transposition in the Member States Official Journal

Directive 87/344/EEC

4.7.1987

1.1.1990

OJ L 185 of 4.7.1987

Credit and suretyship insurance

Credit and suretyship insurance

Outline of the Community (European Union) legislation about Credit and suretyship insurance

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Internal market > Single market for services > Financial services: insurance

Credit and suretyship insurance

Document or Iniciative

Council Directive 87/343/EEC of 22 June 1987 amending, as regards credit insurance and suretyship insurance, first Directive 73/239/EEC on the coordination of laws, regulations and administrative provisions relating to the taking-up and pursuit of the business of direct insurance other than life assurance.

Summary

Removal of German specialization requirements.

Obligation on Member States to require of underwriters additional financial guarantees for credit insurance. This will be achieved by setting up an equalization reserve which will offset any technical deficit or above-average claims ratio arising for a particular financial year.

Obligation on insurance companies to increase their reserves within a set period of time as a result of these amendments.

Annex containing the four permitted methods of calculating the equalization reserve for credit insurance.

References

Act Entry into force Deadline for transposition in the Member States Official Journal
Directive 87/343/EEC 04.07.1987 01.01.1990 OJ L 185 of 04.07.1987

Life assurance: freedom to provide services

Life assurance: freedom to provide services

Outline of the Community (European Union) legislation about Life assurance: freedom to provide services

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Internal market > Single market for services > Financial services: insurance

Life assurance: freedom to provide services (until November 2012)

Document or Iniciative

Directive 2002/83/EC of the European Parliament and of the Council of 5 November 2002 concerning life assurance (recast) [See amending acts].

Summary

Scope

This Directive governs the taking-up and pursuit of the self-employed activity of direct insurance by undertakings established, or wish to become established, in a Member State. It particularly concerns life assurance based on a contract and certain savings operations based on a contract.

Conditions for obtaining authorisation

The taking-up and pursuit of direct insurance is subject to prior authorisation. Authorisation is sought from the authorities of the home Member State, is valid for the entire European Union (EU) and allows the insurance company to carry on business there, under either the right of establishment or the freedom to provide services.

In order to apply for and obtain authorisation, an insurance company must meet certain criteria: it must adopt the required legal form, possess the minimum guarantee fund, and provide the information required by the monitoring authorities. Any refusal of an authorisation must be explained and notified to the company concerned. If this is the case, the competent authority in the home Member State must inform the competent authorities in the other Member States, who must take appropriate action.

Agencies or branches established in the EU but belonging to companies whose head offices are outside the EU will be authorised subject to meeting certain conditions: they must be authorised under their national legislation, establish an agency or branch in the territory of the Member State, and designate a general representative who must be approved by the competent authority.

Financial supervision

Financial supervision is the responsibility of the home Member State’s authorities, which must monitor the insurance company’s entire business and its state of solvency. They must also ensure the existence of technical provisions, sound administrative and accounting procedures and adequate internal control mechanisms.

Prudential valuation

  • The Directive lays down precise criteria for the prudential valuation of shareholders and management in connection with a planned acquisition, together with clear rules for their application. This valuation procedure is undertaken by the competent authorities working together.

The Directive requires the competent authorities to appraise the suitability of the proposed acquirer and the financial soundness of the proposed acquisition against the following criteria:

  • the reputation and financial soundness of the proposed acquirer;
  • the reputation and experience of any person who will direct the business of the insurance company as a result of the proposed acquisition;
  • the ability of the insurance undertaking to comply, and continue to comply, with the prudential requirements;
  • the existence of reasonable grounds to suspect an operation or attempt to launder money or finance terrorism.

Professional secrecy

The Directive lays down strict conditions for the use of confidential information: the competent authorities may use such information only in the course of their duties, and persons working for them are bound by professional secrecy.

Technical provisions and investment diversification

Insurance companies must constitute technical provisions, the amount of which is calculated according to actuarial assumptions, and the interest rate for which is fixed by the competent authority in the home Member State. Insurance companies must make available to the public the bases and methods used to calculate technical provisions.

The Directive requires insurance companies to diversify their investments. In this connection it defines the thresholds which insurance companies must respect when investing the assets covering technical provisions.

Solvency margins and guarantee funds

Every insurance company must have an adequate solvency margin. This may consist of its assets — paid-up share capital, reserves and profit or loss brought forward — or other financial assets belonging to the insurance company.

One third of the solvency margin constitutes the guarantee fund, which must amount to a minimum of €3 million. The guarantee fund is reviewed each year.

Contract law and insurance conditions

The contracts referred to by this Directive are subject to the law of the ‘Member State of the commitment’. However, certain provisions offer the freedom to opt for a different contract law. An insured person who enters into an individual life assurance contract on his or her own initiative has a period of between 14 and 30 days to cancel the contract.

Right of establishment and freedom to provide services

Any insurance company that proposes to establish a branch within the territory of another Member State or which intends to carry out its business in one or more Member States under the freedom to provide services must notify the competent authority in its home Member State and provide it with the necessary information. It is the task of the Member State concerned to take the necessary measures to rectify any irregular situation in which an insurance company in its territory finds itself.

Cooperation between Member States and the Commission

The competent authorities in the Member States must work closely together with the Commission, assisted by the Insurance Committee, in order to facilitate the monitoring of insurance companies.

This Directive is repealed by Directive on the taking-up and pursuit of the business Insurance and Reinsurance from 1 November 2012.

References

Act Date of entry into force Deadline for transposition in the Member States Official Journal

Directive 2002/83/EC

19.12.2002

Depending on the Article:
19.6.2004
17.11.2002
20.9.2003

OJ L 345, 19.12.2002

Amending act(s) Date of entry into force Deadline for transposition in the Member States Official Journal

Directive 2004/66/EC

1.5.2004

1.5.2004

OJ L 168, 1.5.2004

Directive 2005/1/EC

13.4.2005

13.5.2005

OJ L 79, 24.3.2005

Directive 2005/68/EC

10.12.2005

10.12.2007

OJ L 323, 9.12.2005

Directive 2006/101/EC

1.1.2007

1.1.2007

OJ L 363, 20.12.2006

Directive 2007/44/EC

21.9.2007

20.3.2009

OJ L 247, 21.9.2007

Directive 2008/19/EC

20.3.2008

OJ L 76, 19.3.2008

The successive amendments and corrections to Directive 2002/83/EC have been incorporated in the original text. This consolidated version is for reference only.

Direct insurance other than life assurance: freedom to provide services

Direct insurance other than life assurance: freedom to provide services

Outline of the Community (European Union) legislation about Direct insurance other than life assurance: freedom to provide services

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Internal market > Single market for services > Financial services: insurance

Direct insurance other than life assurance: freedom to provide services (until November 2012)

Document or Iniciative

Second Council Directive 88/357/EEC of 22 June 1988 on the coordination of laws, regulations and administrative provisions relating to direct insurance other than life assurance and laying down provisions to facilitate the effective exercise of freedom to provide services and amending Directive 73/239/EEC [See amending acts].

Summary

The Directive covers freedom to provide services, defined as the covering by an insurer established in one Member State of a risk situated in another (Member State of provision of services *), regardless of where the policy-holder is resident or established.

Some articles are of general application; others apply only to the provision of cross-frontier services. Some classes of business (e.g. accidents at work, nuclear liability, compulsory insurance of building works) are excluded from the freedom-of-services provisions and will be reviewed by the Council at a later date.

Directive 90/618/EEC brings compulsory motor-vehicle liability insurance within the scope of the second Directive.

The Directive lays down rules governing freedom to provide services. A firm wishing to do business by way of freedom to provide services in one or more Member States must notify the relevant authority in its home Member State. It must also inform that authority of changes in its activities.

In that event, the competent authority in the home Member State must inform within one month the competent authorities in the Member State or States where services are to be provided. The information must cover the firm itself, the business in which it intends to engage and the type of risks to be covered.

Risks

The concept of risk in Directive 73/239/EEC is also clarified. A distinction is made between large risk and mass risk business. Large risks are:

  • transport risks (including goods in transit), regardless of size;
  • credit and suretyship risks, if linked to a trade;
  • fire and other property damage, general liability, pecuniary loss, where the policy-holder, or group to which he belongs, meets two out of three conditions (relating to balance-sheet size, turnover and number of employees; the figures are found in accounts prepared in accordance with other Directives).

Mass risks are all other cases where there is considered to be greater need for consumer protection.

Large risks are subject to lighter controls than mass risks in both establishment * and services situations (in particular, no prior approval of policy conditions, premium rates or standard forms and letters which the insurer intends to use in relations with policy-holders).

Large risks benefit from home-country control in the case of services for businesses (all financial control is in the State of establishment). The insurer must, however, obtain a certificate of solvency from the State where his head office is located and send it to the Member State where services are to be provided, with notification of the intended activity.

Mass risks may be subject to heavy control in the State of provision of services, including:

  • authorization requirement (detailed information to be supplied which the host State has six months to consider);
  • technical reserves (needed to ensure that funds are available to meet claims) must be certified by the State where the head office is located;
  • that host State’s rules apply to policy conditions (thus determining the nature of the products that may be sold).

Insurance contracts

Articles of general application include rules on choice of contract law (governing insurer/policy-holder relations). These rules are intended to protect the policy-holder: the amount of choice depends on the circumstances of the policy-holder and never on those of the insurer.

Special rules apply to compulsory insurances: policies must comply with the rules of the State which makes such insurances compulsory.

A number of rules strengthen and amplify those in the first non-life insurance coordination Directive of 1973. These concern in particular:

  • the powers of the supervisory authorities;
  • the determination of currencies in which assets have to be held;
  • the transfer of portfolios.

Insurance policies taken out under the freedom-of-services provisions are exclusively liable to the indirect taxes and parafiscal charges levied on insurance premiums in the Member State where the risk is situated.

Freedom to provide services and specific risks

There are special rules for firms that cover risks in class 10 of point A in the Annex to Directive 73/239/EEC in another Member State from an establishment in another Member State.

They must not only become members of the national bureau and national guarantee fund of the Member State where the services are to be provided and join in their financing but also become subject to the legislation governing aggravated risks in that Member State.

In addition, they must designate in the Member State where the services are to be provided a representative, responsible not only for the payment of claims but also for representing the firm in relation to the authorities of that Member State.

This Directive is repealed by Directive on the taking-up and pursuit of the business Insurance and Reinsurance from 1 November 2012.

Key terms used in the act
  • Member State of provision of services: Member State in which the risk is situated when it is covered by an establishment situated in another Member State.
  • Establishment: the head office, agency or branch of an undertaking, account being taken of Article 3.

References

Act Entry into force Deadline for transposition in the Member States Official Journal

Directive 88/357/EEC

30.6.1988
(date of notification)

30.12.1989

OJ L 172 of 4.7.1988

Amending act(s) Entry into force Deadline for transposition in the Member States Official Journal

Directive 90/618/EEC

20.11.1990
(date of notification)

20.5.1992

OJ L 330 of 29.11.1990

Directive 92/49/EEC

2.7.1992
(date of notification)

31.12.1993

OJ L 228 of 11.8.1992

Directive 2000/26/EC

20.7.2000

19.7.2002
(except specific provisions)

OJ L 181 of 20.7.2000

Directive 2005/14/EC

11.6.2005

11.6.2007

OJ L 149 of 11.6.2005

Successive amendments and corrections to Directive 88/357/EEC have been incorporated in the original text. This consolidated version  is for reference purpose only.

Non-life insurance: third Directive

Non-life insurance: third Directive

Outline of the Community (European Union) legislation about Non-life insurance: third Directive

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Internal market > Single market for services > Financial services: insurance

Non-life insurance: third Directive

Document or Iniciative

Directive 92/49/EEC of 18 June 1992 on the coordination of laws, regulations and administrative provisions relating to direct insurance other than life insurance and amending Directives 73/239/EEC and 88/357/EEC (Third non-life insurance Directive) [See amending acts].

Summary

This Directive applies to insurance and to the taking up of the independent business of direct non-life insurance by insurance undertakings established or proposing to become established in a Member State.

The taking up of the business of insurance

Undertakings wishing to take up the business of direct insurance must seek official authorisation from the authorities of the home Member State. Such authorisation permits an undertaking to carry on business under the right of establishment or the freedom to provide services.

Insurance undertakings taking up the business of direct insurance must adopt the form provided for.

Such undertakings must:

  • limit their objects to the business of insurance and operations arising therefrom;
  • submit a scheme of operations which must include information concerning the nature of the risks which the undertaking proposes to cover, the items constituting the minimum guarantee fund, and the guiding principles as to reinsurance;
  • possess the minimum guarantee fund required.

Undertakings must also communicate the identities of the shareholders and members to the competent authorities.

Harmonisation of the conditions governing the business of insurance

The financial supervision of insurance undertakings is the sole responsibility of the Member States. They are responsible for verifying the insurance undertaking’s entire business, its state of solvency and the establishment of technical provisions and of the assets covering them. For their part, insurance undertakings must provide Member States with the documents necessary for the purposes of supervision, together with statistical documents.

Every insurance undertaking must establish adequate technical provisions in order to carry out its operations. These technical provisions and equalisation reserves are established by investments and debts and claims, or even by other assets.

The competent authorities have the power to withdraw the authorisation granted to an undertaking if it:

  • does not make use of that authorisation within 12 months;
  • no longer fulfils the conditions for admission;
  • fails in its obligations.

Provisions relating to the right of establishment and the freedom to provide services

Insurance undertakings may open a branch within the territory of another Member State, provided they notify the competent authority of the home Member State and provide it with certain information, especially concerning business carried on under the right of establishment or the freedom to provide services.

The policy-holder must always be informed of the name of the Member State in which the undertaking has its head office, and of the branch with which the contract is to be concluded.

Key terms of the act
  • Reinsurance: the business of accepting risks transferred by an insurance undertaking or another reinsurance undertaking.

References

Act Entry into force Deadline for transposition in the Member States Official Journal
Directive 92/49/EEC

2.7.1992

31.12.1993

OJ L 228 of 11.8.1992

Amending act(s) Entry into force Deadline for transposition in the Member States Official Journal
Directive 95/26/EC

7.8.1995

18.7.1996

OJ L 168 of 18.7.1995

Directive 2000/64/EC

17.11.2000

17.11.2002

OJ L 290 of 17.11.2000

Directive 2002/87/EC

11.2.2003

10.8.2004

OJ L 35 of 11.2.2003

Directive 2005/1/EC

13.4.2005

13.5.2005

OJ L 79 of 24.3.2005

Directive 2005/68/EC

10.12.2005

10.12.2007

OJ L 323 of 9.12.2005

Directive 2007/44/EC

21.9.2007

20.3.2009

OJ L 247 of 21.9.2007

Directive 2008/36/EC

21.3.2008

OJ L 81 of 20.3.2008

Successive amendments and corrections to Directive 92/49/EEC have been incorporated into the basic text. This consolidated version is for information only.

RELATED ACTS

Directive 2000/26/EC of the European Parliament and of the Council of the 16 May on the approximation of the laws of the Member States relating to insurance against civil liability in respect of the use of motor vehicles and amending Council Directives 73/239/EEC and 88/357/EEC (Fourth motor insurance Directive).
This text aims to improve the protection of residents of any Member State who, while temporarily abroad (in a Member State other than that of residence or in a non-member country whose national insurers’ bureau has joined the Green Card system), are victims of a traffic accident. It provides for simplification of the compensation procedure and requires insurance companies to appoint a claims representative in each Member State responsible for handling and settling any claims arising from an accident, and to set up information structures for identifying the insurer to which they have to address their claims. The proposal further provides for the possibility of introducing a direct right of action throughout the European Union in favour of the victim, enabling the claim for compensation to be addressed directly to the insurer of the person responsible for the accident.