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

Internal Market

Internal Market Contents

  • Internal market: general framework
  • Living and working in the internal market: Free movement of people, asylum and immigration, free movement of workers
  • Single Market for Goods: Free movement of goods, technical harmonisation, product labelling and packaging, consumer safety, pharmaceutical and cosmetic products, chemical products, motor vehicles, construction, external dimension
  • Single market for services: Free movement of services, professional occupations, services of general interest, transport, Information Society, postal services, financial services, banks, insurance, securities markets
  • Single market for capital: Free movement of capital, economic and monetary union, economic and private stakeholders, fiscal aspects, combating fraud, external relations
  • Businesses in the internal market: Company law, public procurement, intellectual property

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.

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.

Freedom to provide services

Freedom to provide services

Outline of the Community (European Union) legislation about 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

Freedom to provide services

Document or Iniciative

Interpretative communication of the Commission concerning the freedom to provide services and the general good of the insurance sector [Official Journal C 43 of 16.02.2000]

Summary

The main objective of the Third Council Directives Nos 92/96/EEC (life assurance) and 92/49/EEC (non-life insurance) is to allow any insurer authorised in a Member State to carry on its insurance activities throughout the European Union, whether under the rules on branches or under the freedom to provide services. The Directives introduced a single system for the financial supervision of an insurer by its Member State of origin (home-country control). However, the Commission has identified differences in the interpretation of the Community rules that are hampering the smooth functioning of the insurance sector within the internal market.

Freedom to provide services and right of establishment in the insurance Directives

Where business is carried on under the freedom to provide services with the provider present on the territory of the Member State of provision, the concept of the provision of services is basically distinguished from that of establishment by its temporary character, while the right of establishment presupposes a lasting presence in the host country. According to the case law of the Court of Justice, the temporary nature of the provision of services is to be assessed in the light of its duration, regularity, frequency and continuity.

However, there is a grey area between the two concepts, in particular in the following cases:

  • Recourse to independent persons established in the host Member State: On the strength of the Court’s case law, the Commission considers that, in order for an insurer to be covered by the rules governing the right of establishment rather than those applicable to the freedom to provide services, the independent person must meet the following three cumulative conditions:

    – he must be subject to the direction and control of the insurer he represents;
    – he must be able to commit the insurer;
    – he must have received a permanent brief.

However, the Commission considers that, in order to conclude insurance policies under the freedom to provide services, an insurer can have recourse to an establishment opened in the Member State of the provision of services for support activities either upstream or downstream of the conclusion of the insurance policy (e.g. use of risk assessment services or of local medical services, receipt of notices of claims relating to policies entered into under the freedom to provide services);

  • Electronic machines performing insurance business: ATM-type electronic machines can be covered by the right of establishment if they fulfil the above-mentioned criteria laid down by the Court of Justice. For such machines to be treated as establishments, they would have to have human or electronic management.

The use of remote means of communication, in particular electronic commerce, to conclude insurance policies should be regarded as insurance business carried on under the freedom to provide services. In order to determine the place of establishment of the insurer with which a policy is concluded, it is necessary to take account of the Member State of establishment of the insurer doing the business in question rather than the location of the Internet server. The Commission has already stated in its Financial Services Action Plan that it intends to bring out a Green Paper to examine whether the existing provisions of the Directives provide a regulatory framework that is propitious to the development of electronic commerce in financial services while ensuring that the interests of consumers are protected.

The procedure for notifying the opening of a branch or the intention to carry on business under the freedom to provide services is designed to facilitate the exchange of information between supervisory authorities. It should not therefore be regarded as a consumer protection measure or as a measure affecting the validity of any insurance policy concluded without the procedure having previously been followed.

The Third Insurance Directives lay down that insurers with head offices in Member States may advertise their services in the Member State of the branch or of the provision of services, subject to any rules governing the form and content of such advertising. There are no forms of advertising (e.g. mail, fax, electronic mail, etc.) that are subject to the notification procedure

.The general good in the Third Insurance Directives; applicability of rules promoting the general good

A Member State may have recourse to the concept of the general good in order to enforce compliance with its own laws by an insurer wishing to carry on its business within its territory under either the right of establishment or the freedom to provide services. However, the concept of the general good is not provided for in the Insurance Directives, which are limited to a description of the requirements of the Court of Justice.

An insurer must comply with the rules of the host country, even if they entail a restriction. For such a measure to be justified as being in the general good, it:
must not have been harmonised at Community level;

  • must be non-discriminatory;
  • must be justified by imperative requirements in the general interest;
  • must be objectively necessary;
  • must not duplicate rules of the country of origin;
  • must be proportionate to the objective pursued.

Application of the “general good” principle

Prior notification of policy conditions is specifically prohibited except in cases where it is provided for by the Community Directives (e.g. compulsory or health insurance which is a substitute for a statutory social security system). As regards life assurance, a Member State may require notification of the technical bases used for calculating scales of premiums.

Capital redemption operations of insurers may be carried on anywhere in the Community, even in a Member State where they are not authorised for local life assurance companies on the grounds that such operations are regarded as banking operations and are therefore reserved for credit institutions. However, the insurer must comply with the rules in force in the host Member State which are justified by reasons of the general good (taxation, advertising, etc.).

As regards uniform noclaims bonus systems (coefficients for the reduction/increase of premiums taken into account in calculating the premiums for third-party motor insurance), the Commission considers that, to the extent that such systems constitute tariff measures, they are contrary to the Third Directive (92/49/EEC). In its view, a Member State cannot invoke the general good in order to preserve the mandatory nature of such systems as the systems have already been coordinated at Community level.

In order to protect consumers, some Member States require the language of the insurance policy to be the national language. However, the Commission considers that consumer protection is not a valid reason in the case of large commercial or industrial risks. With regard to mass risks and individual life assurance, account should be taken of policies with an international dimension.

Professional codes of conduct valid on the territory of a Member State are in principle also valid with regard to foreign insurers and failure to observe them incurs commercial penalties. The Commission also notes that agreements between firms must comply with the competition rules in Article 81 et seq. of the Treaty.

Maximum technical interest rates for life assurance are fixed by the insurer’s home Member State. Since the host Member State has no competence as regards financial supervision of an insurer duly authorised in its home Member State, it follows that it cannot impose compliance with its own prudential principles or check such compliance through substantive control of premium scales.

The imposition of standard clauses or minimum insurance conditions is aimed at protecting the weaker party in a contractual relationships whilst maintaining a contractual balance. The Commission considers that such a clause should be imposed only where it is objectively necessary.

With regard to clauses imposing mandatory levels of excess in insurance policies, insurers should be free to assess the advisability of including an excess in the policies which they market. Where an insurer is approved by its home Member State, it should be free to decide market insurance policies, with or without excesses, in the host Member State, clearly indicating to customers that it is doing so without being forced by binding national rules.

Compulsory stipulation of a surrender value in life assurance policies is justified by the concept of the general good, as it gives consumers flexibility and the ability to mobilise their savings. However, the Commission wonders whether there are other means, such as the obligation to give detailed information to the policyholder prior to the conclusion of a policy, which could protect the economic interests of policyholders.

In order for a host Member State to introduce practical arrangements for charging indirect taxes on insurance premiums for policies concluded under the freedom to provide services by appointing a tax representative of the insurer, the arrangements must comply with the requirements of proportionality and necessity laid down in the case law of the Court of Justice.

The Court of Justice has already recognised the right to prohibit the marketing practice of “cold calling” in order to protect consumers.

Legal remedy

Operators faced with a national rule that constitutes an unjustified restriction of the freedom of establishment or the freedom to provide services may resort to the courts or lodge a complaint with the Commission.

 

Insurance brokerage

Insurance brokerage

Outline of the Community (European Union) legislation about Insurance brokerage

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 brokerage

Document or Iniciative

Directive 2002/92/EC of the European Parliament and of the Council of 9 December 2002 on insurance mediation [OJ L 9 of 15.1.2003].

Summary

Insurance intermediaries * are considered as the vital links in the selling of insurance products in the European Union (EU).

This Directive aims to make it easier for insurance intermediaries to avail themselves of the right to freedom of establishment and freedom to provide services and to guarantee a high level of protection for their customers. It also aims to increase the supply of insurance products to consumers.

Registration conditions

Insurance or reinsurance intermediaries are registered by a competent authority in their Member State of origin (where the insurance firm’s registered office is located). They can carry out business in other Member States by way of freedom to provide services or by opening a branch.

Professional requirements

Registration is subject to strict requirements as regards professionalism and competence since intermediaries must have the necessary general, commercial and professional knowledge and ability.

Intermediaries must be covered by professional indemnity insurance for professional negligence. Insurance intermediaries who handle customers’ money are furthermore required to have sufficient financial capacity.

Exchange of information between Member States

The Directive provides rules on the information which intermediaries are required to send to potential customers. It requires that insurance intermediaries provide customers with clear explanations of the reasons underlying their advice when selling a specific insurance product. They must set out in writing in a manner comprehensible to customers why they recommend a particular product, bearing in mind the needs of the interested parties. For instance, the latter need to know whether they are negotiating with an intermediary appointed by one or more firms or whether they are dealing with an intermediary who is advising them on the whole range of products available on the market.

Settlement of disputes

The Directive encourages the Member States to put in place adequate and efficient procedures with a view to out-of-court settlements by using, in particular, the FIN-NET cross-border network.

Information provided by the insurance intermediary

Insurance intermediaries are required to provide certain information upon signature or renewal of the insurance contract:

  • his identity and address;
  • his registration number;
  • whether he has a holding, whether direct or indirect, representing more than 10 % of the voting rights or of the capital in a given insurance undertaking;
  • whether an insurance undertaking has a holding, whether direct or indirect, representing more than 10 % of the voting rights or of the capital of the insurance undertaking.
Key terms of the Act
  • Insurance intermediary: any natural or legal person who, for remuneration, takes up or pursues insurance mediation, which consists of introducing, proposing or carrying out other work preparatory to the conclusion of contracts of insurance, or of concluding such contracts, or of assisting in the administration and performance of such contracts, in particular in the event of a claim.

References

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

Directive 2002/92/EC

15.1.2003

15.1.2005

OJ L 9 of 15.1.2003

Insurance for air carriers and aircraft operators

Insurance for air carriers and aircraft operators

Outline of the Community (European Union) legislation about Insurance for air carriers and aircraft operators

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 for air carriers and aircraft operators

Document or Iniciative

Regulation (EC) No 785/2004 of the European Parliament and of the Council of 21 April 2004 on insurance requirements for air carriers and aircraft operators [See amending act(s)].

Summary

The objective of this regulation is to establish minimum insurance requirements for air carriers and aircraft operators in respect of passengers, baggage, cargo and third parties, for both commercial and private flights.

With regard to the carriage of mail, the insurance requirements are those set out in Regulation (EEC) No 1008/2008 and in the national laws of the European Union (EU) countries.

Scope

This regulation applies to all air carriers and to all aircraft operators flying within, into, out of, or over the territory of an EU country.

This regulation does not apply to:

  • state aircraft (military, Customs department or police aircraft);
  • model aircraft with an MTOM * of less than 20 kg;
  • foot-launched flying machines (including powered paragliders and hang gliders);
  • captive balloons;
  • kites;
  • parachutes (including parascending parachutes);
  • aircraft, including gliders, with an MTOM of less than 500 kg, and microlights, which are used for non-commercial purposes, or for flight instruction (in so far as the insurance obligations under this Regulation relating to the risks of war and terrorism are concerned).

This regulation is intended to apply to Gibraltar airport. The Governments of Spain and the United Kingdom will inform the Council of the date of application.

Principles of insurance

This regulation requires air carriers and aircraft operators to be insured, in particular in respect of passengers, baggage, cargo and third parties, to cover the risks associated with aviation-specific liability (including acts of war, terrorism, hijacking, acts of sabotage, unlawful seizure of aircraft and civil commotion).

This regulation is without prejudice to the rules on liability as arising from international Conventions, EU law and the national law of the EU countries.

Compliance

Air carriers and, when so required, aircraft operators, must demonstrate compliance with the insurance requirements set out in this regulation by providing the competent authorities of the EU country concerned * with a an insurance certificate or other evidence of valid insurance.

Insurance in respect of liability for passengers, baggage and cargo

For liability in respect of passengers, the minimum insurance cover must be 250 000 SDRs * per passenger. However, in respect of non-commercial operations by aircraft with a MTOM of 2 700 kg or less, EU countries may set a lower level of minimum insurance cover, provided that such cover is at least 100 000 SDRs per passenger.

For liability in respect of baggage, the minimum insurance cover must be 1 131 SDRs per passenger in commercial operations.

For liability in respect of cargo, the minimum insurance cover must be 19 SDRs per kilogram in commercial operations.

The levels of cover set out above do not apply with respect to flights over the territory of the EU country carried out by non-EU air carriers and by aircraft operators using aircraft registered outside the EU which do not involve a landing on, or take-off from, such territory.

Insurance in respect of liability for third parties

For liability in respect of third parties, the minimum insurance cover per accident and per aircraft must be:

Category MTO(kg) Minimum insurance(million SDRs)
1 ‹ 500 0,75
2 ‹ 1 000 1,5
3 ‹ 2 700 3
4 ‹ 6 000 7
5 ‹ 12 000 18
6 ‹ 25 000 80
7 ‹ 50 000 150
8 ‹ 200 000 300
9 ‹ 500 000 500
10 ≥ 500 000 700

Enforcement and sanctions

EU countries must ensure that air carriers and aircraft operators comply with the regulation.

With respect to overflights by non-EU air carriers or aircraft registered outside the EU which do not involve a landing on or take-off from any EU country, as well as with respect to stops in EU countries by such aircraft for non-traffic purposes, the EU country concerned may request evidence of compliance with the insurance requirements laid down in this regulation.

Sanctions imposed by EU countries for infringement of this regulation must be effective, proportional and dissuasive. For EU air carriers, these sanctions may include the withdrawal of the operating licence. With regard to non-EU air carriers and to aircraft operators using aircraft registered outside the EU, the sanctions may include refusal of the right to land on the territory of an EU country.

Where EU countries are not satisfied that the conditions of this regulation are met, they must prohibit an aircraft from taking off until the air carrier or aircraft operator concerned has produced evidence of adequate insurance cover.

Key terms used in the act
  • “MTOM” means Maximum Take Off Weight, which corresponds to a certified amount specific to all aircraft types as stated in the certificate of airworthiness of the aircraft.
  • “EU country concerned” means the EU country which has granted the operating licence to the EU air carrier or the EU country where the aircraft of the aircraft operator is registered. For non-EU air carriers and aircraft operators using aircraft registered outside the EU, it means the EU country to or from which the flights are operated.
  • “SDR” means a Special Drawing Right or a potential claim on the freely usable currencies of International Monetary Fund members (SDR as defined by the IMF).

References

Act Entry into force Deadline for transposition in the Member States Official Journal
Regulation (EC) No 785/2004

30.4.2005

OJ L 138 of 30.4.2004.

Amending act(s) Entry into force Deadline for transposition in the Member States Official Journal
Regulation (EC) No 1137/2008

11.12.2008

OJ L 311 of 21.11.2008

Regulation (EC) No 285/2010

8.4.2010

OJ L 87 of 7.4.2010

Successive amendments and corrections to Regulation (EC) No 785/2004 have been incorporated in the basic text. This consolidated version is for reference purposes only.

Related Acts

Regulation (EC) No 1008/2008 of the European Parliament and of the Council of 24 September 2008 on common rules for the operation of air services in the Community [Official Journal L 293 of 31.10.2008].

Communication from the Commission to the European Parliament and the Council – ‘Insurance requirements for aircraft operators in the EU – A Report on the operation of Regulation 785/2004’ [COM(2008) 216 final – not published in the Official Journal].

Regulation (EC) No 889/2002 of the European Parliament and of the Council of 13 May 2002 amending Council Regulation (EC) No 2027/97 on air carrier liability in the event of accidents (Text with EEA relevance) [Official Journal L 140 of 30.05.2002].

This regulation deals with the liability of air carriers in respect of passengers, and has applied since the entry into force of the Montreal Convention in the European Union on 30 April 2004.

Council Decision 2001/539/EC of 5 April 2001 on the conclusion by the European Community of the Convention for the Unification of Certain Rules for International Carriage by Air (the Montreal Convention) [Official Journal L 194 of 18.07.2001].

With Council Decision 2001/539/EC the Community concluded the Convention for the Unification of Certain Rules Relating to International Carriage by Air, agreed at Montreal on 28 May 1999, which lays down new rules on liability in respect of the international carriage by air of persons, baggage and cargo.

Reinsurance

Reinsurance

Outline of the Community (European Union) legislation about 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

Reinsurance (until November 2012)

Document or Iniciative

Directive 2005/68/EC of the European Parliament and of the Council 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 [See amending act(s)].

Summary

This Directive, provided for in the Action Plan for Financial Services (APFS), provides a harmonised regulatory framework for reinsurance in the European Union (EU). By establishing a system of specific supervision for the cross-border reinsurance market, the Directive aims to strengthen insurance markets. According to the Commission, the Directive will help to reduce the administrative charges and costs resulting from different national rules.

This Directive follows the approach adopted by European legislation on insurance by bringing about such harmonisation as is essential, necessary and sufficient to achieve the mutual recognition of authorisations and prudential supervision systems, thereby making it possible to grant a single authorisation valid throughout the EU and to apply the principle of supervision by the home Member State.

Scope

This Directive provides general provisions for the taking up of the self-employed activity of reinsurance carried out exclusively by undertakings, which are established in a Member State or wish to become established there.

This Directive will not apply to:

  • direct insurance undertakings to which Directives 73/239/EEC or 2002/83/EC apply (Life assurance and non-life insurance);
  • activities and bodies referred to in Articles 2 and 3 of Directive 73/239/EEC;
  • activities and bodies referred to in Article 3 of Directive 2002/83/EC;
  • the activity of reinsurance conducted or fully guaranteed by the government of a Member State acting, for reasons of substantial public interest, as a last resort reinsurer, including when such a role is required by a situation whereby adequate reinsurance cover cannot be provided on the commercial market.

Taking up the business of reinsurance

The taking up of the business of reinsurance is to be subject to prior administrative authorisation granted by the competent authorities of the home Member State. Such authorisation, valid throughout the EU, will permit a reinsurance undertaking to operate, under either the right of establishment or the freedom to provide services.

Authorisation is provided for all types of reinsurance business (life assurance, non-life insurance, etc.) and granted to any reinsurance undertaking adopting one of the forms set out in Annex 1 to the Directive or, alternatively, that of European Company (SE).

All reinsurance undertakings must:

  • limit their activities to reinsurance and related business;
  • submit a scheme of operations;
  • possess the minimum guarantee fund (set at €3 million), subject to certain exceptions;
  • be run by “qualified” persons “of good repute”. The identities of the shareholders or members must also be made known.

Conditions for conducting reinsurance business

As regards the principles and methods of financial supervision, this Directive stresses that the financial supervision of reinsurance undertakings is the sole responsibility of the home Member State and involves the verification of solvency (in other words, the undertaking’s ability to fund expenses), technical provisions (the amount which a reinsurance undertaking must provide for in order to meet its underwriting liabilities) and the assets of reinsurance undertakings. Particular attention is given to professional confidentiality obligations and to the exchange of information between competent authorities.

Conditions relating to acquisitions and qualified shares

The Directive lays down specific criteria for implementing the prudential evaluation of shareholders and management at the time of a planned acquisition, defining a clear procedure for this to be implemented. The competent authorities must be given prior notice of all acquisitions or transfers of qualified shares in reinsurance undertakings, before conducting an agreed evaluation.

The competent authorities will decide on the appropriate repute of the potential purchaser, its potential influence and financial health of the acquisition.

Rules relating to technical provisions

The Directive provides for:

  • the establishment of technical provisions by reinsurance undertakings in accordance with Directives 91/674/EEC or 2002/83/EC. Authorised reinsurance undertakings do not need to pledge assets to cover reserves. The State may allow technical provisions to be covered by claims against reinsurers or insurers who are not authorised;
  • the establishment of equalisation reserves in order to offset deficits recorded in each financial year under five heads of credit: general insolvency, export credit, instalment credit, mortgages and agricultural credit. In certain cases, the Member State may grant an exemption from the obligation to establish an equalisation reserve;
  • freedom to invest assets covering the technical provisions and equalisation reserves, provided it is diversified and prudent. The aim is to reduce the risk of volatility in the financial markets and to secure the sufficiency, liquidity, security and matching of investments;
  • notification by the acquirer in writing of the intended amount of his participation to the relevant authorities.

Solvency margin and guarantee fund

Each Member State is to require of every reinsurance undertaking whose head office is situated in its territory an adequate available solvency margin in respect of its entire business at all times, which is at least equal to the requirements of this Directive.

The Directive provides that the required solvency margin in respect of both non-life and life reinsurance business should be determined on the basis either of the annual amount of premiums or contributions, or of the average burden of claims for the past three financial years.

Reinsurance undertakings transacting both non-life and life reinsurance business must have an available solvency margin to cover the total sum of required solvency margins in respect of both non-life and life reinsurance activities; otherwise, an undertaking will be deemed to be in difficulty or in an irregular situation.

The guarantee fund corresponds to a third of the required solvency margin. It may not be less than €3 million, while any Member State may provide that, for captive reinsurance undertakings *, the minimum guarantee fund be not less than €1 million.

Reinsurance undertakings in difficulty

The competent authorities in the home Member State may restrict or prohibit the free disposal of assets belonging to reinsurance undertakings in difficulty or in an irregular situation. The competent authorities must be empowered to require reinsurance undertakings to have a financial recovery plan of reinsurance undertakings (which must contain an estimate of management costs, forecast revenue and expenditure, a forecast balance sheet, estimates of the financial resources intended to cover underwriting liabilities and the requisite solvency margin and the overall retrocession policy). In exceptional cases, the authorisation granted to a reinsurance undertaking may be withdrawn by the home Member State.

Other provisions

In certain cases, the home Member State may lay down specific provisions concerning the pursuit of “finite” reinsurance activities *. As regards special purpose vehicles *, the Member State where the vehicle is established is to lay down the conditions under which the activities of such an undertaking is to be carried out.

Where a reinsurance undertaking with a branch or carrying on business under the freedom to provide services does not comply with the law of the host Member State, the local authorities may first call upon the undertaking to remedy that irregular situation; if the infringement continues, they may intervene in order to prevent or penalise the new irregular situation.

Reinsurance undertakings whose head offices are outside the European Union (EU) are not to be more favourably treated than reinsurance undertakings that have their head office in the EU.

Where a third country fails to grant EU reinsurance undertakings effective access to its market, the EU may negotiate with a view to obtaining improved access to that third-country market. In comitology, the Commission is to be assisted by the European Insurance and Occupational Pensions Committee.

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
  • Reinsurance: the activity consisting of accepting risks ceded by an insurance undertaking or by another reinsurance undertaking.
  • Captive reinsurance undertaking: a reinsurance undertaking owned either by a financial undertaking other than an insurance or a reinsurance undertaking or a group of insurance or reinsurance undertakings to which Directive 98/78/EC applies, or by a non-financial undertaking, the purpose of which is to provide reinsurance cover exclusively for the risks of the undertaking or undertakings to which it belongs or of an undertaking or undertakings of the group of which the captive reinsurance undertaking is a member;
  • “Finite” reinsurance: reinsurance under which the maximum loss potential exceeds the premium over the lifetime of the contract by a limited but significant amount, together with at least one of the following two features: i) explicit and material consideration of the time value of money; ii) contractual provisions to moderate the balance of economic experience between the parties over time to achieve the target risk transfer.
  • Special purpose vehicles: any undertaking which assumes risks from insurance or reinsurance undertakings and which covers such risks through the proceeds of a debt issuance or some other financing mechanism.

References

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

Directive 2005/68/EC

10.12.2005

10.12.2007

OJ L 323-1, of 9.12.2005

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

Directive 2007/44/EC

21.9.2007

20.3.2009

OJ L 247 of 21.9.2007

Directive 2008/37/EC

21.3.2008

OJ L 81 of 20.3.2008

Successive amendments and corrections to Directive 2005/68/EC have been incorporated in the basic text. This consolidated version  is for reference purpose only.

Insurance and reinsurance

Insurance and reinsurance

Outline of the Community (European Union) legislation about 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

Insurance and reinsurance

Document or Iniciative

Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (Text with EEA relevance).

Summary

This Directive aims at introducing a legal framework enabling insurance * and reinsurance * undertakings to provide services throughout the internal market.

General rules

Which sectors are covered?

This Directive lays down rules concerning:

  • the taking-up of the self-employed activities of direct insurance and reinsurance;
  • the supervision of insurance and reinsurance groups;
  • the reorganisation and winding-up of direct insurance undertakings.

Which entities are concerned?

The scope of this Directive covers:

  • non-life insurance undertakings: these include in particular health, accident, motor, civil liability, house or fire insurance;
  • life insurance undertakings including in particular:

    1. activities on a contractual basis such as assurance on death only, assurance on survival to a stipulated age or on earlier death, life assurance with return of premiums, marriage assurance, birth assurance, annuities or supplementary insurance;
    2. operations on a contractual basis such as operations whereby associations are set up, capital redemption operations or management of group pension funds;
    3. operations relating to the length of human life.
  • reinsurance undertakings.

How can authorisation to pursue the business of insurance be obtained?

An undertaking can conduct insurance or reinsurance activities after having obtained prior authorisation from the supervisory authorities * of its home Member State. This authorisation is valid throughout the Union. It covers the right of establishment and freedom to provide services. If authorisation is refused, each Member State may appeal.

Insurance undertakings must however preclude any commercial business, and reinsurance undertakings must pursue reinsurance activities as well as related operations.

How are these undertakings monitored?

The supervisory authorities shall ensure the protection of insurance policy holders and beneficiaries. They shall apply a risk-based method which includes the verification on a continuous basis of the operation of the undertaking, namely through off-site activities and on-site inspections.

Can an undertaking simultaneously pursue life and non-life insurance activities?

Insurance undertakings are not authorised to pursue life and non-life insurance activities simultaneously. However, undertakings pursuing insurance activities may obtain authorisation to carry out restricted non-life insurance activities (accident and sickness). Conversely, undertakings authorised for accident and sickness risks may obtain authorisation to carry out life insurance activities.

What are the rules relating to the valuation of assets and liabilities, technical provisions, own funds, the Solvency Capital Requirement, the Minimum Capital Requirement and investment rules?

The value of assets shall correspond to the amount for which they could be exchanged in a transaction, whilst liabilities shall be valued at the amount for which they could be transferred in a transaction.

Technical provisions have been established with respect to all of insurance and reinsurance obligations towards policy holders and beneficiaries of insurance or reinsurance contracts. The value of technical provisions shall correspond to the amount insurance and reinsurance undertakings would have to pay if they were to transfer their insurance and reinsurance obligations immediately to another undertaking. This value shall be equal to the sum of a best estimate and a risk margin.

Own funds shall consist of:

  • basic own funds consisting of the excess of assets over liabilities and subordinated liabilities;
  • ancillary own funds consisting of items other than basic own funds which can be called up to absorb losses.

The Solvency Capital Requirement shall be covered by the eligible own funds required by Member States for insurance and reinsurance undertakings. It shall cover the following risks:

  • non-life underwriting risk;
  • life underwriting risk;
  • health underwriting risk;
  • market risk;
  • credit risk;
  • operational risk.

Eligible basic funds must cover the Minimum Capital Requirement. This minimum corresponds to an amount of eligible basic own funds below which policy holders and beneficiaries would be exposed to a high level of risk. The Minimum Capital Requirement shall have an absolute floor of:

  • EUR 2.2 million for non-life insurance undertakings;
  • EUR 3.2 million for life insurance undertakings;
  • EUR 3.2 million for reinsurance undertakings.

As regards investments, insurance and reinsurance undertakings must invest only in assets and instruments whose risks can easily be identified. Undertakings have a certain freedom of investment notwithstanding.

How can insurance and reinsurance undertakings in difficulty be detected?

If the value of technical provisions does not correspond to the amount insurance and reinsurance undertakings would have to pay if they were to transfer their insurance and reinsurance obligations immediately to another undertaking, the supervisory authorities of the undertaking’s home Member State may prohibit the free disposal of assets.

If the Solvency Capital Requirement for an undertaking is no longer complied with, it must inform the supervisory authority rapidly. The undertaking must then submit a recovery plan once the non-compliance of the solvency capital has been recorded. Furthermore, if the Solvency Capital Requirement is no longer complied with, the undertaking must submit a short-term finance scheme.

How is the right of establishment and freedom to provide services to be exercised?

If an insurance undertaking wishes to establish a branch, it must notify the supervisory authorities of its home Member State. A branch is a permanent representative of the undertaking and may consist merely of an office managed by the staff of the undertaking or an independent person with authority to act.

What are the rules framing branches established in the Union with head offices situated outside the Union?

A Member State may authorise the branch of a third-country undertaking on its own territory if it fulfils the following conditions inter alia:

  • it is entitled to pursue insurance business under its national law;
  • it undertakes to cover the Solvency Capital Requirement and the Minimum Capital Requirement;
  • it fulfils the applicable governance requirements;
  • it submits a scheme of operations.

The branch of a third-country undertaking may transfer its portfolio of contracts to an accepting undertaking established in the same Member State.

Monitoring of insurance and reinsurance undertakings belonging to a group

The term “group” means a group of undertakings that:

  • is composed of a participating undertaking, its subsidiaries and entities in which it holds a participation;
  • is based on the establishment on a contractual basis of financial relationships between these undertakings.

Member States shall require the participating insurance or reinsurance undertakings to ensure that eligible own funds are available in the group which are always at least equal to the group Solvency Capital Requirement.

Member States shall provide for means of exercising control over groups. A single supervisor is to be designated from among the supervisory authorities of the Member States concerned. The supervisor shall be responsible in particular for:

  • coordinating the gathering and dissemination of information;
  • supervisory review and assessment of the financial situation of the group;
  • assessment of compliance with the rules on solvency and on risk concentration and intra-group transactions;
  • assessing the system of governance of the group.

If a parent undertaking has its head office outside the European Union, the undertaking shall be subject to supervision carried out by an authority of a third country.

Reorganisation and winding-up of insurance undertakings

Reorganisation measures correspond to intervention by the competent authorities. They are intended to preserve or restore the financial situation of an insurance undertaking. Only the competent authorities of the home Member State shall be entitled to decide on reorganisation measures with respect to an insurance undertaking. These measures shall be governed by the law of the home Member State.

Winding-up proceedings shall involve the realisation of the assets of an insurance undertaking and the distribution of the proceeds among the creditors, shareholders or members. As for reorganisation measures, only the competent authorities of the home Member State shall be entitled to decide on winding-up proceedings with respect to an insurance undertaking.

Assistance

The Commission shall be assisted by the European Insurance and Occupational Pensions Committee (EIOPC).

Repeal

This Directive repeals Directives 64/225/EEC, 73/239/EEC, 73/240/EEC, 76/580/EEC, 78/473/EEC, 84/641/EEC, 87/344/EEC, 88/357/EEC, 92/49/EEC, 98/78/EC, 2001/17/EC, 2002/83/EC and 2005/68/EC.

Key terms of the Act
  • Insurance undertaking: a direct life or non-life insurance undertaking which has received authorisation;
  • Reinsurance: the activity consisting in accepting risks ceded by an insurance undertaking or third-country insurance undertaking, or by another reinsurance undertaking or third-country reinsurance undertaking;
  • Supervisory authority: the national authority or the national authorities empowered by law or regulation to supervise insurance or reinsurance undertakings.

References

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

Directive 2009/138/EC

6.1.2010

31.10.2012

OJ L 335 of 17.12.2009

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

Directive 2011/89/EU

9.12.2011

10.6.2013

OJ L 326 of 8.12.2011

Directive 2012/23/EU

15.9.2012

30.6.2013

OJ L 249 of 14.9.2012

Successive amendments and corrections to Directive 2009/138/EC have been incorporated in the basic text. This consolidated version is for reference purpose only.

Insurance Guarantee Schemes

Insurance Guarantee Schemes

Outline of the Community (European Union) legislation about Insurance Guarantee Schemes

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 Guarantee Schemes (White Paper)

Document or Iniciative

White Paper on Insurance Guarantee Schemes [COM(2010) 370 final – Not published in the Official Journal].

Summary

This White Paper presents a number of proposals aimed at introducing a legally binding regime in the field of Insurance Guarantee Schemes (IGSs).

IGSs enable consumers to be compensated if an insurance undertaking becomes insolvent – i.e. when it is no longer able to honour its contractual commitments.

Objectives of a harmonised IGS

The measures recommended by this White Paper are aimed at:

  • ensuring comprehensive and even protection for policyholders and beneficiaries;
  • avoiding distortions of competition between different undertakings;
  • reducing adverse incentives;
  • ensuring cost efficiency;
  • enhancing market confidence and furthering the stability of markets.

Types of undertakings concerned

This White Paper applies to all life and non-life insurance undertakings. It does not apply to pension funds or reinsurance.

Types of products covered by IGSs

The Commission recommends that IGSs should cover life and non-life insurance policies. More specifically, life insurance policies shall include traditional risk-protection products as well as savings and investment products.

When IGSs should intervene

According to the Commission, an IGS should intervene when other protection mechanisms have failed to prevent or mitigate an insurer’s collapse. The IGS should be considered as a last-resort mechanism.

The ‘home country’ principle

According to the home country principle, home country monitoring authorities are responsible for prudential regulation and the initiation of winding-up proceedings. This principle presents advantages insofar as it is compatible with the deposit guarantee system in the banking sector and with the investor protection system in the securities sector.

The Commission strongly recommends the application of the home country principle for IGSs.

Funding arrangements for IGSs

Funds for IGSs should be raised on an ex ante basis. This funding arrangement may be supplemented, if necessary, by other funds at a later date, calculated according to each contributor’s risk profile.

If the insurer becomes insolvent, IGSs shall compensate policyholders and beneficiaries for losses suffered for a pre-defined period of time.

Context

The insurance sector suffered severely from the 2008 global financial crisis. Some large European insurance undertakings suffered heavy losses and had to be refinanced. In order to ensure that this situation does not occur again, in its Final Report the De Larosière Group recommended the introduction of IGSs that are harmonised at EU level, in line with the announcement made in the Communication of 9 March 2009 “Driving European Recovery”.

This summary is for information only. It is not designed to interpret or replace the reference document, which remains the only binding legal text.

Insurance and occupational pensions: regulatory and supervisory committee

Insurance and occupational pensions: regulatory and supervisory committee

Outline of the Community (European Union) legislation about Insurance and occupational pensions: regulatory and supervisory committee

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 and occupational pensions: regulatory and supervisory committee

Acts

Commission Decision 2004/9/EC of 5 November 2003 establishing the European Insurance and Occupational Pensions Committee (Text with EEA relevance).

Summary

The establishment of a supervisory and regulatory committee shall contribute to the realisation of a single market in financial services in accordance with the framework defined by the Financial Services Action Plan (FSAP).

Creation of the EIOPC

The EIOPC contributes to improving regulation in the fields of insurance, reinsurance and occupational insurance. Its creation responds to the need to extend beyond the securities markets the four-level regulatory framework advocated in the report by the Committee of Wise Men, called the Lamfalussy report in 2001. As an advisory body, it participates in preparing and applying the measures for implementing the framework principles laid down in the relevant directives and regulations. The Lamfalussy process was re-examined in 2007. During the re-examination of this process, it was deemed necessary to enhance the action of this committee and to introduce a strengthened legal framework.

As it oversees developments in the fields of insurance, reinsurance and occupational pensions, the advisory committee participates in drawing up the measures implementing the framework principles. However, it does not have the power to address issues of labour law or social law.

The role of the EIOPC

The EIOPC is, first and foremost, an advisory body. Its main task is to advise the Commission on legislative proposals and existing legislation governing insurance, reinsurance and occupational pensions.

Context

The interdependency of European Union financial systems and the disappearance of the distinction between bank-related activities and those related to securities and insurance complicate supervision both at national and European levels. A system is therefore needed in order to identify potential risks, across borders and across sectors, at an early stage so as to preserve financial stability.

References

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

Decision 2004/9/EC

13.4.2005

OJ L 3, 7.1.2004