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Insurance and reinsurance

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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

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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.

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

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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 undertakings: supervision

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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

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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

Life assurance: freedom to provide services

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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.

Non-life insurance: third Directive

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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.

Financial conglomerates

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Financial conglomerates

Outline of the Community (European Union) legislation about Financial conglomerates

Topics

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

Internal market > Financial services: general framework

Financial conglomerates

Document or Iniciative

European Parliament and Council Directive 2002/87/EC of 16 December 2002 on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate and amending Council Directives 73/239/EEC, 79/267/EEC, 92/49/EEC, 92/96/EEC, 93/6/EEC, 93/22/EEC, 98/78/EC and 2000/12/EC [See amending acts].

Summary

This Directive provides for supervision of the conglomerate and promotes closer coordination between the supervisory authorities for the individual sectors and the exchange of information between them.

Characteristic thresholds of a financial conglomerate

The Directive considers that the activities of a group occur mainly in the financial sector where the balance sheet total of the regulated and non-regulated financial sector entities in the group exceeds 40 % of the group’s balance sheet total.

The most important financial sector in a financial conglomerate is the sector with the highest average. The Directive regards the group as a conglomerate where it has significant activities in another financial sector.

Target entities for supplementary supervision at the level of a financial conglomerate

Supplementary supervision is to be applied to:

  • any regulated entity at the head of a financial conglomerate;
  • any regulated undertaking which has as its parent company a mixed financial holding company with its head office in the Union;
  • any regulated entity connected to another entity in the financial sector.

Solvency

Financial conglomerates must have adequate capital of their own. In particular, the multiple gearing of own funds must be abolished. The parent firm is no longer able to issue loans to finance its regulated subsidiaries («excessive leveraging»).

The proposal defines methods for calculating solvency ratios and capital adequacy at group level.

«Intra-group» transactions and risk concentration

Regulated entities and mixed financial holding companies are required to report:

  • any significant risk concentration at the level of the financial conglomerate;
  • any intra-group transaction.

An intra-group transaction is regarded as significant if it exceeds 5 % of the total amount of capital adequacy requirements of own funds at the level of a financial conglomerate.

Internal control mechanisms

Regulated entities at the level of a financial conglomerate are required to set internal control mechanisms which enable all the incurred risks to be measured.

Reporting procedures must also be implemented to identify, measure, monitor and control the intra-group transactions, as well as the risk concentration.

A mixed committee of European supervisory authorities is responsible for ensuring coherent cross-sector and cross-border supervision and compliance with EU legislation.

Supervision

The Directive provides for the appointment of a competent authority or coordinator responsible for the supplementary supervision of regulated entities of a financial conglomerate. It is responsible for:

  • coordinating and disseminating information;
  • ensuring supervisory overview and assessment of the financial situation;
  • assessing compliance with the rules on capital adequacy and of risk concentration and intra-group transactions;
  • assessing the financial conglomerate’s structure, organisation and internal control system;
  • planning and coordinating the supervisory activities.

The competent authorities responsible for supervising regulated entities belonging to a financial conglomerate and the coordinator for the financial conglomerate are required to cooperate closely with each other. In particular, they must cooperate in order to achieve harmonised supervisory practices.

Parent companies with their head office outside the European Union (EU)

Regulated entities whose head office is located outside the EU must be subject to supervision which is equivalent to that provided for by this Directive.

Role of the European Commission

The Commission is responsible for clarifying certain concepts, such as credit institutions, insurance undertakings and investment firms. It must also establish more precise methods for calculating capital adequacy in order to take account of developments on financial markets and prudential techniques.

References

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

Directive 2002/87/EC

11.2.2003

11.8.2004

OJ L 35, 11.2.2002
Amending act(s) Entry into force Deadline for transposition in the Member States Official Journal

Directive 2005/1/EC

13.4.2005

13.5.2005

OJ L 79, 24.3.2005

Directive 2008/25/EC

21.3.2008

–

OJ L 81, 20.3.2008

Directive 2010/78/EU

4.1.2011

–

OJ L 331, 15.12.2010

Successive amendments and corrections to Directive 2002/87/EC have been incorporated in the basic text. This consolidated version is for reference purpose only.

Another Normative about Financial conglomerates

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: banking

Financial conglomerates

Document or Iniciative

European Parliament and Council Directive 2002/87/EC of 16 December 2002 on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate and amending Council Directives 73/239/EEC, 79/267/EEC, 92/49/EEC, 92/96/EEC, 93/6/EEC, 93/22/EEC, 98/78/EC and 2000/12/EC [See amending acts].

Summary

This Directive provides for supervision of the conglomerate and promotes closer coordination between the supervisory authorities for the individual sectors and the exchange of information between them.

Characteristic thresholds of a financial conglomerate

The Directive considers that the activities of a group occur mainly in the financial sector where the balance sheet total of the regulated and non-regulated financial sector entities in the group exceeds 40 % of the group’s balance sheet total.

The most important financial sector in a financial conglomerate is the sector with the highest average. The Directive regards the group as a conglomerate where it has significant activities in another financial sector.

Target entities for supplementary supervision at the level of a financial conglomerate

Supplementary supervision is to be applied to:

  • any regulated entity at the head of a financial conglomerate;
  • any regulated undertaking which has as its parent company a mixed financial holding company with its head office in the Union;
  • any regulated entity connected to another entity in the financial sector.

Solvency

Financial conglomerates must have adequate capital of their own. In particular, the multiple gearing of own funds must be abolished. The parent firm is no longer able to issue loans to finance its regulated subsidiaries («excessive leveraging»).

The proposal defines methods for calculating solvency ratios and capital adequacy at group level.

«Intra-group» transactions and risk concentration

Regulated entities and mixed financial holding companies are required to report:

  • any significant risk concentration at the level of the financial conglomerate;
  • any intra-group transaction.

An intra-group transaction is regarded as significant if it exceeds 5 % of the total amount of capital adequacy requirements of own funds at the level of a financial conglomerate.

Internal control mechanisms

Regulated entities at the level of a financial conglomerate are required to set internal control mechanisms which enable all the incurred risks to be measured.

Reporting procedures must also be implemented to identify, measure, monitor and control the intra-group transactions, as well as the risk concentration.

A mixed committee of European supervisory authorities is responsible for ensuring coherent cross-sector and cross-border supervision and compliance with EU legislation.

Supervision

The Directive provides for the appointment of a competent authority or coordinator responsible for the supplementary supervision of regulated entities of a financial conglomerate. It is responsible for:

  • coordinating and disseminating information;
  • ensuring supervisory overview and assessment of the financial situation;
  • assessing compliance with the rules on capital adequacy and of risk concentration and intra-group transactions;
  • assessing the financial conglomerate’s structure, organisation and internal control system;
  • planning and coordinating the supervisory activities.

The competent authorities responsible for supervising regulated entities belonging to a financial conglomerate and the coordinator for the financial conglomerate are required to cooperate closely with each other. In particular, they must cooperate in order to achieve harmonised supervisory practices.

Parent companies with their head office outside the European Union (EU)

Regulated entities whose head office is located outside the EU must be subject to supervision which is equivalent to that provided for by this Directive.

Role of the European Commission

The Commission is responsible for clarifying certain concepts, such as credit institutions, insurance undertakings and investment firms. It must also establish more precise methods for calculating capital adequacy in order to take account of developments on financial markets and prudential techniques.

References

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

Directive 2002/87/EC

11.2.2003

11.8.2004

OJ L 35, 11.2.2002
Amending act(s) Entry into force Deadline for transposition in the Member States Official Journal

Directive 2005/1/EC

13.4.2005

13.5.2005

OJ L 79, 24.3.2005

Directive 2008/25/EC

21.3.2008

–

OJ L 81, 20.3.2008

Directive 2010/78/EU

4.1.2011

–

OJ L 331, 15.12.2010

Successive amendments and corrections to Directive 2002/87/EC have been incorporated in the basic text. This consolidated version is for reference purpose only.