First Council Directive 79/267/EEC of 5 March 1979 on the coordination of laws, regulations and administrative provisions relating to the taking-up and pursuit of the business of direct life assurance (4), the second Council Directive 90/619/EEC of 8 November 1990 on the coordination of laws, regulations and administrative provisions relating to direct life assurance, laying down provisions to facilitate the effective exercise of freedom to provide services and amending Directive 79/267/EEC (5) and Council Directive 92/96/EEC of 10 November 1992 on the coordination of laws, regulations and administrative provisions relating to direct life assurance and amending Directives 79/267/EEC and 90/619/EEC (third life assurance Directive) (6) have been substantially amended several times. Since further amendments are to be made, the Directives should be recast in the interests of clarity.
(2)
In order to facilitate the taking-up and pursuit of the business of life assurance, it is essential to eliminate certain divergences which exist between national supervisory legislation. In order to achieve this objective and at the same time ensure adequate protection for policy holders and beneficiaries in all Member States, the provisions relating to the financial guarantees required of life assurance undertakings should be coordinated.
(3)
It is necessary to complete the internal market in direct life assurance, from the point of view both of the right of establishment and of the freedom to provide services in the Member States, to make it easier for assurance undertakings with head offices in the Community to cover commitments situated within the Community and to make it possible for policy holders to have recourse not only to assurers established in their own country, but also to assurers which have their head office in the Community and are established in other Member States.
(4)
Under the Treaty, any discrimination with regard to freedom to provide services based on the fact that an undertaking is not established in the Member State in which the services are provided is prohibited. That prohibition applies to services provided from any establishment in the Community, whether it be the head office of an undertaking or an agency or branch.
(5)
This Directive therefore represents an important step in the merging of national markets into an integrated market and that stage must be supplemented by other Community instruments with a view to enabling all policy holders to have recourse to any assurer with a head office in the Community who carries on business there, under the right of establishment or the freedom to provide services, while guaranteeing them adequate protection.
(6)
This Directive forms part of the body of Community legislation in the field of life assurance which also includes Council Directive 91/674/EEC of 19 December 1991 on the annual accounts and consolidated accounts of insurance undertakings (7).
(7)
The approach adopted consists in bringing about such harmonisation as is essential, necessary and sufficient to achieve the mutual recognition of authorisations and prudential control systems, thereby making it possible to grant a single authorisation valid throughout the Community and apply the principle of supervision by the home Member State.
(8)
As a result, the taking up and the pursuit of the business of assurance are subject to the grant of a single official authorisation issued by the competent authorities of the Member State in which an assurance undertaking has its head office. Such authorisation enables an undertaking to carry on business throughout the Community, under the right of establishment or the freedom to provide services. The Member State of the branch or of the provision of services may not require assurance undertakings which wish to carry on assurance business there and which have already been authorised in their home Member State to seek fresh authorisation.
(9)
The competent authorities should not authorise or continue the authorisation of an assurance undertaking where they are liable to be prevented from effectively exercising their supervisory functions by the close links between that undertaking and other natural or legal persons. Assurance undertakings already authorised must also satisfy the competent authorities in that respect.
(10)
The definition of ‘close links’ in this Directive lays down minimum criteria and that does not prevent Member States from applying it to situations other than those envisaged by the definition.
(11)
The sole fact of having acquired a significant proportion of a company's capital does not constitute participation, within the meaning of ‘close links’, if that holding has been acquired solely as a temporary investment which does not make it possible to exercise influence over the structure or financial policy of the undertaking.
(12)
The principles of mutual recognition and of home Member State supervision require that Member States' competent authorities should not grant or should withdraw authorisation where factors such as the content of programmes of operations or the geographical distribution of the activities actually carried on indicate clearly that an assurance undertaking has opted for the legal system of one Member State for the purpose of evading the stricter standards in force in another Member State within whose territory it carries on or intends to carry on the greater part of its activities. An assurance undertaking must be authorised in the Member State in which it has its registered office. In addition, Member States must require that an assurance undertaking's head office always be situated in its home Member State and that it actually carries on its business there.
(13)
For practical reasons, it is desirable to define provision of services taking into account both the assurer's establishment and the place where the commitment is to be covered. Therefore, commitment should also be defined. Moreover, it is desirable to distinguish between activities pursued by way of establishment and activities pursued by way of freedom to provide services.
(14)
A classification by class of assurance is necessary in order to determine, in particular, the activities subject to compulsory authorisation.
(15)
Certain mutual associations which, by virtue of their legal status, fulfil requirements as to security and other specific financial guarantees should be excluded from the scope of this Directive. Certain organisations whose activity covers only a very restricted sector and is limited by their articles of association should also be excluded.
(16)
Life assurance is subject to official authorisation and supervision in each Member State. The conditions for the granting or withdrawal of such authorisation should be defined. Provision must be made for the right to apply to the courts should an authorisation be refused or withdrawn.
(17)
It is desirable to clarify the powers and means of supervision vested in the competent authorities. It is also desirable to lay down specific provisions regarding the taking up, pursuit and supervision of activity by way of freedom to provide services.
(18)
The competent authorities of home Member States should be responsible for monitoring the financial health of assurance undertakings, including their state of solvency, the establishment of adequate technical provisions and the covering of those provisions by matching assets.
(19)
It is appropriate to provide for the possibility of exchanges of information between the competent authorities and authorities or bodies which, by virtue of their function, help to strengthen the stability of the financial system. In order to preserve the confidential nature of the information forwarded, the list of addressees must remain within strict limits.
(20)
Certain behaviour, such as fraud and insider offences, is liable to affect the stability, including integrity, of the financial system, even when involving undertakings other than assurance undertakings.
(21)
It is necessary to specify the conditions under which the abovementioned exchanges of information are authorised.
(22)
Where it is stipulated that information may be disclosed only with the express agreement of the competent authorities, these may, where appropriate, make their agreement subject to compliance with strict conditions.
(23)
Member States may conclude agreements on exchange of information with third countries provided that the information disclosed is subject to appropriate guarantees of professional secrecy.
(24)
For the purposes of strengthening the prudential supervision of assurance undertakings and protection of clients of assurance undertakings, it should be stipulated that an auditor must have a duty to report promptly to the competent authorities, wherever, as provided for by this Directive, he/she becomes aware, while carrying out his/her tasks, of certain facts which are liable to have a serious effect on the financial situation or the administrative and accounting organisation of an assurance undertaking.
(25)
Having regard to the aim in view, it is desirable for Member States to provide that such a duty should apply in all circumstances where such facts are discovered by an auditor during the performance of his/her tasks in an undertaking which has close links with an assurance undertaking.
(26)
The duty of auditors to communicate, where appropriate, to the competent authorities certain facts and decisions concerning an assurance undertaking which they discover during the performance of their tasks in a non-assurance undertaking does not in itself change the nature of their tasks in that undertaking nor the manner in which they must perform those tasks in that undertaking.
(27)
The performance of the operations of management of group pension funds cannot under any circumstances affect the powers conferred on the respective authorities with regard to the entities holding the assets with which that management is concerned.
(28)
Certain provisions of this Directive define minimum standards. A home Member State may lay down stricter rules for assurance undertakings authorised by its own competent authorities.
(29)
The competent authorities of the Member States must have at their disposal such means of supervision as are necessary to ensure the orderly pursuit of business by assurance undertakings throughout the Community whether carried on under the right of establishment or the freedom to provide services. In particular, they must be able to introduce appropriate safeguards or impose sanctions aimed at preventing irregularities and infringements of the provisions on assurance supervision.
(30)
The provisions on transfers of portfolios should include provisions specifically concerning the transfer to another undertaking of the portfolio of contracts concluded by way of freedom to provide services.
(31)
The provisions on transfers of portfolios must be in line with the single legal authorisation system provided for in this Directive.
(32)
Undertakings formed after the dates referred to in Article 18(3) should not be authorised to carry on life assurance and non-life insurance activities simultaneously. Member States should be allowed to permit undertakings which, on the relevant dates referred to in Article 18(3), carried on these activities simultaneously to continue to do so provided that separate management is adopted for each of their activities, in order that the respective interests of life policy holders and non-life policy holders are safeguarded and the minimum financial obligations in respect of one of the activities are not borne by the other activity. Member States should be given the option of requiring those existing undertakings established in their territory which carry on life assurance and non-life insurance simultaneously to put an end to this practice. Moreover, specialised undertakings should be subject to special supervision where a non-life undertaking belongs to the same financial group as a life undertaking.
(33)
Nothing in this Directive prevents a composite undertaking from dividing itself into two undertakings, one active in the field of life assurance, the other in non-life insurance. In order to allow such division to take place under the best possible conditions, it is desirable to permit Member States, in accordance with Community rules of competition law, to provide for appropriate tax arrangements, in particular with regard to the capital gains such division could entail.
(34)
Those Member States which so wish should be able to grant the same undertaking authorisations for the classes referred to in Annex I and the insurance business coming under classes 1 and 2 in the Annex to Council Directive 73/239/EEC of 24 July 1973 on the coordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of direct insurance other than life assurance (8). That possibility may, however, be subject to certain conditions as regards compliance with accounting rules and rules on winding-up.
(35)
It is necessary from the point of view of the protection of lives assured that every assurance undertaking should establish adequate technical provisions. The calculation of such provisions is based for the most part on actuarial principles. Those principles should be coordinated in order to facilitate mutual recognition of the prudential rules applicable in the various Member States.
(36)
It is desirable, in the interests of prudence, to establish a minimum of coordination of rules limiting the rate of interest used in calculating the technical provisions. For the purposes of such limitation, since existing methods are all equally correct, prudential and equivalent, it seems appropriate to leave Member States a free choice as to the method to be used.
(37)
The rules governing the calculation of technical provisions and the rules governing the spread, localisation and matching of the assets used to cover technical provisions must be coordinated in order to facilitate the mutual recognition of Member States' rules. That coordination must take account of the liberalisation of capital movements provided for in Article 56 of the Treaty and the progress made by the Community towards economic and monetary union.
(38)
The home Member State may not require assurance undertakings to invest the assets covering their technical provisions in particular categories of assets, as such a requirement would be incompatible with the liberalisation of capital movements provided for in Article 56 of the Treaty.
(39)
It is necessary that, over and above technical provisions, including mathematical provisions, of sufficient amount to meet their underwriting liabilities, assurance undertakings should possess a supplementary reserve, known as the solvency margin, represented by free assets and, with the agreement of the competent authority, by other implicit assets, which shall act as a buffer against adverse business fluctuations. This requirement is an important element of prudential supervision for the protection of insured persons and policy holders. In order to ensure that the requirements imposed for such purposes are determined according to objective criteria whereby undertakings of the same size will be placed on an equal footing as regards competition, it is desirable to provide that this margin shall be related to all the commitments of the undertaking and to the nature and gravity of the risks presented by the various activities falling within the scope of this Directive. This margin should therefore vary according to whether the risks are of investment, death or management only. It should accordingly be determined in terms of mathematical provisions and capital at risk underwritten by an undertaking, of premiums or contributions received, of provisions only or of the assets of tontines.
(40)
Directive 92/96/EEC provided for a provisional definition of a regulated market, pending the adoption of a directive on investment services in the securities field, which would harmonise that concept at Community level. Council Directive 93/22/EEC of 10 May 1993 on investment services in the securities field (9) provides for a definition of regulated market, although it excludes from its scope life assurance activities. It is appropriate to apply the concept of regulated market also to life assurance activities.
(41)
The list of items of which the solvency margin required by this Directive may be made up takes account of new financial instruments and of the facilities granted to other financial institutions for the constitution of their own funds. In the light of market developments in the nature of reinsurance cover purchased by primary insurers, there is a need for the competent authorities to be empowered to decrease the reduction to the solvency margin requirement in certain circumstances. In order to improve the quality of the solvency margin, the possibility of including future profits in the available solvency margin should be limited and subject to conditions and should in any case cease after 2009.
(42)
It is necessary to require a guarantee fund, the amount and composition of which are such as to provide an assurance that the undertakings possess adequate resources when they are set up and that in the subsequent course of business the solvency margin in no event falls below a minimum of security. The whole or a specified part of this guarantee fund must consist of explicit asset items.
(43)
To avoid major and sharp increases in the amount of the minimum guarantee fund in the future, a mechanism should be established providing for its increase in line with the European index of consumer prices. This Directive should lay down minimum standards for the solvency margin requirements and home Member States should be able to lay down stricter rules for insurance undertakings authorised by their own competent authorities.
(44)
The provisions in force in the Member States regarding contract law applicable to the activities referred to in this Directive differ. The harmonisation of assurance contract law is not a prior condition for the achievement of the internal market in assurance. Therefore, the opportunity afforded to the Member States of imposing the application of their law to assurance contracts covering commitments within their territories is likely to provide adequate safeguards for policy holders. The freedom to choose, as the law applicable to the contract, a law other than that of the State of the commitment may be granted in certain cases, in accordance with rules which take into account specific circumstances.
(45)
For life assurance contracts the policy holder should be given the opportunity of cancelling the contract within a period of between 14 and 30 days.
(46)
Within the framework of an internal market it is in the policy holder's interest that they should have access to the widest possible range of assurance products available in the Community so that they can choose that which is best suited to their needs. It is for the Member State of the commitment to ensure that there is nothing to prevent the marketing within its territory of all the assurance products offered for sale in the Community as long as they do not conflict with the legal provisions protecting the general good in force in the Member State of the commitment and in so far as the general good is not safeguarded by the rules of the home Member State, provided that such provisions must be applied without discrimination to all undertakings operating in that Member State and be objectively necessary and in proportion to the objective pursued.
(47)
The Member States must be able to ensure that the assurance products and contract documents used, under the right of establishment or the freedom to provide services, to cover commitments within their territories comply with such specific legal provisions protecting the general good as are applicable. The systems of supervision to be employed must meet the requirements of an internal market but their employment may not constitute a prior condition for carrying on assurance business. From this standpoint, systems for the prior approval of policy conditions do not appear to be justified. It is therefore necessary to provide for other systems better suited to the requirements of an internal market which enable every Member State to guarantee policy holders adequate protection.
(48)
It is necessary to make provision for cooperation between the competent authorities of the Member States and between those authorities and the Commission.
(49)
Provision should be made for a system of penalties to be imposed when, in the Member State in which the commitment is entered into, an assurance undertaking does not comply with those provisions protecting the general good that are applicable to it.
(50)
It is necessary to provide for measures in cases where the financial position of the undertaking becomes such that it is difficult for it to meet its underwriting liabilities. In specific situations where policy holders' rights are threatened, there is a need for the competent authorities to be empowered to intervene at a sufficiently early stage, but in the exercise of those powers, competent authorities should inform the insurance undertakings of the reasons motivating such supervisory action, in accordance with the principles of sound administration and due process. As long as such a situation exists, the competent authorities should be prevented from certifying that the insurance undertaking has a sufficient solvency margin.
(51)
For the purposes of implementing actuarial principles in conformity with this Directive, the home Member State may require systematic notification of the technical bases used for calculating scales of premiums and technical provisions, with such notification of technical bases excluding notification of the general and special policy conditions and the undertaking's commercial rates.
(52)
In an internal market for assurance the consumer will have a wider and more varied choice of contracts. If he/she is to profit fully from this diversity and from increased competition, he/she must be provided with whatever information is necessary to enable him/her to choose the contract best suited to his/her needs. This information requirement is all the more important as the duration of commitments can be very long. The minimum provisions must therefore be coordinated in order for the consumer to receive clear and accurate information on the essential characteristics of the products proposed to him/her as well as the particulars of the bodies to which any complaints of policy holders, assured persons or beneficiaries of contracts may be addressed.
(53)
Publicity for assurance products is an essential means of enabling assurance business to be carried on effectively within the Community. It is necessary to leave open to assurance undertakings the use of all normal means of advertising in the Member State of the branch or of provision of services. Member States may nevertheless require compliance with their national rules on the form and content of advertising, whether laid down pursuant to Community legislation on advertising or adopted by Member States for reasons of the general good.
(54)
Within the framework of the internal market, no Member State may continue to prohibit the simultaneous carrying on of assurance business within its territory under the right of establishment and the freedom to provide services.
(55)
Some Member States do not subject assurance transactions to any form of indirect taxation, while the majority apply special taxes and other forms of contribution. The structures and rates of such taxes and contributions vary considerably between the Member States in which they are applied. It is desirable to prevent existing differences leading to distortions of competition in assurance services between Member States. Pending subsequent harmonisation, application of the tax systems and other forms of contribution provided for by the Member States in which commitments entered into are likely to remedy that problem and it is for the Member States to make arrangements to ensure that such taxes and contributions are collected.
(56)
It is important to introduce Community coordination on the winding-up of assurance undertakings. It is henceforth essential to provide, in the event of the winding-up of an assurance undertaking, that the system of protection in place in each Member State must guarantee equality of treatment for all assurance creditors, irrespective of nationality and of the method of entering into the commitment.
(57)
The coordinated rules concerning the pursuit of the business of direct insurance within the Community should, in principle, apply to all undertakings operating on the market and, consequently, also to agencies and branches where the head office of the undertaking is situated outside the Community. As regards the methods of supervision this Directive lays down special provisions for such agencies or branches, in view of the fact that the assets of the undertakings to which they belong are situated outside the Community.
(58)
It is desirable to provide for the conclusion of reciprocal agreements with one or more third countries in order to permit the relaxation of such special conditions, while observing the principle that such agencies and branches should not obtain more favourable treatment than Community undertakings.
(59)
A provision should be made for a flexible procedure to make it possible to assess reciprocity with third countries on a Community basis. The aim of this procedure is not to close the Community's financial markets but rather, as the Community intends to keep its financial markets open to the rest of the world, to improve the liberalisation of the global financial markets in other third countries. To that end, this Directive provides for procedures for negotiating with third countries. As a last resort, the possibility of taking measures involving the suspension of new applications for authorisation or the restriction of new authorisations should be provided for using the regulatory procedure under Article 5 of Council Decision 1999/468/EC (10).
(60)
This Directive should establish provisions concerning proof of good repute and no previous bankruptcy.
(61)
In order to clarify the legal regime applicable to life assurance activities covered by this Directive, some provisions of Directives 79/267/EEC, 90/619/EEC and 92/96/EEC should be adapted. For that purpose some provisions concerning the establishment of the solvency margin and the rights acquired by branches of assurance undertakings established before 1 July 1994 should be amended. The content of the scheme of operation of branches of third-country undertakings to be established in the Community should also be defined.
(62)
Technical adjustments to the detailed rules laid down in this Directive may be necessary from time to time to take account of the future development of the assurance industry. The Commission will make such adjustments as and when necessary, after consulting the Insurance Committee set up by Council Directive 91/675/EEC (11), in the exercise of the implementing powers conferred on it by the Treaty. These measures being measures of general scope within the meaning of Article 2 of Decision 1999/468/EC, they should be adopted by the use of the regulatory procedure provided for in Article 5 of that Decision.
(63)
Pursuant to Article 15 of the Treaty, account should be taken of the extent of the effort which must be made by certain economies at different stages of development. Therefore, transitional arrangements should be adopted for the gradual application of this Directive by certain Member States.
(64)
Directives 79/267/EEC and 90/619/EEC granted special derogation with regard to some undertakings existing at the time of the adoption of these Directives. Such undertakings have thereafter modified their structure. Therefore they do not need any longer such special derogation.
(65)
This Directive should not affect the obligations of Member States concerning the deadlines for transposition and for application of the Directives set out in Annex V(B),
