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EU GUIDE EU GUIDE RELATING TO THE RELATING TO THE

INSURANCE SECTORINSURANCE SECTOR

JUNE 2005

Prepared By: Berna Özşar TSRŞB EU Specialist

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TABLE OF CONTENTS

I. The Creation of a Single Insurance Market p. 3.

II. The European Community Acquis relating to Insurance p. 6.

1. Life Assurance p. 6.2. Non-Life Insurance p. 10.3. Accounting p. 24.4. E-Commerce p. 31.5. Insurance Groups p. 32.6. Financial Conglomerates p. 33.7. Insurance Mediation p. 35.8. Motor Insurance p. 37.9. Reinsurance p. 45.10. Solvency p. 46.11. Winding-Up p. 47.12. Statistics p. 47.13. Insurance Committee p. 49.14. International Agreements p. 51.15. Infringements of the Insurance Acquis by Member States p. 52.

III. European Union Enlargement 2004 and Insurance p. 56.

1. What are Accession Negotiations? p. 57.2. Negotiations in Insurance p. 58.

a. Greek Cypriot Administration p. 58.b. Czech Republic p. 59.c. Estonia p. 61.d. Hungary p. 62.e. Latvia p. 63.f. Lithuania p. 64.g. Malta p. 65.h. Poland p. 66.i. Slovak Republic p. 68.j. Slovenia p. 69.

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I. THE CREATION OF A SINGLE INSURANCE MARKET

The creation of a single market in the insurance sector has been one of the priorities of the European Union in the field of financial services.

The legal basis of the European Union acquis communautaire in this field is Chapter 2 of the Treaty Establishing the European Community relating to the right of establishment (Articles 43-48 (ex Articles 52-58)) and Chapter 3 of the Treaty Establishing the European Community relating to services (Articles 49-55 (ex Articles 59-66)).

Under Chapter 2 relating to the right of establishment, restrictions on the freedom of establishment of nationals of a Member State in the territory of another Member State are prohibited and this also applies to restrictions on the setting-up of agencies, branches or subsidiaries by nationals of any Member State established in the territory of any Member State. Freedom of establishment also includes the right to take up and pursue activities as self-employed persons and to set up and manage undertakings.

Under Chapter 3 relating to services, restrictions on freedom to provide services within the Community are prohibited in respect of nationals of Member States who are established in a State of the Community other than that of the person for whom the services are intended.

According to the Treaty, the internal market in the field of insurance is an area where there are no internal frontiers. The process for realizing a single market for insurance started in 1961 with the launch of a General Programme on free movement of services, aiming at approximating substantive national law. Since 1 July 1994, the European Union insurance markets (including the 10 new Member States as of 1 May 2004), together with those of Liechtenstein, Norway and Iceland under the European Economic Area, have created a vast single insurance market. The reason why the process lasted for more than 30 years can be explained by the fact that the form of regulation in different Member States was different in terms of scope and rigidity.

The creation of a vast single insurance market is a unique development which has no equivalent around the world. It has made it possible for companies to sell their products anywhere in the Union and rendered it possible for consumers to have access to any Community insurer, including the ones not established in their country of residence.

Through this Single Insurance Market, the European Union not only aims at increasing the competitiveness of undertakings but also providing clients with the opportunity to have access to better products and establishing client confidence in insurance operators. By realizing these aims, the European Commission aspires for the creation of a competitive insurance sector which will contribute to economic efficiency and development in general.

In recent years, the insurance markets in EU Member States have witnessed a growing demand for insurance products, accompanied by a noteworthy growth in turnover. This growing demand and the growth in the insurance sector have thus triggered economic activity and development.

With these recent trends, the Community now has a dual activity in the insurance sector:

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- Making it possible for all Community citizens to have access to available insurance products in the market and providing them with the necessary legal and financial protection in insurance transactions;

- Ensuring that an insurance company with the authorization to operate in one Member State can enjoy the right of establishment and the right to provide services in order to pursue its activities throughout the European Union.

Legislation governing the insurance sector

To realize its objectives, the Community separated life assurance and non-life insurance and also legislated in different fields like accounting, motor insurance, solvency, e-Commerce and reinsurance.

- The life assurance sector

The first coordinating Directive on direct life assurance (Directive 79/267/EEC repealed by Directive 2002/83/EC) was adopted in 1979 to lay down the rules necessary to facilitate the effective exercise of the right of establishment in respect of insurance activities.

The second coordinating Directive on life assurance (Directive 90/619/EEC repealed by Directive 2002/83/EC) aimed at facilitating the effective exercise of the right to supply life assurance services.

A third coordinating Directive on direct life assurance (Directive 92/96/EEC repealed by Directive 2002/83/EC) was adopted by the Council in 1992 to complete the internal market for insurance activities on the basis of the principles of a single administrative license and supervision of the activities of an insurance undertaking by the authorities in the Member State where the undertaking has its head office.

All these directives were consolidated in one coherent text with the adoption of Directive 2002/83/EC by the European Parliament and the Council on 5 November 2002.

- Non-life insurance sector

The legal framework for the realization of the freedom of establishment in respect of direct non-life insurance in the Community was established by the adoption of Directive 73/239/EEC.

Directive 88/357/EEC, on the other hand, set the necessary arrangements guaranteeing the effective exercise of freedom to provide non-life insurance services.

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A third coordinating Directive on direct non-life insurance (92/49/EEC) was also adopted by the Council. This Directive covers provisions relating to insurance supervision, the coordination of national rules governing the investment, spread and localization of the assets used to cover technical provisions, access to and pursuit of insurance activities, supervision according to the principle of home country control, etc.

- Specific areas

Apart from life assurance and non-life insurance directives, the Community has also legislated in other fields like motor vehicle insurance, annual accounts and consolidated accounts of insurance undertakings, solvency, e-commerce, reinsurance, insurance groups, financial conglomerates, insurance mediation, and winding-up.

All these Community measures have provided the legislative framework for completing the internal market in the insurance sector. These measures will be more closely examined under Chapter III of this study, relating to the European Community acquis in the field of insurance.

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II. THE EUROPEAN COMMUNITY ACQUIS RELATED TO INSURANCE

1. LIFE ASSURANCE

1. Directive 2002/83/EC of the European Parliament and of the Council of 5 November 2002 concerning life assurance

(Official Journal L 345 , 19/12/2002 p. 1 – 51.)

Repeals:

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

(Official Journal L 063, 13/03/1979 p. 1 – 18.)

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


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)


European Parliament and Council Directive 95/26/EC of 29 June 1995 amending Directives 77/780/EEC and 89/646/EEC in the field of credit institutions, Directives 73/239/EEC and 92/49/EEC in the field of non- life insurance, Directives 79/267/EEC and 92/96/EEC in the field of life assurance, Directive 93/22/EEC in the field of investment firms and Directive 85/611/EEC in the field of undertakings for collective investment in transferable securities (Ucits), with a view to reinforcing prudential supervision


Directive 2002/12/EC of the European Parliament and of the Council of 5 March 2002 amending Council Directive 79/267/EEC as regards the solvency margin requirements for life assurance undertakings

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Summary

Directive 2002/83/EC concerns the taking-up and pursuit of the self-employed activity of direct insurance carried on by undertakings which are established in a Member State or wish to become established there.

It aims at simplifying EU legislation governing life assurance by converting all previous directives into a single and consistent text. The Directive replaces all the directives adopted in this field since 1979 and includes provisions under 8 titles: Definitions and Scope (Title I); Taking-up of the Business of Life Assurance (Title II); Conditions Governing the Business of Assurance (Title III); Provisions Relating to the Right of Establishment and Freedom to Provide Services; Rules Applicable to Agencies or Branches Established within the Community and Belonging to Undertakings whose Head Offices are Outside the Community (Title V); Rules Applicable to Subsidiaries of Parent Undertakings Governed by the Laws of a Third Country and to the Acquisisition of Holdings by such Parent Undertakings (Title VI); Transitional and Other Provisions (Title VII) and Final Provisions (Title VIII).

Under Title I, the definition of “assurance undertaking” is of particular importance. The Directive defines “assurance undertaking” as “an undertaking which has received official authorization from the authorities of the home Member State”. This undertaking, however, should have established its head Office in the territory of that State and extended its business to an entire class or to other classes (Title II, Art. 4, Principle of Authorization). The definition aims at ensuring that non-Community insurers who are established in the Community only through an agency or a branch do not benefit from the provisions on freedom to provide services.

Under Title III, Directive 2002/83/EC strengthens a number of rules which have previously existed in the First Life Assurance Directive. For instance, the powers of the supervisory authorities are increased. Under Article 13, competent authorities should have the powers to make detailed enquiries (by gathering information or requiring the submission of documents and carrying out on-the-spot investigation); to take any measures with regard to the assurance undertaking, its directors or managers or the persons who control it; and to make sure that these measures are carried out, where appropriate through judicial channels.

Article 15 relating to “qualifying holdings” is another important issue under Title III. Natural or legal persons who propose either to hold or to dispose a “qualifying holding” in an assurance undertaking, should inform the competent authorities of the home Member State. Such persons should also inform the competent authorities if they propose to increase their qualifying holding so that the proportion of the voting rights or of the capital held by them would reach or exceed 20%, 33% or 50% or so that the assurance undertaking would become their subsidiary. The same is also true for persons proposing to dispose of a qualifying holding.

Directive 2002/83/EC also sets rules relating to technical life-assurance provisions under Article 20. Every assurance undertaking is to establish sufficient technical provisions whose amount should be calculated by prudent prospective actuarial valuation, taking account of all

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future liabilities. The rate of interest, the statistical elements of the valuation and the allowance for expenses should be chosen with prudence. Assurance undertakings can only cover their technical provisions with the following assets: investments (debt securities, bonds and other money- and capital-market instruments; loans; shares and other variable-yield participations; units in undertakings for collective investment in transferable securities (UCITS) and other investment funds; land, buildings and immovable-property rights), debts and claims (debts owed by reassurers; deposits with and debts owed by ceding undertakings; debts owed by policy holders and intermediaries; advances against policies; tax recoveries; claims against guarantee funds) and others like tangible fixed assets, cash at bank and in hand.

Another very important issue under Title III is the rules relating to the solvency margin and to the guarantee fund. According to Directive 2002/83, assurance undertakings should have an adequate available solvency margin which consists of the following assets of the assurance undertaking: paid-up share capital; reserves (statutory and free); the profit or loss brought forward after deduction of dividends to be paid; profit reserves appearing in the balance sheet.

The required solvency margin, on the other hand, is the sum of two results.

The first result is:

4% of the math. provisions relating to direct business and reinsurance acceptances gross of reinsurance cessions × ratio of the total math. provisions net of reinsurance cessions to the gross total math. provisions (last financial year)

The second result is:

(For policies on which the capital at risk is not negative)

0,3 % of capital underwritten by the assurance undertaking × ratio of the total capital at risk retained as the undertaking’s liability after reinsurance cessions and retrocessions to the total capital at risk gross of reinsurance.

For temporary assurance on deathof a maximum term of 3 years, the fraction shall be 0,1%; while for such assurance of a term between 3 and 5 years, the fraction shall be 0,15%.

In accordance with the Directive, the guarantee fund is 1/3 of the required solvency margin and it might not be less than EUR 3 million.

If the solvency margin falls below the guarantee fund, the competent authority may require a short-term finance scheme from the undertaking. In cases where policy holders’ rights are threatened, then the competent authority is to require a financial recovery plan.

Under Title IV, Directive 2002/83/EC also sets provisions relating to the right of establishment and freedom to provide services. Accordingly, if an assurance undertaking has the intention to establish a branch in another Member State, it shall first inform the competent authorities of its home Member State.

Title V is about the rules applicable to agencies or branches established within the Community but belonging to undertakings whose head offices are outside the Community. Such an undertaking should fulfill certain conditions to be granted an authorization by the

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Member State, like being entitled to undertake insurance activities under its national law, designating a general representative, undertaking to establish accounts at the place of management of the agency or branch, undertaking to keep a solvency margin and submitting a scheme of operations.

With Directive 2002/83/EC, a procedure of reciprocity between the Community and third countries in respect of life assurance is also introduced. The Community aims at gaining a comparable access to third countries by establishing a special procedure through the authorization of a subsidiary of a non-Community company or the acquisition by a non-Community company of a share in the capital of a Community insurer. As a result, the Community tries to receive the national treatment normally reserved for companies of that country.

Directive 2002/83/EC is amended by Directive 2004/66/EC , which adapts the legislation in force relating to free movement of goods, company law, agriculture, taxation, education and training, culture, and the audiovisual field and external relations to be able to facilitate transposal by the new Member States.

2. Directive 2000/64/EC of the European Parliament and of the Council of 7 November 2000 amending Council Directives 85/611/EEC, 92/49/EEC, 92/96/EEC and 93/22/EEC as regards exchange of information with third countries


Summary

Directive 2000/64/EC amends four directives, which among these is the Third Non-Life Insurance Directive, as regards exchange of information with third countries.

In accordance with the Directive, Member States may conclude co-operation agreements for exchanging information with the competent authorities of third countries or with authorities or bodies of third countries (authorities responsible for the official supervision of financial institutions, bodies involved in the liquidation and bankruptcy of insurance undertakings, persons responsible for carrying out statutory audits of the accounts of insurance undertakings) if the information disclosed is subject to guarantees of professional secrecy. The exchange of information should serve the purpose of supervision by the above-mentioned authorities or bodies.

3. Council Directive 2004/66/EC of 26 April 2004 adapting Directives 1999/45/EC, 2002/83/EC, 2003/37/EC and 2003/59/EC of the European Parliament and of the Council and Council Directives 77/388/EEC, 91/414/EEC, 96/26/EC, 2003/48/EC and 2003/49/EC, in the fields of free movement of goods, freedom to provide services, agriculture, transport policy and taxation, by reason of the accession of the Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia and Slovakia

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Summary

Directive 2004/66/EC amends a number of directives, among which is Directive 2002/83/EC, by reason of the accession of 10 new Member States, namely the Czech Republic, Estonia, Greek Cypriot Administration, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia and Slovakia.

The Directive amends Article 6, relating to the conditions of authorisation. Accordingly, the home Member State is to require every assurance undertaking for which authorization is sought to adopt one of the forms listed under Article 6 paragraph 1(a). The forms which can be obtained from the new Member States are added in their official languages.

Another amendment is made to Article 18 of Directive 2002/83/EC which is about the pursuit of life assurance and non-life insurance activities to include the new Member States.

2. NON-LIFE INSURANCE

1. First 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


Summary

Directive 73/239/EEC is the first directive on the co-ordination of laws, regulations and administrative provisions relating to the taking-up and pursuit of business of direct insurance other than life assurance. It is, in other words, the first of three Council Directives on non-life insurance. The Directive has been amended several times over the years and almost every article of the Directive has been subject to alterations.

The rationale behind this directive was to facilitate the taking-up and pursuit of the business of non-life insurance and to eliminate certain divergencies which existed between national supervisory legislation.

To achieve this objective and to ensure adequate protection for insured and third parties in all Member States, it was necessary to co-ordinate, in particular, the provisions relating to the financial guarantees required of insurance undertakings.

Directive 73/239/EEC originally has five titles and an Annex.

Title I is about the general provisions, stating first and foremost that the Directive is about the self-employed activity of direct insurance carried on by insurance undertakings established in a Member State or which wish to become established there in the classes of insurance defined

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in the Annex. These classes are accident, sickness, land vehicles, railway rolling stock, aircraft, ships, goods in transit, fire and natural forces, other damage to property, motor vehicle liability, aircraft liability, liability for ships, general liability, credit-insolvency, suretyship, miscellaneous financial loss- employment risks, legal expenses and assistance.

The Directive does not apply to:

- life assurance, annuities, supplementary insurance carried on by life-assurance undertakings, insurance forming part of a statutory system of social security;

- capital redemption operations, operations of provident and mutual benefit institutions, operations carried out by organizations not having a legal personality and export credit insurance operations;

- mutual associations;

- a list of institutions in Member States.

Title II sets out the rules applicable to undertakings whose head offices are situated within the Community. Under the Directive, each Member State is held responsible to make the taking-up of the business of direct insurance in its territory subject to an official authorization. The competent authorities of the Member States are to give this authorization. The Directive also sets provisions for conditions of admission for an undertaking having its head office in the territory of another Member State and seeking an authorization to open an agency or branch.

Besides conditions of admission, the Directive also determines conditions for exercise of business. Member States need to collaborate closely with one another in supervising the financial position of authorized undertakings. Member States also need to require undertakings to establish sufficient technical reserves and an adequate solvency margin. The amounts and ratios used in calculating the solvency margin have been lately amended by Directive 2002/13/EC (please see below).

The Directive also sets provisions relating to situations where the withdrawal of authorization may be necessary.

Title III of the Directive is about rules applicable to agencies or branches established within the Community and belonging to undertakings whose head offices are outside the Community. These provisions have also been subject to amendments in time and they will be discussed in more detail below.

The remaining two titles of the Directive are about transitional provisions and final provisions.

2. Council Directive 73/240/EEC of 24 July 1973 abolishing restrictions on freedom of establishment in the business of direct insurance other than life assurance


Summary

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Council Directive 73/240/EEC sets provisions on the abolishment of restrictions on freedom of establishment in the business of direct insurance other than life assurance. The Directive obliges Member States to abolish the following restrictions:

- restrictions preventing beneficiaries from establishing themselves in the host country under the same conditions as nationals of that country,

- discriminatory administrative practices.

If a host Member State requires of its own nationals wishing to take up such activity proof of good repute and proof of no previous bankruptcy or proof of either of these, that Member State shall accept as sufficient evidence, in respect of nationals of other Member States, the production of an extract from the judicial record or an equivalent document issued by the auhorities of the country of origin. If the country of origin does not issue such documentary proof, such proof may be replaced by a declaration on oath, a solemn declaration or notary. A declaration in respect of no previous bankruptcy may also be made before a competent professional or trade body.

Under the Directive, Member States are also responsible to guarantee that beneficiaries have the right to join professional or trade organizations under the same conditions as their own nationals.

The right to join such organizations may entail eligibility for election or appointment to high office but these posts may be reserved for nationals, if the organization in question is involved in the exercise of official authority.

3. Council Directive 76/580/EEC of 29 June 1976 amending Directive 73/239/EEC on the coordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of direct insurance other than life assurance


Summary

Article 5(a) of Directive 73/239/EEC used the term “unit of account” as the unit defined in the Statute of the European Investment Bank. Directive 76/580/EEC changes this definition and defines unit of account as “the European unit of account (EUA) as defined by the Commission Decision 3289/75/ECSC”.

However, following the introduction of “Euro” as the European currency, Directive 76/580/EEC became obsolete. The other articles of the Directive have also become obsolete, after the first revision of the solvency margin amounts by 2002/13/EC, as well as its other articles which contain only final provisions laying down its date of implementation and entry into force.

4. Council Directive 78/473/EEC of 30 May 1978 on the coordination of laws, regulations and administrative provisions relating to Community co-insurance

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Summary

Council Directive 78/473/EEC applies to Community co-insurance operations relating to risks classified according to the following classes of insurance: railway rolling stock, aircraft, ships (sea, lake, river and canal vessels), goods in transit, fire and natural forces, other damage to property, aircraft liability, liability for ships (sea, lake, river and canal vessels), general liability and miscellaneous financial loss –employment risks.

In accordance with the Directive, the amount of technical reserves are to be determined by the different co-insurers according to the rules fixed by the Member State where they are established. However, the reserve for outstanding claims shall be at least equal to that determined by the leading insurer according to the rules of practice of the State where such insurer is established. It is also important that the technical reserves established by the different co-insurers are represented by matching assets.

The Member States are to guarantee that the co-insurers in their territory keep statistical data relating to the extent of Community co-insurance operations.

If an insurance undertaking is wound up, then liabilities arising from participation in Community co-insurance contracts shall be met the same way as those arising under that undertaking’s other insurance contracts.

5. Council Directive 84/641/EEC of 10 December 1984 amending, particularly as regards tourist assistance, the First Directive (73/239/EEC) on the coordination of laws, regulations and administrative provisions relating to the taking-up and pursuit of the business of direct insurance other than life assurance


Summary

Directive 84/641/EEC amends Directive 73/239/EEC, especially with respect to tourist assistance.

First and foremost, Directive 84/641/EEC extends the scope of Directive 73/239/EEC by stating that it “concerns the taking-up and pursuit of the self-employed activity of direct insurance, including the provision of assistance by undertakings established in the territory of a Member State.” This assistance refers to tourist assistance. In other words, it refers to assistance provided for persons who get into difficulties while travelling, while away from home or while away from their permanent residence. Against the prior payment of a premium, this assistance consists of providing aid to the beneficiary under an assistance contract. The aid may consist in the provision of benefits in cash or in kind, it does not, however, cover servising, maintenance, after-sales service or the mere indication or provision of aid as an intermediary.

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Such assistance is also added to the Annex of Directive 73/239/EEC as a new class of insurance (Class 18). As provided below, this assistance is defined as “assistance for persons who get into difficulties while traveling, while away from home or while away from their permanent residence.”

Directive 73/239/EEC lists the operations which are out of its scope. Directive 84/641/EEC adds to this list the assistance activity in which liability is limited to the following operations in the event of an accident or breakdown involving a road vehicle:

- an on-the-spot breakdown service,- the conveyance of the vehicle to the nearest or the most appropriate location at

which repairs may be carried out,

- the conveyance of the vehicle to their home, point of departure or original destination within the same State,

unless such operations are carried out by an undertaking subject to this Directive.

Directive 84/641/EEC also states that Member States are responsible to require every undertaking whose head office is situated in their territory to produce an annual account, covering not only the types of operation, of its financial situation and solvency (as provided for in Directive 73/239/EEC), but also other resources available to them for meeting their liabilities.

In accordance with the Directive, undertakings which have requested or obtained authorization from more than one Member State, may apply for the following advantages:

- The solvency margin should be calculated in relation to the entire business which it carries on within the Community;

- The deposit should be lodged in only one of the Member States;

- The assets representing the guarantee fund shall be localized in any one of the Member States.

The undertakings which would like to benefit from these advantages, need to apply to the competent authorities of the Member State concerned. These advantages may be withdrawn at the request of one or more of the Member States concerned.

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


Summary

Article 2 (2)(d) of Directive 73/239/EEC stated clearly that “pending further coordination, which shall be implemented within four years of notification of this Directive” it did not apply

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to “export credit insurance operations for the account of or with the support of the State”. Since the protection of insured persons normally provided by the Directive is provided by the State itself where export credit insurance operations are carried out for the account of or with the guarantee of the State, under Directive 87/343/EEC such operations were to continue to be excluded.

Directive 87/343/EEC also states that each Member State shall require undertakings to set up an equalization reserve (for risks under Class 14 of the Annex of Directive 73/239/EEC) to be able to offset any technical deficit or above-average claims ratio arising in that financial year. Each Member State is to calculate the equalization reserve in line with its national rules but this should be done in accordance with the methods set out in point D of the Annex (Point D is also added by Directive 87/343/EEC). Point D sets out four methods of calculating the equalization reserve for the credit insurance class.

However, it is possible for Member States to be exempted from the requirement to set up an equalization reserve for credit insurance business, if the premiums or contributions receivable in respect of credit insurance are less than 4 % of the total premiums or contributions receivable by them and less than 2 500 000 ECU (the amount determined in units of ECU is no longer available).

Directive 87/343/EEC also amends the provision of Directive 73/239/EEC relating to the amounts determined for the guarantee fund. However, this provision was later amended again with Directive 2002/13/EC (please see below).

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


Summary

Council Directive 87/344/EEC applies to “legal expenses insurance” and co-ordinates the provisions laid down by law, regulation or administrative action in this field. This consists of bearing the costs of legal proceedings and providing other services directly linked to insurance cover to be able to (1) secure compensation for the loss, damage or injury suffered by the insured person, by settlement out of court or through civil or criminal proceedings, (2) defending or representing the insured person in civil, criminal, administrative or other proccedings.

According to the Directive, the legal expenses cover is to be in a separate contract or it shall be dealth with in a separate section of a single policy. Member States should guarantee that the undertakings within their territories adopt at least one of the following 3 alternatives:

(1) A composite undertaking should make sure that its staff members, who are concerned with the management of legal expenses claims, are not involved in a similar activity for another class transacted by the company.

Irrespective of whether the undertaking is composite or specialized, the undertaking’s staff members (who are concerned with the management of legal expenses claims)

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cannot be involved in a similar activity in another undertaking having financial, commercial or administrative links with the first undertaking.

(2) The management of claims for legal expenses insurance should be given to an undertaking having separate legal peersonality and that undertaking should be mentioned in the separate contract or separate section.

(3) In the contract, the undertaking should give the injured person the right to entrust the defence of his interests to a lawyer of his choice or to any other appropriately qualified person.

No matter which solution is adopted, the intersts of people having legal expenses cover should be safeguarded.

If recourse to a lawyer is necessary, it should be guaranteed that this person is appropriately qualified to defend, represent or serve the intersts of the insured person. The insured person is free to to choose such a lawyer or any other appropriately qualified person.

Member States should take the necessary measures to guarantee that an arbitration or other procedure offering similar guarantees is provided, in the event of a difference of legal opinion between a legal expenses insurer and his insured. It should be mentioned in the insurance contract that the insured person has the right to have recourse to such a procedure.

8. 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


Summary

Second Council Directive 88/357/EEC aims at supplementing the First Directive 73/239/EEC and laying down special provisions relating to freedom to provide services for the undertakings and in respect of the classes of insurance covered by the First Directive.

The Second Council Directive gives definitions of several terms under Title I: General Provisions, which among these are “undertaking”, “establishment”, “Member State where the risk is situated”, “Member State of establishment”, “Member State of provision of services”.

Under Title II: Provisions Supplementary to the First Directive, a definition of “large risks” has been made. Under this definition, the following are defined as “large risks”:

- risks classified under classes of railway rolling stock, aircraft, ships, goods in transit, aircraft liability, liability for ships;

- risks classified under classes of credit-insolvency and suretyship, where the policy-holder is engaged professionally in an industrial or commercial activity or in one of the liberal professions and the risks relate to such activity;

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- risks classified under classes of fire and natural forces, other damage to property, general liability and miscellaneous financial loss – employment risks, if the policy-holder exceeds the limits determined under the Directive.

It is also possible for Member States to add to the third category, risks insured by professional associations, joint ventures or temporary groupings.

The Directive also lists the law applicable to contracts of insurance referred to by the Directive. Accordingly:

- If the habitual residence or central administration of a policy-holder is the Member State in which the risk is situated, the applicable law is the law of that Member State.

- If the habitual residence or central administration of a policy-holder is not the Member State in which the risk is situated, parties to the contract of insurance may apply either the law of the Member State in which the risk is situated or the law of the country in which the policy-holder has his habitual residence or central administration.

- If a policy-holder pursues a commercial or industrial activity or a liberal profession and the contract covers two or more risks relating to these activities and situated in different Member States, the laws of those Member States and of the country in which the policy-holder has his habitual residence or central administration can be applied.

The applicable law can change if Member States grant greater freedom of choice, if the risks covered by the contract are limited to events occurring in one Member State other than the Member State where the risk is situated and if large risks are under question. If no choice has been made, the contract shall be governed by the law of the country, from amongst the ones considered above.

Second Council Directive 88/357/EEC also adds to the First Council Directive provisions about the powers and means that can be used by supervisory authorities. Member States are responsible to ensure that supervisory authorities have the powers and means necessary for supervision of the activities of insurance undertakings in their territory. This means that supervisory authorities can make detailed inquiries about the undertaking’s situation and the whole of its business, gather information, carry out on-the-spot investigations at the undertaking’s premises, take measures with regard to the undertaking and ensure that these measures are carried out, if necessary by enforcement, where appropriate through judicial channels.

The third Title of the Directive is about provisions peculiar to the freedom to provide services. Title III applies when an undertaking, through an establishment situated in a Member State covers a risk situated in another Member State. In this case, the latter shall be the Member State of provision of services. This Title does not apply to transactions, undertakings and institutions to which the first Directive does not apply to. It does not apply to insurance contracts covering risks as regards accidents at work, motor vehicle liability not

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including carrier’s liability, as regards motorboats and boats, as regards nuclear civil liability and pharmaceutical products liability, as regards compulsory insurance of building works.

According to the Directive, if an undertaking intends to provide services, it needs to inform the competent authorities of the head office Member State, about the Member State of the establishment concerned, indicating the Member State or Member States within the territory of which it contemplates providing services and the nature of the risks which it proposes to cover. The Member States (within the territory of which an undertaking intends to provide services) may make access to such activity subject to administrative authorization. These Member States may require that the undertaking produces a certificate issued by the competent authorities of the head office Member State, a certificate issued by the competent authorities of the Member State of establishment indicating the classes to be practiced and the scheme of operations (conditions of insurance policies, the premium rates, the forms and other printed documents).

If required, any undertaking providing services is responsible to submit documents to the competent authorities of the Member State of provision of services.

The final Title of the Directive, Title IV is about transitional arrangements for four Member States, namely Greece, Ireland, Spain and Portugal.

9. Council Directive 90/618/EEC of 8 November 1990 amending, particularly as regards motor vehicle liability insurance, Directive 73/239/EEC and Directive 88/357/EEC which concern the coordination of laws, regulations and administrative provisions relating to direct insurance other than life assurance


Summary

Council Directive 90/618/EEC amends the First and Second Council Directives relating to the coordination of laws, regulations and administrative provisions relating to direct insurance other than life assurance.

The First Council Directive had set out under Title III, rules applicable to agencies or branches established within the Community and belonging to undertakings whose head offices are outside the Community. Directive 90/618/EEC also adds rules applicable to subsidiaries of parent undertakings governed by the laws of a third country and to acquisitions of holdings by such parent undertakings.

For instance, the competent authorities of the Member States need to inform the Commission when they authorize a direct or indirect subsidiary whose parent undertakings are governed by the laws of a third country. The Commission should also be informed when such a parent undertaking acquires a holding in a Community insurance undertaking and turns it into its subsidiary.

The Directive also encourages Member States to inform the Commission if and when their insurance undertakings encounter difficulties in establishing themselves or carrying on their activities in a third country. When a third country fails to grant Community insurance

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undertakings effective market access comparable to that granted by the Community to insurance undertakings from that third country, the Commission may propose the Council to give a mandate for negotiations in order to obtain comparable competitive opportunities for Community insurance undertakings. The Commission may then initiate negotiations to remedy the situation. In addition to initiating negotiations, it may also be decided that the competent authorities of the Member States must limit or suspend their decisions regarding requests for authorizations and regarding the acquisition of holdings by direct or indirect parent undertakings governed by the laws of the third country in question. The duration of these measures does not normally exceed three months.

Another important amendment introduced by Council Directive 90/618/EEC relates to motor vehicle liability insurance. The Second Council Directive had defined the term “Member State of provision of services” as the “Member State in which the risk is situated when it is covered by an establishment situated in another Member State”. Directive 90/618/EEC states that the Member State of provision of services shall require the insurance undertaking to guarantee that persons pursuing claims for events occurring in its territory are not placed in a less favorable situation as a result of the fact that the undertaking is covering a risk in “motor vehicle liability” by way of provision of services rather than through an establishment situated in that State.

For this purpose, the Member State of provision of services needs to require the undertaking to appoint a representative to collect all necessary information in relation to claims. This representative shall possess sufficient powers to represent the undertaking in relation to persons suffering damage and before the competent authorities of the State of provision of services with regard to checking the existence and validity of motor vehicle liability insurance policies.

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


Summary

The Third Non-Life Insurance introduces many new amendments to the First Non-Life Insurance Directive.

For instance, under Title II (rules applicable to undertakings whose head offices are situated within the Community), most of the provisions have been replaced by new provisions. As before, prior official authorization is necessary for the taking up of the business of direct insurance. Any undertaking with a head office in the territory of a Member State or any authorized undertaking extending its business to an entire class or to classes may seek authorization from the competent authorities of the home Member State.

This authorization is valid for the entire Community and shall be granted for a particular class of insurance. The First Non-Life Insurance Directive had indicated that home Member States

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were to require every insurance undertaking for which authorization is sought to adopt one of the forms listed under Article 8. The Third Non-Life Insurance Directive adds to this list the forms to be adopted in the case of Greece, Spain and Portugal, which were not members when the First Non-Life Insurance Directive came into force.

Under the Directive, the competent authorities of the home Member State should be given information as regards the identities of the shareholders or members who have qualifying holdings in an undertaking before they grant an authorization to that undertaking. If the competent authorities are not satisfied with the qualifications of the shareholders or members, then they may refuse authorization.

As for the conditions for the exercise of business, the Directive introduces under Title III (Harmonization of the conditions governing the business of insurance) new amendments and replacements. For instance, the scope of Article 13 is widened. The new article ensures that the financial supervision of an insurance undertaking is the sole responsibility of the home Member State. Such financial supervision should include verification as regards the insurance undertaking’s entire business, its state of solvency, the establishment of technical provisions and of the assets covering them. The competent authorities are responsible to require insurance undertakings to have sound administrative and accounting procedures and adequate internal control mechanism.

Under Title III, the Directive gives competent authorities supervision powers to make detailed enquiries by gathering information and carrying out on-the-spot investigations, taking measures with regard to undertakings and ensuring that those measures are carried out.

The Third Non-Life Insurance Directive also repeals the provisons of the Second Non-Life Insurance Directive with regard to the transfer of portfolios of contracts. Member States are to give authorization to insurance undertakings with head offices within their territories to transfer of all or part of their portfolios of contracts to an accepting office within the Community. When a branch proposes to transfer all or part of its portfolio of contracts, the Member State of the branch should be consulted. The authorization of the competent authorities of the home Member State of the transfering undertaking is necessary for the transfer to be made.

The First Non-Life Insurance Directive had specified the conditions under which authorization granted to an insurance undertaking could be withdrawn. The Third Directive changes these conditions. Under the new directive, authorization can be withdrawn if the undertaking:

- does not make use of the authorization within 12 months, - no longer fulfills the conditions for admission,- has been unable to take the measures specified in the restoration plan or finance scheme.

Under the Directive, natural or legal persons are obliged to inform the competent authorities of the home Member State if they are planning to acquire a qualifying holding in an insurance undertaking or if they are planning to increase their qualifying holding so that their voting rights reach or exceed 20, 33 or 50 % or so that the insurance undertaking would become his subsidiary.

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Under Title III, the Directive also amends and introduces provisions concerning the requirement for insurance undertakings to establish adequate technical provisions, assets covering technical provisions and the setting up of an equalization reserve (for offsetting any technical deficit or above-average claims ratio). In accordance with the Directive, Member States can only cover their technical provisions with certain categories of assets, which are investments (debt securities, bonds, capital market instruments, loans, land, buildings, etc.), debts and claims (debts owned by reinsurers, tax recoveries, claims against guarantee funds, etc.) and others (tangible fixed assets other than land and buildings, cash at bank and in hand, etc.).

Under Title IV (provisions relating to right of establishment and the freedom to provide services), the Third Non-Life Insurance Directive also introduces amendments to the First Directive with respect to the establishment of branches by insurance undertakings, information to be provided by insurance undertakings in such cases and other provisions regulating the right of establishment and the freedom to provide services.

11. European Parliament and Council Directive 95/26/EC of 29 June 1995 amending Directives 77/780/EEC and 89/646/EEC in the field of credit institutions, Directives 73/239/EEC and 92/49/EEC in the field of non- life insurance, Directives 79/267/EEC and 92/96/EEC in the field of life assurance, Directive 93/22/EEC in the field of investment firms and Directive 85/611/EEC in the field of undertakings for collective investment in transferable securities (Ucits), with a view to reinforcing prudential supervision


Summary

Directive 95/26/EC amends directives in the field of credit institutions, non-life insurance, life assurance, investment firms and undertakings for collective investment in transferable securities.

As regards exchanges of information, the Directive amends the Third Non-Life Insurance Directive and provides that “Member States can authorize exchanges of information between the competent authorities and other authorities (the authorities responsible for overseeing the bodies involved in the liquidation and bankruptcy of financial undertakings; the authorities responsible for overseeing the persons carrying out statutory audits of the accounts of insurance undertakings and independent actuaries of insurance undertakings carrying out legal supervision of those undertakings and the bodies responsible for overseeing such actuaries).

Another amendment introduced by the Directive to be inserted to the Third Non-Life Insurance Directive provides that Member States may authorize the exchange of information between the competent authorities and the authorities or bodies responsible for the detection and investigation of breaches of company law, with the aim of strengthening the stability of the financial system.

12. Directive 2000/26/EC of the European Parliament and of the Council of 16 May 2000 on the approximation of the laws of the Member States relating to insurance against

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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)


Summary

Please find the summary of the Directive under the title “Motor Insurance”.

13. Directive 2000/64/EC of the European Parliament and of the Council of 7 November 2000 amending Council Directives 85/611/EEC, 92/49/EEC, 92/96/EEC and 93/22/EEC as regards exchange of information with third countries


Summary

Please find the summary of the Directice under the title “Life”.

14. Directive 2002/13/EC of the European Parliament and of the Council of 5 March 2002 amending Council Directive 73/239/EEC as regards the solvency margin requirements for non-life insurance undertakings


Summary

All insurance undertakings have liabilities to pay (like current and future claims of policyholders) and in order to be able to cover these liabilities, they put aside an amount of money. However, sometimes unforeseen events may occur and the money that has been previously put aside can turn out to be insufficient. The solvency margin is the extra capital that insurance providers are required to hold as a buffer against such unforeseen events to be able to protect their policyholders.

The Financial Services Action Plan (FSAP), which was endorsed by the European Council meetings in Cologne on 3 and 4 June 1999 and in Lisbon on 23 and 24 March 2000, underlines the importance of the solvency margin for insurance undertakings to protect policyholders in the single market.

The First Council Directive (Directive 73/239/EEC) had set forth provisions regarding the solvency margin that undertakings were required to establish in respect of their entire business.

Directive 2002/13/EC amends Directive 73/239/EEC. Accordingly, the available solvency margin shall consist of the assets of the insurance undertaking free of any foreseeable liabilities, including the paid-up share capital, reserves (statutory and free) not corresponding to underwriting liabilities and the profit or loss brought forward after deduction of dividends

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to be paid. The available solvency margin is to be reduced by the amount of own shares directly held by the insurance undertaking.

In accordance with the Directive, the available solvency margin may also consist of :

- cumulative preferential share capital and subordinated loan capital up to 50% of the lesser of the available solvency margin and the required solvency margin, no more than 25 % of which shall consist of subordinated loans with a fixed maturity, or fixed-term cumulative preferential share capital;

- securities with no specified maturity date and other instruments, including cumulative preferential shares, up to 50% of the lesser of the available solvency margin and the required solvency margin for the total of such securities and the subordinated loan capital.

Directive 2002/13/EC also inserts new provisions regarding the required solvency margin. According to the Directive, the required solvency margin is determined either on the basis of the annual amount of premiums or contributions or of the average burden of claims for the past three financial years. The reference period for the average burden of claims is increased to seven years in the case of insurance undertakings which underwrite only one or more of the risks of credit, storm, hail or frost.

The amount of the required solvency margin should be equal to the higher result obtained after calculations are made on both the premium basis and the claims basis.

- The premium basis is calculated as follows :

higher of the gross written premiums or contributions and gross earned premiums or contributions (premiums or contributions in respect of aircraft liability, liability for ships and general liability are increased by 50 %) + premiums or contributions due in respect of direct business in the last financial year + amount of premiums accepted for all reinsurance in the last financial year - total amount of premiums or contributions cancelled in the last financial year – amount of taxes and levies

The obtained amount is divided into 2:

the first portion extends up to EUR 50 million (18 % of it is calculated)the second comprises the excess (16 % of it is calculated)

These portions are added and multiplied by the ratio of the sum of the last 3 financial years between the amount of claims remaining to be borne by the undertaking after deduction of amounts recoverable under reinsurance and the gross amount of claims. This ratio cannot be less than 50 %.

- The claims basis is calculated as follows :

Premiums or contributions in respect of aircraft liability, liability for ships and general liability are increased by 50 % + amount of claims paid (calculated in accordance with the reference period) + amount of claims paid in respect of reinsurances or retrocessions and amount of provisions for claims outstanding

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established at the end of the last financial year – recoveries effected – amount of provisions for claims outstanding established at the commencement of the second financial year preceding the last financial year for which there are accounts (if the period of reference is 7 years, then calculations are made accordingly –sixth financial year is taken)

1/3 or 1/7 of the obtained amount is taken (according to the reference period) and divided into 2 parts:

the first portion extends up to EUR 35 million (26 % of it is calculated)the second comprises the excess (23 % of it is calculated)

These portions are added and multiplied by the ratio of the sum of the last 3 financial years between the amount of claims remaining to be borne by the undertaking after deduction of amounts recoverable under reinsurance and the gross amount of claims. This ratio cannot be less than 50 %.

Directive 2002/13/EC also replaces the provisions set forth under Directive 73/239/EEC regarding the guarantee fund. The guarantee fund is 1/3 of the required solvency margin and it cannot be less than EUR 2 million. However, when all or some of the risks in the classes of motor vehicle liability, aircraft liability, liability for ships, general liability, credit-insolvency and suretyship are covered, this amount should be EUR 3 million.

These amounts are reviewed annually to take account of changes in the European index of consumer prices for all Member States.

3. ACCOUNTING

1. Directive 2003/51/EC of the European Parliament and of the Council of 18 June 2003 amending Directives 78/660/EEC, 83/349/EEC, 86/635/EEC and 91/674/EEC on the annual and consolidated accounts of certain types of companies, banks and other financial institutions and insurance undertakings (Text with EEA relevance)


Summary

The Lisbon European Council of 23-24 March 2000 emphasised the need to accelerate completion of the internal market for financial services and set the deadline of March 2005 for implementation of the Commission’s Financial Services Action Plan. It urged that steps be taken to enhance the comparability of financial statements prepared by listed companies (Community companies whose securities are admitted to trading on a regulated market).

EU accounting requirements have been primarily based on the four Accounting Directives: that is to say, the Fourth and Seventh Directives on the annual and consolidated accounts of companies; the Directive on the annual and consolidated accounts of banks and other financial

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institutions (the Bank Accounts Directive); and the Directive on the annual and consolidated accounts of insurance undertakings (the Insurance Accounts Directive).

For realizing the Lisbon objectives, Directive 2003/51/EC, which is widely known as the “Modernization of Accounts Directive”, amended the Accounting Directives.

The Directive introduces significant changes to, among others, Directive 91/674/EEC, which is also known as the “Insurance Accounts Directive (IAD)” (please see below) and thus removes any discrepancy between the accounting directives and Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards (IAS Regulation).

An important aspect of the Modernization of Accounts Directive is that it permits insurance undertakings to use fair-value accounting, expressed through appropriate standards issued by the International Accounting Standards Board (IASB). The Directive requires Member States to make certain changes to national law concerning the form and content of company accounts and the content of the directors’ and auditors’ reports. It also gives Member States options in certain areas.

The Directive clarifies the treatment of off-balance-sheet financing (debts and loans) and extends beyond the financial aspects the risk analysis made in companies' management reports. It also spells out the compulsory content of an audit report.

The “Modernization of Accounts Directive” also repeals the Annex of the “Insurance Accounts Directive” (Directive 91/674/EEC) relevant to Lloyd’s. For the purposes of both directives, both Lloyd’s and Lloyd’s syndicates are deemed to be insurance undertakings. As a result of the Modernisation Directive, Lloyd’s syndicate accounts are no longer required to be prepared on a cumulative basis for three underwriting years at a time but are to be preparedon an annual accounting basis in line with other insurance undertakings in accordance with the provisions of the IAD.

Member States are to implement the Modernization Directive by 1 January 2005.

2. Council Directive 91/674/EEC of 19 December 1991 on the annual accounts and consolidated accounts of insurance undertakings


Summary

Accounting has a great importance for the insurance sector and its supervision. Council Directive 91/674/EEC, which is also known as the “Insurance Accounts Directive” (IAD), sets out the basic framework for the annual accounts and consolidated accounts of insurance undertakings. The Directive applies to all insurance companies or firms except small mutual associations and sets provisions concerning the balance sheet and the profit and loss account.

Under the Insurance Accounts Directive (IAD), a precise layout is prescribed for the balance sheet and special provisions relating to certain balance-sheet items are also set. The major

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differences in the structure and contents of the balance sheets of insurance undertakings in different Member States have led the European law-makers to set up this layout (with one standard structure and the same item designations) for the balance sheets of all Community insurance undertakings.

The prescribed layout for the balance sheet is as follows:

ASSETS

A. Subscribed capital unpaidB. Intangible assetsC. Investments

I. Land and buildingsII. Investments in affiliated undertakings and participating interests:

1. Shares in affiliated undertakings2. Debt securities issued by, and loans to, affiliated undertakings3. Participating interests4. Debt securities issued by, and loans to, undertakings with which an insurance

undertaking is linked by virtue of a participating interest

III. Other financial investments

1. Shares and other variable-yield securities and units in unit trusts2. Debt securities and other fixed-income securities3. Participation in investment pools4. Loans guaranteed by mortgages5. Other loans6. Deposits with credit institutions7. Other

IV. Deposits with ceding undertakings

D. Investments for the benefit of life-assurance policyholders who bear the investment risk

E. Debtors

I. Debtors arising out of direct insurance operations

1. policyholders 2. intermediaries

II. Debtors arising out of reinsurance operations

III. Other debtors

IV. Subscribed capital called but not paid

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F. Other assets

I. Tangible assets and stocks other than land and buildings, buildings under construction and deposits paid on land and buildings

II. Cash at bank and in hand

II. Own shares

IV. Other

G. Prepayments and accrued income

I. Accrued interest and rent

II. Deferred acquisition costs

III. Other prepayments and accrued income

H. Loss for the financial year

LIABILITIES

A. Capital and reserves

I. Subscribed capital or equivalent funds

II. Share premium account

III. Revaluation reserve

IV. Reserve

V. Profit or loss brought forward

VI. Profit or loss for the financial year

B. Subordinated liabilities

C. Technical provisions

1. Provision for unearned premiums:

(a) gross amount(b)reinsurance amount

2. Life assurance provision:

(a) gross amount

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(b) reinsurance amount

3.Claims outstanding:

(a) gross amount(b) reinsurance amount

4.Provision for bonuses and rebates


5. Equalization provision

6. Other technical provisions:


D. Technical provisions for life-assurance policies where the investment risk is borne by the policyholders


E. Provisions for other risks and charges

1. Provisions for pensions and similar obligations2. Provisions for taxation3. Other provisions

F. Deposits received from reinsurers

G. Creditors

I. Creditors arising out of direct insurance operationsII. Creditors arising out of reinsurance operationsIII. Debenture loans, showing convertible loans separatelyIV. Amounts owed to credit institutionsV.Other creditors, including tax and social security

H. Accruals and deferred incomeI. Profit for the financial year

Under the Directive, a precise layout is prescribed for the profit and loss account as well. There are also special provisions relating to certain items in the profit and loss account.

The main headings in the profit and loss account layout is as follows:

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Technical account- Non-life insurance business

1. Earned premiums, net of reinsurance2. Allocated ivestment return transferred from the non-technical account3. Other technical income, net of reinsurance4. Claims incurred, net of reinsurance5. Changes in other technical provisions, net of reinsurance, not shown under other

headings6. Bonuses and rebates, net of reinsurance7. Net operating expenses8. Other technical charges, net of reinsurance9. Change in the equalization provision10. Sub-total

Technical account- Life assurance business

1. Earned premiums, net of reinsurance2. Investment income3. Unrealized gains on investments4. Other technical income, net of reinsurance5. Claims incurred, net of reinsurance6. Change in other technical provisions, net of reinsurance, not shown under other

headings7. Bonuses and rebates, net of reinsurance8. Net operating expenses9. Investment charges10. Unrealized losses on investments11. Other technical charges, net of reinsurance12. Allocated investment return transferred to the non-technical account13. Sub-total

Non-technical account

1. Balance on the technical account- non-life insurance business2. Balance on the technical account- life-assurance business3. Investment income4. Allocated investment return transferred from the life-assurance technical account5. Investment charges6. Allocated investment return transferred to the non-life insurance technical account7. Other income8. Other charges, including value adjustments9. Tax on profit or loss on ordinary activities10. Profit or loss on ordinary activities after tax11. Extraordinary income12. Extraordinary charges13. Extraordinary profit or loss14. Tax on extraordinary profit or loss15. Other taxes not shown under the preceding items16. Profit or loss for the financial year

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The Directive also sets provisions regarding valuation rules (it is possible for Member States to either impose a specific set of rules or leave companies a choice between alternative rules stated in the Directive), contents of the notes on the accounts, presentation of consolidated accounts and publication of accounts and annual reports.

3. Fourth Council Directive 78/660/EEC of 25 July 1978 based on Article 54 (3) (g) of the Treaty on the annual accounts of certain types of companies


Amended by:

Seventh Council Directive 83/349/EEC of 13 June 1983 based on the Article 54 (3) (g) of the Treaty on consolidated accounts


Directive 2003/51/EC of the European Parliament and of the Council of 18 June 2003 amending Directives 78/660/EEC, 83/349/EEC, 86/635/EEC and 91/674/EEC on the annual and consolidated accounts of certain types of companies, banks and other financial institutions and insurance undertakings (Text with EEA relevance)


Please see above.

Summary

The Fourth Council Directive aims at co-ordinating Member States’ laws and provisions regarding the presentation and content of annual accounts and annual reports, the valuation methods used and their publication in respect of all companies with limited liability.

The Directive applies to all limited companies but Member States may exempt banks, other financial institutions and insurance companies.

Under the Directive, the annual accounts comprise the balance sheet, the profit and loss account and the notes on the accounts. These documents constitute a composite whole and the Directive lays down the provisions which govern the drawing up of all these documents.

The layout of the balance sheet and of the profit and loss account cannot be changed from one financial year to the next. As for the layout of the balance sheet, the Directive provides for two alternatives, leaving it to the Member States to choose. It then lists the balance sheet items and comments on them.

As for the profit and loss account, the Directive again provides for alternatives, from which Member States are free to choose.

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The Directive states general principles for the valuation of items in the annual accounts, such as prudence, consistency in the application of the methods of valuation, etc.

The Directive also sets forth provisions regarding the preparation of an annual report. This annual report should include a fair review of the development of the company’s business and of its position. The report should also give an indication of any important events that have occurred since the end of the last financial year, the company’s likely future development and activities in the field of research and development.

The annual accounts and the annual report should also be published in accordance with sertain rules.

Last but not least, under the Directive, companies should have their annual accounts audited by one or more persons authorized by national law. Such persons are responsible to verify that the annual report is consistent with the annual accounts for the same financial year.

4. E-COMMERCE

1. Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market ('Directive on electronic commerce')


Summary

The main objective of Directive 2000/31/EC is to guarantee the freedom to provide information society services in accordance with EC Treaty rules on the freedom to provide services. The Directive establishes that in principle, and subject to some derogations, such services may be offered freely throughout the European Union as long as they comply with the law in their home Member State -country of origin regime- (Article 3).

Due to their contractual nature, financial services are appropriate for trade over the Internet. The E-Commerce Directive applies to all financial services, including the insurance sector. This means that Member States will have to remove existing provisions that prohibit the offer of insurance products over the internet. In addition, prior authorization, apart from the insurance authorizations laid down in the Insurance Directives, will not be necessary for the provision of insurance services.

However, the application of the E-Commerce Directive to insurance is incomplete simply because the Directive provides for derogations under the scope of life assurance and non-life directives (for the list of “Derogations from Article 3”, please see the Annex of the Directive). The reason is that the specific requirements of these Directives conflict with the country of origin principle and necessitate host country competence.

However, this derogation only applies to the activities of the insurance undertakings but not to the activities of insurance intermediaries.

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If analyzed in a broader perspective, the derogation for insurance from Article 3 of the E-Commerce Directive has an impact in the following fields1:

- Conditions to carry on cross-border electronic insurance activities

If an insurance undertaking wishes to carry on electronic insurance transactions, it will be subject to the existing provisions of Insurance Directives regarding, for instance, the notification procedure for the free provision of services and control on policy conditions.

- Advertising

According to the Insurance directives, insurance undertakings may advertise their services in a host Member State subject to the rules adopted in that Member State in the interest of general good. However, Article 3 of the E-Commerce Directive provides that the Host State, may only restrict or impede to this principle on a case-by case basis and in line with strict conditions.

- Contract law

The law applicable to an insurance contract will be determined in accordance with the provisions of the Insurance Directives. For life business and mass risks, the law that is applicable is the law of the Member State where the risk/commitment is located.

- Information to policyholders on the insurance contract

As for insurance contracts concluded by electronic means, the insurer will be responsible to give information to the policyholder in accordance with the rules in force in the Member State where it is established.

5. INSURANCE GROUPS

1. 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

(Official Journal L 330, 05/12/1998 p.1 – 12)

Summary

1 Please see the Working Paper of the Insurance Committee, “E-Commerce and Financial Services”, 26/11/2001, MARKT/2094/01.

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Life and non-life directives contain provisions for the supervision of insurance undertakings. This supervision is supported by Directive 98/78/EC (also known as the “Insurance Groups Directive”) which provides for a “supplementary supervision” by the competent authorities of Member States.

This “supplementary supervision” takes into account related undertakings of the insurance undertaking, participating undertakings in the insurance undertaking and related undertakings of a participating undertaking in the insurance undertaking.

Supplementary supervision is carried out by the competent authorities of the Member State in which the insurance undertaking has received official authorization. These competent authorities shall have access to information that is relevant for the purpose of supervision and they shall have the authority to carry out on-the-spot verification of such information.

If insurance companies established in different Member States are related or have a common participating undertaking, then the competent authorities of each Member State may establish a cooperation amongst each other to facilatate the supervision.

The competent authorities carry out general supervision over transactions like loans, guarantees and off-balance-sheet transactions, elements eligible for the solvency margin, investments, reinsurance operations and agreements to share costs).

The Insurance Groups Directive is very crucial in the sense that it prevents “double gearing”. As stated in detail in insurance directives, all insurance undertakings should have a solvency margin, which is a guarantee of security for policy holders. There is, however, the risk that groups of insurance undertakings may use the same capital to cover the separate solvency margin requirements of the different insurance undertakings of the group –double gearing-.

In order to prevent this, the Insurance Groups Directive takes into account the financial situation of related insurance and reinsurance undertakings in a group when calculating the “adjusted solvency” of an insurance undertaking that is part of this group. The supervision of the own funds of the holding companies in an insurance group is also of great importance. This supervision is aimed at preventing the risk that holding companies may become indebted and try to withdraw capital from their insurance subsidiaries, also known as capital leverage.

The Directive, in Annex I, provides for three different methods of calculation for adjusted solvency. These are namely the “deduction and aggregation method”, “requirement deduction method” and “accounting consolidation-based method”. All these three methods are considered to be equivalent.

6. FINANCIAL CONGLOMERATES

1. Directive 2002/87/EC of the European Parliament and of the Council 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 and 93/22/EEC, and Directives 98/78/EC and 2000/12/EC of the European Parliament and of the Council

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Summary

The European Union financial legislation had long been defined as sector-based, addressing primarily homogeneous financial groups whose activities are limited to insurance or banking. However, the latest developments in financial markets have led to the creation of cross-sectoral groups across the EU. The importance of Directive 2002/87/EC (also known as the Financial Conglomerates Directive) stems from the fact that it is the “first comprehensive implementation in the world of internationally-agreed recommendations on supervision of financial conglomerates”.

Through the implementation of the Financial Comglomerates Directive, the European Union aims at effectively supervising the financial conglomerates across different financial sectors and across borders; enhancing financial stability and protecting insurance policy holders and investors.

According to the Directive, if the parent undertaking of the financial conglomerate is in the Community, a regulatory co-ordinator responsible for co-ordination and exercise of supplementary supervision is to be appointed.

If a financial conglomerate is headed by a regulated entity, the task of coordinator is to be exercised by the competent authority which has authorised that regulated entity. If a financial conglomerate is not headed by a regulated entity, there are principles for identifying the co-ordinator based upon the size and jurisdiction of the regulated sectors or entities within the conglomerate.

If the parent undertaking of the financial conglomerate is outside the Community, competent authorities shall verify whether the regulated entities are subject to supervision by a third-country competent authority, which is equivalent to that provided for by the provisions of the Directive on the supplementary supervision of regulated entities. This regulator is to consult with the other European regulators of the group’s entities.

The Directive requires the co-ordinator to carry out the supplementary supervision through:

- co-ordination of the gathering and dissemination of relevant or essential information,

- supplementary supervision of the financial situation and capital adequacy of the conglomerate,

- assessment of the financial conglomerate’s structure, organization and internal control system,

- planning and coordination of supervisory activities.

The Directive sets requirements on solvency to prevent multiple gearing (the same capital being used more than once as a buffer against risk in different entities in the same conglomerate) and downstreaming (parent companies issuing debt and then using the proceeds as equity for their regulated subsidiaries).

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The Financial Comglomerates Directive also contains provisions ensuring appropriate risk management and internal control systems in the conglomerate and provisions guaranteeing appropriate concentration of risk at group level and appropriate transactions between entities in the same conglomerate.

7. INSURANCE MEDIATION

1. Council Directive 77/92/EEC of 13 December 1976 on measures to facilitate the effective exercise of freedom of establishment and freedom to provide services in respect of the activities of insurance agents and brokers (ex ISIC Group 630) and, in particular, transitional measures in respect of those activities


Summary

Directive 77/92/EEC requires Member States to adopt measures in respect of establishment or provision of services in their territories by natural persons and companies or firms wishing to pursue the following activities in a self-employed manner:

(a) professional activities of persons who bring together persons seeking insurance or reinsurance and insurance or reinsurance undertakings, carry out work in preparation to the conclusion of insurance or reinsurance contracts and assist in the administration and performance of such contracts,

(b) professional activities of persons acting for one or more insurance undertakings in introducing, proposing and carrying out work in preparation to the conclusion of insurance contracts or assissting the administration and performance of such contracts,

(c) activities of persons other than those mentioned above, who, acting on behalf of such persons carry out introductory work, introduce insurance contracts or collect premiums.

If, in a Member State, the taking up or pursuing of these activities is subject to the possession of general, commercial or professional knowledge and ability, that Member State shall accept such knowledge and ability gained in another Member State (through pursuing one of these activities) for periods specified in the Directive.

This should be certified by a certificate, issued by the competent authority in the Member State of origin or Member State whence the person concerned comes.

2. Commission Recommendation 92/48/EEC of 18 December 1991 on insurance intermediaries


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Summary

Commission Recommendation 92/48/EEC defines insurance intermediary as a person taking up or pursuing the professional activities listed under Article 2 of Directive 77/92/EEC (please see above). An undertaking exercising the activity of insurance intermediary should employ the adequate number of persons who possess the general, commercial and professional knowledge and ability.

An insurance intermediary shall possess professional indemnity insurance or any other comparable guarantee against liability arising from professional negligence. He/she should have a good reputation, sufficient financial capacity (the level and form to be determined by the Member States) and should not have been declared bankrupt.

Insurance intermediaries fulfilling these conditions should be registered in their Member States. They can only be allowed to take up and pursue the activity of insurance intermediary after being registered.

3. Directive 2002/92/EC of the European Parliament and of the Council of 9 December 2002 on insurance mediation


Summary

Insurance and reinsurance intermediaries have a significant role in the distribution of insurance and reinsurance products throughout the European Union. For the proper functioning of the single market in insurance, these intermediaries need to operate freely.

Directive 2002/92/EC (also known as the Insurance Mediation Directive) sets up the rules for the taking-up and pursuit of the activities of insurance and reinsurance mediation by natural and legal persons which are established in a Member State or which wish to become established there.

The directive defines “mediation” as “activities of introducing, proposing or carrying out work preparatory to the conclusion of contracts, or of concluding such contracts, or of assisting in the administration and performance of such contracts”.

Insurance and reinsurance intermediaries shall be registered with a competent authority in their home Member State. Once registered, they can take-up and pursue mediation activities in the Community by means of both freedom of establishment and freedom to provide services.

Intermediaries should have appropriate knowledge and ability and they should also have a good reputation, possessing a clean police record. They should hold professional indemnity insurance that covers the entire Community or other comparable guarantee against liability arising from professional negligence for at least EUR 1 000 000 applying to each claim and in aggregate EUR 1 500 000 per year for all claims. Member States are responsible for protecting consumers in cases where the intermediary does not transfer the premium to the insurance undertaking or transfer the amount of claim or return premium to the insured.

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These minimum requirements are of great significance, necessitating a high level of professionalizm and competence. It is possible for Member States to take even more severe measures, but only for intermediaries registered on their territory.

If an insurance or reinsurance intermediary intends to carry on business in one or more Member States, it is necessary to inform the competent authorities of the Member State first. The competent authorities then inform the competent authorities of any host Member State, wishing to know the intention of the intermediary within a month. The intermediary may start business one month after the date he was informed by the competent authorities of the home Member State that the notification has been made to the host Member State. If the host Member State does not wish to be informed of the fact, then the intermediary may start business right away.

The Directive requires insurance intermediaries to give clear explanations to customers for the advice they give on which products to purchase. They need to state clearly in writing the reasons why they have recommended particular products in the light of the customer’s individual requirements.

For dissatisfied customers, the Directive encourages Member States to set up effective alternative dispute settlement procedures for out-of-court redress.

8. MOTOR INSURANCE

1. Council Directive 72/166/EEC of 24 April 1972 on the approximation of the laws of Member States relating to insurance against civil liability in respect of the use of motor vehicles, and to the enforcement of the obligation to insure against such liability


Amended by:

Council Directive 72/430/EEC of 19 December 1972 amending Council Directive 72/166/EEC of 24 April 1972 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 to the enforcement of the obligation to insure against such liability


Commission Recommendations:

Commission Recommendation 73/185/EEC of 15 May 1973 relating to the implementation by the original Member States of the Council Directive of 24 April 1972 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 to the enforcement of the obligation to insure against such liability


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Commission Recommendation 74/165/EEC of 6 February 1974 to the Member States concerning the application of the Council Directive of 24 April 1972 on the approximation of the laws of the Member States relating to the use of motor vehicles, and to the enforcement of the obligation to insure against such liability


Commission Recommendation 81/76/EEC of 8 January 1981 on accelerated settlement of claims under insurance against civil liability in respect of the use of motor vehicles


Summary

The Motor Insurance Directives are a fundamental element to the free movement of vehicles in the European Union. Council Directive 72/166/EEC is the first of a series of directives adopted in this field.

In accordance with the Directive, Member States shall not make checks on insurance against civil liability for vehicles normally based in the territory of another Member State or for vehicles normally based in the territory of a third country entering their territory. However, it is possible for Member States to carry out random checks.

Member States are to take measures to guarantee that civil liability for the use of vehicles normally based in their territory is covered by insurance. The insurance contract should cover any loss or injury caused in the territory of these States and any loss or injury suffered by nationals of Member States during a direct journey between two territories in the EC area. Member States may act in derogation from these principles for certain groups of people and certain types of vehicles to be determined.

In case an accident occurs in the territory of a Member State and this accident is caused by a vehicle normally based in the territory of another Member State, the national insurers’ bureau should obtain information about the territory in which the vehicle is normally based and the details of the insurance of the vehicle.

For third country vehicles failing to cover the loss or injury they have caused, Member States have the right to prevent their use in their territory.

Vehicles normally based in the territory of a third country should be provided with a valid green card (an international certificate of insurance issued on behalf of a national bureau) or with a certificate of frontier insurance establishing that the vehicle is insured.

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2. Second Council Directive 84/5/EEC of 30 December 1983 on the approximation of the laws of the Member States relating to insurance against civil liability in respect of the use of motor vehicles


Summary

With the First Motor Insurance Directive, Member States were put under the obligation to take measures to guarantee that civil liability for the use of vehicles normally based in their territory is covered by insurance. The Second Motor Insurance Directive states that this insurance should compulsorily cover both damage to property and personal injuries. In the case of personal injury, the Directive determines the cover to be 350 000 ECU, while in the case of damage to property the cover is 100 000 ECU per claim.2

Member States also need to establish or authorize a body for providing compensation. Such compensation should at least be up to the limits of the insurance obligation for damage to property or personal injuries.

If any statutory provision or any contractual clause contained in an insurance policy excludes from insurance the use or driving of vehicles by:

- persons who do not have express or implied authorization,- persons who do not hold a license permitting them to drive the vehicle concerned,

or- persons who are in breach of the statutory technical requirements concerning the

condition and safety of the vehicle concerned,

will be void in respect of claims by third parties who have been the victims of an accident.

In the case of stolen vehicles or vehicles obtained by violence, Member States may lay down that the body they have established or authorized will pay compensation instead of the insurer.

Under the Directive, the members of the family of the insured person, driver or any other person who is liable under civil law in the event of an accident and whose liability is covered by insurance shall not be excluded from insurance in respect of their personal injuries by virtue of that relationship.

3. Third Council Directive 90/232/EEC of 14 May 1990 on the approximation of the laws of the Member States relating to insurance against civil liability in respect of the use of motor vehicles


Summary

2 Please note that “ECU” as a unit of account is no longer used by the European Union. The Fifth Motor Insurance Directive will be replacing Article 1 of the Second Motor Insurance Directive (84/5/EEC) and the amounts for compulsory insurance will be determined accordingly.

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Under the Third Council Directive, Member States are to take the necessary steps to guarantee that the compulsory insurance policies against civil liability arising out of the use of vehicles cover, on the basis of a single premium, the entire territory of the Community and guarantee in each Member State, the cover required by its law or the cover required by the law of the Member State where the vehicle is normally based when that cover is higher.

If a dispute arises between the body established by the Member State for the payment of compensation and the civil liability insurer as to which must compensate the victim, Member States shall guarantee that one of these parties is designated to be responsible for paying compensation to the victim without delay.

To sum up, with these three directives, the Community has succeeded to prepare the grounds for a single market in the field of motor insurance. Within this context:

- An obligation was introduced for all motor vehicles in the Community to be covered by insurance against third-party liability (compulsory motor insurance) and minimum amounts were fixed for such insurance cover;

- The insurance certificate was made valid throughout the Community territory. This guaranteed the free movement of motor vehicles, thus abolishing border checks on insurance;

- Victims of accidents (including those caused by unidentified or uninsured vehicles) were provided with a better protection through the establishment of compensation bodies in all Member States;

- All passangers in the vehicle (including the family of the driver) were covered by compulsory insurance.

4. Directive 2000/26/EC of the European Parliament and of the Council of 16 May 2000 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)


Summary

The Fourth Motor Insurance Directive establishes a mechanism for the quick settlement of claims where the accident takes place outside the victim’s Member State of residence (“visiting victims”). This mechanism completes the system that has been established by the previous Motor Insurance Directives to compensate the local victims of accidents caused by vehicles from another Member State.

Under the Fourth Motor Directive, injured parties in accidents enjoy a direct right of action against the insurance undertaking covering the responsible person against civil liability.

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The Directive requires all insurance undertakings to appoint a “claims representative” in each Member State other than the one in which they have received their official authorization. This person should be resident or established in the Member State where he is appointed and he will be responsible for handling and settling claims arising from an accident.

The choice of the claims representative is at the discretion of the insurance undertaking and teh Member States cannot restrict this choice. The claims representative may work for one or more insurance undertakings and he shall possess sufficient powers to represent the insurance undertaking in relation to injured parties.

Through the appointment of the claims representative, the European Commission aims at ensuring that an accident victim will be able to deal with a representative of the liable insurer in his or her own Member State and language.

The Fourth Motor Insurance Directive requires that Member States establish an information center responsible for the following tasks:

- keeping a register containing information on the registration numbers of motor vehicles, the numbers of the insurance policies covering the use of those vehicles, the number of the green card or frontier insurance policy, insurance undertakings covering the use of vehicles, etc.

- co-ordinating the compilation and dissemination of that information

- assisting entitled persons to be apprised of the above-mentioned information.

For a period of seven years, the injured party can obtain information from the information center of his country of residence, the Member State where the vehicle is normally based or the Member State where the accident occurred, about the name and address of the insurance undertaking, the number of the insurance policy and the name and address of the insurance undertaking’s claims representative. The information center should also provide the injured party with the name and address of the owner or usual driver or the registered keeper of the vehicle if the injured party has a legitimate interest in obtaining such information.

The Fourth Motor Insurance Directive also requires that Member States establish compensation bodies responsible for providing compensation to injured parties. These bodies will be charged with settling claims in cases where there is no claims representative or where the insurer is too slow in dealing with the file. Injured parties may present a claim to the compensation body in their Member State of residence but they cannot present a claim if they have taken legal action directly against the insurance undertaking. The compensation body takes action within two months of the date when the injured party presents a claim for compensation to it but it shall terminate its action if the insurance undertaking, or its claims representative makes a reasoned reply to the claim.

If it is not possible to identify the vehicle, or if, within two months following the accident, it is not possible to identify the insurance undertaking, the injured party may apply for compensation from the compensation body in the Member State where he resides.

It is important to note that none of these measures change the rules on liability or on the jurisdiction currently applied in Member States. In case of an accident, the law in the country where the accident has occurred will continue to apply. If there is a dispute as to who is liable

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for an accident and the case is refferred to court, it will be heard in accordance with the law and in the country where the accident happened.

5. Commission Decision 2003/20/EC of 27 December 2002 on the application of Article 6 of the Directive 2000/26/EC of the European Parliament and of the Council of 16 May 2000 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 (Text with EEA relevance) (notified under document number C(2002) 5304)


Summary

Commission Decision 2003/20/EC is about the application of Article 6 of Directive 2000/26/EC, which relates to the establishment or approval of compensation bodies responsible for providing compensation to injured parties (please see above). In accordance with Decision 2003/20/EC, Article 6 of Directive 2000/26/EC was to take effect as from 20 January 2003 and Member States were held responsible to inform the European Commission of measures taken to apply the Decision.

6. Commission Decision 2003/564/EC of 28 July 2003 on the application of Council Directive 72/166/EEC relating to checks on insurance against civil liability in respect of the use of motor vehicles (Text with EEA relevance) (notified under document number C(2003) 2626)


Repeals:

Commission Decision 91/323/EEC of 30 May 1991 relating to the application of Council Directive 72/166/EEC 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 to the enforcement of the obligation to insure against such liability


Commission Decision 93/43/EEC of 21 December 1992 relating to the application of Council Directive 72/166/EEC 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 to the enforcement of the obligation to insure against such liability


Commission Decision 97/828/EC of 27 October 1997 relating to the application of Council Directive 72/166/EEC on the approximation of the laws of the Member States relating to insurance against civil liability in respect of the use of motor

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vehicles, and to the enforcement of the obligation to insure against such liability (Text with EEA relevance)


Commission Decision 1999/103/EC of 26 January 1999 relating to the application of Council Directive 72/166/EEC 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 to the enforcement of the obligation to insure against such liability (notified under document number C(1999) 109) (Text with EEA relevance)


Commission Decision 2001/160/EC of 15 February 2001 on the application of Council Directive 72/166/EEC 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 to the enforcement of the obligation to insure against such liability in relation to Cyprus (Text with EEA relevance) (notified under document number C(2001) 371)

(Official Journal L 057, 27/02/2001 P. 56 – 56.)

Summary

Commission Decision 2003/564/EC states that Member States are to refrain from making checks on insurance against civil liability in respect of vehicles normally based in another Member State or in the territory of the Czech Republic, Croatia, Greek Cypriot Administration, Hungary, Iceland, Norway, Slovakia, Slovenia and Switzerland, as from 1 August 2003. This is in accordance with the Agreement reached between the National Insurers’ Bureaux of the Member States of the European Economic Area and other Associate States. This agreement is attached to the Decision as an appendix.

7. Commission Decision 2004/332/EC of 2 April 2004 on the application of Council Directive 72/166/EEC with regard to checks on insurance against civil liability in respect of the use of motor vehicles (Text with EEA relevance) (notified under document number C(2004) 1235)


Summary

Commission Decision 2004/332/EC states that Member States are to refrain from making checks on insurance against civil liability in respect of vehicles which are normally based in the territory of Estonia, Latvia, Lithuania, Malta and Poland, as from 30 April 2004. This is in accordance with the Addendum to the Agreement reached between the National Insurers’ Bureaux of the Member States of the European Economic Area and other Associate States (please refer to the annex of Commission Decision 2003/564/EC for the agreement).

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8. Directive 2005/14/EC of the European Parliament and of the Council of 11 May 2005 amending Council Directives 72/166/EEC, 84/5/EEC, 88/357/EEC, 90/232/EEC and Directive 2000/26/EC of the European Parliament and of the Council relating to insurance against civil liability in respect of the use of motor vehicles (Fifth Motor Insurance Directive)

(Official Journal L 149, 11/06/2005 p. 14-21.)

Summary

The increasing growth in cross-border traffic, the large number of questions, complaints and petitions received by the European Commission on the operation of the Motor Insurance Directives and the need to fill gaps or provide solutions to problems that arise, have necessitated the revisal and modernization of the Directives.

The Fifth Motor Insurance Directive aims to revise the Motor Insurance Directives to achieve the following objectives:

- Updating and improving the protection of victims of motor vehicle accidents by compulsory insurance;

- Ensuring increased convergence as regards the interpretation and application of the Directives by Member States;

- Providing solutions to problems which arise frequently to create a more efficient single market in motor insurance.

Taking into account that the minimum compensation amounts provided for in the Second Motor Insurance Directive have not been updated since 1982, the new Directive determines the compulsory insurance to be EUR 1 000 000 per victim in the case of personal injury or EUR 5 000 000 per claim, whatever the number of victims and EUR 1 000 000 per claim in the case of damage to property, whatever the number of victims. These amounts will be reviewed every five years to take account of changes in the European Index of Consumer Prices.

Under the Directive, pedestrians and cyclists are designated as specific categories of accident victims. Motor vehicle insurance will cover personal injuries suffered by pedestrians and cyclists and other non-motorised users of the roads. By ensuring that pedestrians and cyclists are covered by compulsory insurance, the European Commission enhances their protection, as the weakest parties in traffic.

The New Directive will make things easier for people wishing to change insurers by obliging the insurer to provide policyholders with a statement concerning their claims record, at the end of the contract.

The Directive will also help individuals or companies facing difficulties in finding insurance coverage when buying vehicles in one Member State and selling them into another Member State. During the journey and until its final registration in the Member State of destination, the vehicle should be covered by an insurance policy. However, it is both difficult and expensive to obtain such short-term insurance. To solve these problems, the Directive considers the

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Member State of destination as the territory in which the vehicle is normally based. Therefore, insurers operating in the Member State where the purchaser is resident will be able to cover the risk during the period from its dispatch until its final registration.

Member States are to bring into force the laws, regulations and administrative provisions necessary to comply with the Fifth Motor Insurance Directive by 11 June 2007 at the latest.

9. REINSURANCE

1. Council Directive 64/225/EEC of 25 February 1964 on the abolition of restrictions on freedom of establishment and freedom to provide services in respect of reinsurance and retrocession

(Official Journal P 056, 04/04/1964 p. 878 – 883.)

Summary

Council Directive 64/225/EEC was adopted with the aim of liberalizing all branches of reinsurance, without any distinction. Under the Directive, Member States were urged to abolish, in respect of the natural persons and companies or firms, the restrictions affecting the right to take up and pursue the following activities:

- activities of self-employed persons in reinsurance and retrocession,- in the case of natural persons, companies or firms dealing both in direct insurance

and in reinsurance and retrocession, the part of activities concerned with reinsurance and retrocession.

The Directive listed the restrictions that existed in Germany, Belgium, Luxembourg, France and Italy at the time being.

2. Proposal for a Directive of the European Parliament and of the Council on reinsurance and amending Council Directives 73/239/EEC, 92/49/EEC and Directives 98/78/EC and 2002/83/EC

(COM(2004) 273 final, 2004/0097 (COD), Brussels 21/04/2004)

Summary

Currently, there are no harmonized reinsurance supervision rules in the European Union. The European insurance legislation regulates reinsurance activities carried out by direct insurers but it does not regulate activities carried out by specialized reinsurers. Harmonization work started in the field of direct insurance mainly because of the neccessity to protect policyholders and customers of insurance companies. Reinsurance, on the other hand, is regarded as a business transaction between two professional parties and there exist no weaker party to protect, such as consumers.

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However, the lack of an EU framework has resulted in important differences in the supervision of reinsurance undertakings throughout the EU and led to barriers to trade within the internal market.

This has led the European Commission to put up a proposal for a Directive on reinsurance, which would establish supervision of reinsurers by competent authorities in their home country.

Under the proposed Directive, once licensed in one Member State, a reinsurance company would automatically start carrying out reinsurance activities throughout the European Union under the freedom of establishment and freedom to provide services. The company would not be subjected to additional checks or supervision in host Member States. This authorization would serve as a “single passport” for reinsurers.

The proposed Directive introduces a licensing system which sets out provisions for the supervision of reinsurance. This means that reinsurers are to fulfill certain conditions to be granted a license.

The proposed Directive also sets out rules for the supervision of reinsurance undertakings. This would include rules on the establishment of technical provisions (like the amount that has to be put aside by the reinsurance undertaking to be able to pay its contractual commitments) and rules on the investment of assets covering these technical provisions. There are also rules regarding solvency margins and minimum capital requirements.

With the proposed Directive, the European Union aims at strengthening its hand in international trade negotiations because the lack of a harmonized supervision framework has long been regarded as an obstacle in discussions with third countries on mutual recognition of reinsurance supervision. The Directive is in line with the ongoing reinsurance supervision project being carried out by the International Association of Insurance Supervisors (IAIS).

10. SOLVENCY

1. Directive 2002/83/EC of the European Parliament and of the Council of 5 November 2002 concerning life assurance


Summary

Please find the summary of the Directive under the “life” heading.

2. Directive 2002/13/EC of the European Parliament and of the Council of 5 March 2002 amending Council Directive 73/239/EEC as regards the solvency margin requirements for non-life insurance undertakings


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Summary

Please find the summary of the Directive under the “non-life” heading.

11. WINDING-UP

1. Directive 2001/17/EC of the European Parliament and of the Council of 19 March 2001 on the reorganization and winding-up of insurance undertakings


Summary

Directive 2001/17/EC applies to reorganization measures and winding-up procedures concerning insurance undertakings. Under the Directive, if an insurance undertaking with branches in other Member States fails, the winding-up process will be subject to a single bankruptcy proceeding in the home Member State (the Member State where the undertaking has its registered office). This also means that the procedure will be subject to a single bankruptcy law (that of the home state). This is in line with the “home country control principle” which is the basis for EU insurance directives.

Under the previous procedure, it was possible for authorities in different Member States to open separate insolvency proceedings, if an insurance undertaking with branches across Europe were wound up. The advantage of having a single winding-up proceeding rather than several, is that costs are reduced and the procedure is accelerated.

If a winding-up proceeding is opened for an insurance undertaking, the authorization of the insurance undertaking should be withdrawn. The decision to open such a proceeding should be published by the competent authority, the liquidator or any person appointed for that purpose by the competent authority. An extract from the winding-up decision should also be published in the Official Journal of the European Communities.

When winding-up proceedings are opened, each known creditor who has his normal place of residence, domicile or head office in another Member State shall be informed by written notice. The creditors may lodge claims or submit written observations relating to claims.

As for re-organization measures, similar to winding-up procedures, only the competent authorities of the home Member State will be able to decide on the reorganization measures and these measures will be governed by the laws, regulations and procedures applicable in the home Member State.

12. STATISTICS

1. Commission Regulation (EC) No 1225/1999 of 27 May 1999 concerning the definitions of characteristics for insurance services statistics

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Summary

Council Regulation No 58/97 of 20 December 1996 concerning structural business statistics establishes a common framework for the collection, compilation, transmission and evaluation of Community statistics on the structure, activity, competitiveness and performance of businesses in the Community.3 Annex 5 of the amended Regulation4 aims at establishing such a framework for insurance services. The module includes a detailed list of characteristics on which statistics shall be compiled in order to improve knowledge of the national, Community and international development of the insurance sector.

Having regard to this Regulation and taking into account the necessity to implement a set of definitions for the insurance services statistics characteristics, the European Commission has adopted Regulation No 1225/1999. The Annex of the Regulation provides for the definitions of the chracteristics referred to in Regulation 58/97.

2. Commission Regulation (EC) No 1226/1999 of 28 May 1999 concerning the derogations to be granted for insurance services statistics (Text with EEA relevance)

(Official Journal L 154, 19/06/1999 p. 46- 74.)

Summary

Council Regulation No 58/97 of 20 December 1996 concerning structural business statistics provides under Article 11 that during transitional periods, derogations may be accepted in so far as the national statistical systems require major adaptations and that a supplementary transitional period may be accorded to a Member State for the compilation of statistics.

In accordance with this Article, derogations to the characteristics of List A of Annex 5 of the Regulation are specified in the Annex to Regulation 1226/1999 on a country by country basis.

3. Commission Regulation (EC) No 1227/1999 of 28 May 1999 concerning the technical format for the transmission of insurance services statistics (Text with EEA relevance)


Summary

Council Regulation No 58/97 of 20 December 1996 concerning structural business statistics provides under Article 9 that the results of collected and estimated data should be transmitted in an appropriate technical format.

Regulation 1227/1999 has been adopted by the Commission in order to specify the technical format for the transmission of insurance services statistics. Under the Annex of the

3 OJ L 14, 17/01/1997, p. 1.4 Regulation No 410/98 of 16 February 1998 amending Regulation (EC, Euratom) No 58/97 concerning structural business statistics, OJ L 52, 21/02/1998, p.1.

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Regulation, the technical format is divided into six titles, namely the form of the data, record structure, description of the fields, examples of records, type of magnetic media and other methods.

4. Commission Regulation 1228/1999 of 28 May 1999 concerning the series of data to be produced for insurance services statistics (Text with EEA relevance)


Summary

Taking into account the necessity to specify the frequency for the compilation of the multi-yearly insurance services statistics, to specify the first reference year for the compilation of the results laid down in Annex 5 of Regulation 58/97 (establishing a common framework for the collection, compilation, transmission and evaluation of Community statistics on the structure, activity, competitiveness and performance of insurance services) and to specify the breakdown of the results for the production of insurance services statistics, the Commission has adopted Regulation 1228/1999.

The Annex of the Regulation specifies the frequency for the compilation of multi-yearly characteristics, the breakdowns of results and the first reference year for the compilation of specific results specified in Regulation 58/97.

13. INSURANCE COMMITTEE

1. Council Directive 91/675/EEC of 19 December 1991 setting up an insurance committee


Summary

An Insurance Committee (IC) was established under Directive 91/675/EEC to assist the European Commission in its work in the insurance field with the aim of establishing closer co-operation between the national competent authorities and the Commission.

The Insurance Committee is composed of the representatives of Member States and chaired by the representative of the Commission.

The Committee examines questions relating to the application of Community provisions about the insurance sector, especially directives on direct insurance. The Commission may consult the Committee on new proposals regarding further co-operation in the field of direct life assurance and direct non-life assurance. The Committee, does not, however, consider specific problems relating to individual insurance undertakings.

The European Commission has recently launched a package of seven measures to simplify and enhance the decision-making and implementation in the financial services, also including

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insurance. With this package, a Committee of European Insurance and Pensions Supervisors (CEIOPS with 2004/6/EC, please see below) has been established to act as an independent advisory group on insurance and occupational pensions. The European Insurance and Occupational Pensions Committee (EIOPC with 2004/9/EC (has not come into force yet), please see below) will replace the Insurance Committee and assist the Commission in adopting implementing measures for EU Directives.

2. Commission Decision 2004/6/EC of 5 November 2003 establishing the Committee of European Insurance and Occupational Pensions Supervisors (Text with EEA relevance)

(Official Journal L 003, 07/01/2004 p. 30 – 31.

Summary

The Committee of European Insurance and Pensions Supervisors (CEIOPS) has been established to advise the European Commission regarding the preparation of draft implementing measures in the fields of insurance, reinsurance and occupational pensions.

The Committee contributes to the consistent implementation of Community Directives and to the convergence of the supervisory practices of Member States throughout the Community. It is also a forum for supervisory co-operation, including the exchange of information on supervised institutions.

The representatives of the Committee are designated by Member States from the high level representatives of their competent authorities in the field of supervision of insurance, reinsurance and occupational pensions. The Commission also designates a high level representative to participate in the debates of the Committee.

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


Summary

Commission Decision 2004/9/EC establishes an advisory group on insurance and occupational pensions in the Community, namely the European Insurance and Occupational Pensions Committee (EIOPC). The primary aim is to amend the insurance committees to also cover reinsurance and occupational pensions.

EIOPC will be replacing the Insurance Committee. However, to avoid duplication of committees, the entry into force of Decision 2004/9/EC will be suspended until the entry into force of any directive amending the purely advisory functions of the Insurance Committee.

EIOPC will be responsible to advise the Commission on issues relating to insurance, reinsurance and occupational pensions as well as Commission proposals in these fields. EIOPC will not consider specific problems relating to individual insurance or reinsurance

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undertakings or to occupational pensions institutions and it will not address labor and social law aspects.

The Committee will be composed of high level representatives of Member States and will be chaired by a representative of the Commission.

14. INTERNATIONAL AGREEMENTS

1. Council Regulation (EEC) No 2155/91 of 20 June 1991 laying down particular provisions for the application of Articles 37, 39 and 40 of the Agreement between the European Economic Community and the Swiss Confederation on direct insurance other than life assurance


Summary

An Agreement between the European Economic Community and the Swiss Confederation on direct insurance other than life assurance was signed at Luxembourg on 10 October 1989. Under the Agreement, a Joint Committee was set up to administer the Agreement, ensure that it is properly implemented and take decisions in the circumstances provided for therein.

Council Regulation 2155/91 provides that the Community, assisted by the representatives of the Member States, is to be represented on the Joint Committee. The Community’s position in the Joint Committee is to be adopted by the Council acting by a qualified majority on a proposal from the Commission.

The Regulation is binding in its entirety and directly applicable in all Member States.

2. Council Decision 91/370/EEC of 20 June 1991 on the conclusion of the Agreement between the European Economic Community and the Swiss Confederation concerning direct insurance other than life assurance

(Official Journal L 205, 27/07/1991, p. 2-2).

Summary

Council Decision 91/370/EEC approves on behalf ıf the Community, the Agreement between the European Economic Community and the Swiss Confederation concerning direct insurance other than life assurance.

The text of the Agreement is atttached to the Decison.

3. Council Directive 91/371/EEC of 20 June 1991 on the implementation of the Agreement between the European Economic Community and the Swiss Confederation concerning direct insurance other than life assurance

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Summary

One of the effects of the Agreement between the European Economic Community and the Swiss Confederation is to impose, in relation to insurance undertakings which have their head offices in Switzerland, legal rules different from those applicable under Chapter III of Directive 73/239/EEC, to agencies and branches established within the Community of undertakings whose head offices are outside the Community. Therefore, under Directive 91/371/EEC, Member States were asked to amend their national provisions to comply with the Agreement and when they adopted these measures, they had to contain a reference to this Directive.

4. 2001/776/EC: Decision No 1/2001 of the EC-Switzerland Joint Committee of 18 July 2001 amending the Annexes and Protocols to the Agreement between the European Economic Community and the Swiss Confederation on direct insurance other than life assurance and finding that the domestic legislation of the Contracting Parties is compatible with that Agreement


Summary

Following the legislative provisions adopted by Switzerland and by the European Community between the dates on which the Agreement was signed, certain amendments were made concerning the list of applicable lgal forms, the replacement of the term ECU with EURO, solvency margins, etc.

15. INFRINGEMENTS OF THE INSURANCE ACQUIS BY MEMBER STATES

The European Court of Justice (ECJ), the judicial branch of the European Community, has played an important role in shaping the legal and political structure of the Community by giving flesh and substance to Treaties and Directives.

The primary objective of the ECJ has been the enhancement of the effectiveness of Community law and its integration into the legal systems of the Member States. This has been achieved through case law, which is the general term used for the legal principles "developed by judges" in determining legal disputes.

In the field of insurance, there has been many important decisions and interpretations reached by the Court of Justice. Provided below, are some examples of cases referred to the European Court of Justice, their backgrounds and the grounds of the judgments of the Court.

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Case 205/84 Commission of the European Communities v. Federal Republic of Germany (Insurance Services Case)

[1986] ECR 3755, [1987] 2 CMLR 69.

The Insurance Services Case is one of the most important cases in the field of freedom of establishment and the free movement of services.

The European Commission lodged an application to the European Court of Justice for a declaration that the Federal Republic of Germany has failed to fulfill its obligations under the EEC Treaty, and in particular under Articles 59 and 60 (now Arts. 49 and 50), in relation to the freedom to provide services in the field of insurance, including co-insurance and under Council Directive 78/473/EEC on the co-ordination of the laws, regulations and administrative provisions relating to Community co-insurance (please see the summary of the Directive under Title II).

Articles 59 and 60 (now Arts. 49 and 50) require the removal not only of all discrimination against a provider of a service on the grounds of his nationality but also all restrictions on his freedom to provide services imposed by reason of the fact that he is established in a Member State other than that in which the service is to be provided.

Under provisions of German law, where insurance undertakings in the Community wished to provide certain kinds of direct insurance services in Germany through agents or intermediaries, they were required to be established and authorized in Germany.

Secondly, in its legislation transposing Council Directive 78/473/EEC on co-insurance into national law, Germany provided that the leading insurer (in the case of risks situated in the Federal Republic of Germany) must be established in Germany and authorized as the sole insurer of those risks. The European Commission argued that these provisions also violated Articles 59 and 60 (now Arts. 49 and 50) of the Treaty.

The decision of the Court was in line with the Commission view:

“28. It must be stated that the requirements in question in these proceedings, namely that an insurer who is established in another Member State, authorized by the supervisory authority of that state and subject to the supervision of that authority, must have a permanent establishment within the territory of the State in which the service is provided and that he must obtain a separate authorization from the supervisory authority of that State, constitute restrictions on the freedom to provide services in as much as they increase the cost of such services in the State in which they are provided, in particular where the insurer conducts business in that State only occasionlly.”

Such requirements could only be regarded as compatible with Articles 59 and 60 (now Arts. 49 and 50) if restrictions on the freedom to provide services could be justified on grounds of public interest.

Trying to justify the restrictions on grounds of public interest, the German government argued that the insurance sector was a sensitive area from the point of view of the protection of the

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consumer both as a policy holder and as an insured person. This was argued to be because of the specific nature of the service provided by the insurer, which is linked to future events. If an insured person cannot receive a payment under a policy following an event giving rise to a claim, he might turn out to be in a very difficult position. It is also very difficult for a person who wants to be insured to predict whether his insurer’s financial position and the terms of the contract will provide him with the necessary guarantees in the future.

The Court accepted that the insurance sector was sensitive and the protection of the policy-holder and the insured person was of great significance. The Court was also of the opinion that under the insurance directives (which were in force at the time being), important issues with respect to the reserves and assets of insurance companies were not covered. However, regarding the establishment requirement, the Court ruled that such a requirement could undermine the aim of Article 59 (now Art. 49) and that the German arguments concerning the protection of policy-holders and insured persons did not make the establishment of the insurer in the territory of the state in which the service is provided an indispensable requirement.

Case C-59/01 Commission of the European Communities v. Italian Republic

(European Court Reports 2003 page I-01759).

The European Commission lodged an application to the European Court of Justice for a declaration that the Italian Republic had failed to fulfil its obligations under Directive 92/49/EEC (the Third Non-Life Insurance Directive) by introducing and maintaining in force rate-freezing rules applicable to all contracts of insurance in respect of third-party liability arising from the use of motor vehicles in relation to risks situated within Italian territory.

Directive 92/49/EEC aims at completing the internal market with respect to both the right of establishment and the freedom to provide services and lays down the principle of freedom to set premiums. Under Article 8, the Directive provides that “Member States cannot adopt provisions requiring the prior approval or systematic notification of general and special policy conditions, scales of premiums and forms and other printed documents which an undertaking intends to use in its dealings with policyholders.”

Italy had transposed the Directive into its national law and liberalized the rates for compulsory motor vehicle insurance in the country, which were previously subject to a price-control system. However, following a rise of about 400% in premiums, Italy adopted Decree Law No. 70 of 28 March 2000 “containing urgent provisions to limit inflationary pressures” concerning various sectors, which among these were compulsory motor-vehicle insurance.

Under the Decree, compulsory motor vehicle insurance premiums would be freezed and insurance undertakings would not apply any increase in premium rates, initially for a period of one year. These rules would apply to all insurance undertakings, without distinguishing between insurance companies having their head office in Italy and those carrying on business in Italy through branch offices or under the freedom to provide services.

The European Commission argued that these provisions were contrary to the principle of freedom to set premiums and the system for exchanging information. With respect to rate restrictions, the findings of the Court were in line with the Commission arguments.

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The Court held that Directive 92/49/EEC aimed at securing the principle of freedom to set premiums in the field of compulsory motor-vehicle insurance and therefore prohibited any system of notification or approval of premium rates except within the framework of a general price-control system.

The Court decided that the Italian legislation restricted the freedom of insurance undertakings to set their premiums. The Court also rejected that the exercise was part of a general price-control system, finding that the Italian legislation amounted to selective intervention in the compulsory motor vehicle insurance system and did not have any links with measures in other sectors.

Case C-312/01 Commission of the European Communities v. Hellenic Republic

(European Court Reports 2002 page I-07053).

The European Commission brought an action before the Court (First Chamber) alleging that the Hellenic Republic had failed to fulfil its obligations under Directive 98/78/EC on the supplementary supervision of insurance undertakings in an insurance group. The Commission argued that the Greek government failed to adopt laws, regulations and administrative provisions within the prescribed time-limit to fully comply with Directive 98/78/EC.

According to settled case-law, it is not possible for a Member State to rely on any provisions, practices or circumstances in its own legal order to justify failure to implement a directive within the prescribed time period. Therefore, the decision of the Court (First Chamber) was in line with the Commission. The Court held that the Hellenic Republic had failed to fulfil its obligations on the Directive by failing to bring into force or to communicate to the Commission within the prescribed time-limit, all of the laws, regulations and administrative provisions necessary to comply with the Directive.

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III. EUROPEAN UNION ENLARGEMENT 2004 AND INSURANCE

1. WHAT ARE ACCESSION NEGOTIATIONS?

The accession negotiations process is the process which determines the conditions under which each candidate country will join the European Union. The negotiations focus specifically on the terms under which candidates adopt, implement and enforce the acquis communautaire. In certain cases, on legal or economic grounds, the granting of transitional arrangements may be possible but such arrangements must be limited in time and scope.

The negotiations with the candidate countries are conducted individually and their pace depends largely on the degree of preparation by each candidate country and the complexity of the issues to be resolved. Therefore, it is not possible to estimate the length of negotiations in advance.

Negotiations are conducted under the chapters of the European Union acquis communautaire. In the last enlargement, there had been 31 Chapters. However, the draft EU Common Position establishing a negotiating framework for Turkey envisages negotiations to be conducted under the following 35 Chapters:

1. Free movement of goods2. Freedom of movement for workers3. Right of establishment and freedom to provide services4. Free movement of capital5. Public Procurement6. Company law7. Intellectual property law8. Competition policy9. Financial services10. Information society and media11. Agriculture and rural development12. Food safety, veterinary and phytosanitary policy13. Fisheries14. Transport policy15. Energy16. Taxation17. Economic and monetary policy18. Statistics19. Social policy and employment20. Enterprise and industrial policy21. Trans-European networks22. Regional policy and coordination of structural instruments23. Judiciary and fundamental rights24. Justice, freedom and security25. Science and research26. Education and culture27. Environment28. Consumer and health protection

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29. Customs Union30. External relations31. Foreign, security and defense policy32. Financial control33. Financial and budgetary provisions34. Institutions35. Other issues

The procedure for accession negotiations has three phases:

1. Screening

Before the actual negotiations start, a detailed examination of the different chapters of the acquis communautaire (screening) takes place. The objective is to explain the acquis to the candidate countries and to identify with them, areas where there may be problems to be addressed.

2. Negotiations

For every chapter, candidate countries prepare their negotiating positions, which they submit to the country holding the presidency of the European Union and the European Commission through their Chief Negotiator for accession negotiators. These negotiating positions are prepared by working groups established in line with individual chapters and reviewed in co-operation with the responsible sector and the related public authorities (including the Ministry of Foreign Affairs, the country’s mission to the EU in Brussels, etc.). After the approval of the negotiating position by the government, the position is submitted to the EU Member State holding the presidency and the European Commission.

The Commission prepares its proposal on the submitted negotiating position, the so-called Draft Common Position of the European Union. This position is then submitted to the COREPER, on organ consisting of permanent representatives of member countries in Brussels. This means that the relevant chapter can only be opened following the elaboration and approval of the position document by the Union. Chapters are officially opened at a meeting at the level of ministers or deputies.

The negotiating position of the candidate country is thoroghly examined by experts from European Union member countries. If a candidate country has harmonised all the necessary legislation with the acquis communautaire under a chapter, then this chapter is provisionally closed at a meeting between the representatives of the European Union and a candidate country (at the level of ministers or deputies). "Provisionally" means that the chapter can be reopened during the negotiation process.

3. Ratification process

Agreements that will be concluded between a candidate country and the EU in individual negotiating chapters will form the basis for the Accession Treaty. This agreement will define the precise terms under which a candidate country will enter the European Union, what transitional periods it will apply and for how long. The signing of the Treaty by member countries is followed by the ratification process, i.e. the approval of the Treaty by parliaments of member countries and the European Parliament.

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2. NEGOTIATIONS IN INSURANCE

Negotiations in the field of insurance are conducted under Chapter 3: Freedom to provide services.

Provided below are the summaries of the negotiating positions of the ten new Member States of the European Union, the transitional arrangements they have requested in the field of insurance under Chapter 3 and the present situation in their insurance sectors (in terms of GDP, population, exchange rate, inflation rate, total premium (life and non-life)).5

a. Greek Cypriot Administration

The negotiations with the Greek Cypriot Administration under Chapter 3: Freedom to Provide Services, were launched in July 1999, provisionally closed in May 2001 and definitely closed in December 2002.

Requests for derogations or transition periods

During the negotiations for full membership, the Greek Cypriot Administration did not make any request for permanent derogations or transition periods in the field of insurance. The only request of the Cypriot government under freedom to provide services related to the permanent exclusion of the Cypriot Co-operative Credit and Savings Societies from the application of the provisions of the EC Directives on credit institutions. The government succeeded to get a transition period in this field.

State of play during the negotiations In the Greek Cypriot Administration, the legislation in the insurance sector is covered by the Insurance Companies Laws of 1984 and 1990 and the Insurance Companies Regulations of 1995. The supervisory authority in the Greek Cypriot Administration is the Insurance Companies Control Service which functions under the Ministry of Finance.

At the initial phase of the negotiations, almost all the basic elements of the EU supervision system were covered by the existing Cypriot legislation but there were some prudential provisions which were different from the ones provided in the acquis. To comply with the EU acquis in this field, the Cypriot government worked in close co-operation with the UK Government Actuary's Department and a study was conducted covering solvency margin requirements, authorization requirements and the conditions under which information could be exchanged. In early 1999, the Insurance Companies Control Service and the Insurance Association of the Greek Cypriot Administration started to work in close co-operation for the preparation of a draft law regulating the insurance sector (non-life insurance and life assurance). The new Law was drafted to be in full compliance with the relevant EU legislation.

At the initial phase of the negotiations, the Non-Life Insurance Directives were only partially covered by the current legislation such as conditions of market access, supervision of the

5 These figures are taken from CEA Eco, European Union Enlargement 2004, Insurance in the New EU Countries, No: 18, October 2003.

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solvency margin, supervision of the calculation and investments of technical reserves and supervision of insurance products offered in the market.

With respect to the minimum share capital, the legislation that was in force at the time being, required the possession of a minimum share capital of CY £200.000 for all insurance companies. With the new legislation, this minimum share capital was increased and a minimum guarantee fund was introduced to achieve full compliance with the acquis.

Other discrepancies also existed. For instance, insurance undertakings were not obliged to limit their business activities to the insurance business and there was no separation between life and non-life business. The Cypriot legislation was not in full compliance with the EU acquis in the valuation of both life and non-life liabilities and the special policy conditions relating to life insurance.

The Cypriot legislation was to a large extent harmonized with the Motor Vehicles Directives and the Directive on accounting of insurance companies. As for the supplementary supervision of Insurance Groups, there was no legislation in the Greek Cypriot Administration but harmonization was achieved in the form of orders.

Despite the above-mentioned discrepancies, the Greek Cypriot Administration possessed the necessary administrative infrastructure and human resources required for the implementation and enforcement of the acquis. The financial requirements of the acquis did not create significant problems to existing companies because of the highly competitive and sophisticated nature of the Greek Cypriot Administration insurance market and the country did not face significant problems in the adoption of the acquis communautaire.

Current situation

The Cypriot insurance market shows similarities with the average European market indications and there is a high level of competition and market penetration. However, the small size of the market puts it in a less advantaged position in comparison with the ten new Member States of the European Union.

1992 1996 1997 1998 1999 2000 2001 2002GDP 5,285 7,030 7,471 7,993 8,489 8,878 9,277 9,582Population 619 652 658 663 670 675 706 715Exchange rate 1.703 1.700 1.723 1.719 1.747 1.743 1.738 1.742Inflation rate 88.46 104.03 107.78 110.15 113.00 117.63 122.46 126.00Total Premium 167 285 320 351 763 568 454 486- Life Premium 78 149 170 191 592 382 251 260- Non-life premium 89 136 150 160 171 186 203 226

*GDP and pemium are in Euro million, population in thousands and axchange rate in base 100 in 1995.

b. Czech Republic

Under Chapter 3, negotiations with the Czech Republic started in July 1999, following the submission of the position paper of the Czech Republic. The chapter was opened on 12 November 1999; it was provisionally closed on 29 March 2001 and totally concluded in December 2002.

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The Czech Republic, in its position paper on freedom to provide services, had clearly indicated that it did not request any transitional arrangements and that all necessary institutional infrastructures for implementation and enforcement would be operational at the time of accession.

State of play during the negotiations

In the Czech Republic, the responsible authority in the fields of insurance and the accounting of insurance companies is the Ministry of Finance. The Czech Republic had stated in its position paper that it would be ready to implement the Community acquis concerning insurance services by the date of accession. Within this context, a new Act on Insurance against Liability in respect of the Use of Vehicles and a new Act on Insurance were adopted and a "final" Act on Insurance was designed to cover all non-life insurance and life assurance directives. A single license and home country supervision were introduced as well.

With the new Act on Insurance, the Czech Republic aimed at emphasizing the prudential and solvency monitoring approach practiced in the EU countries and making substantial improvement of insurance supervision. The staff of insurance supervision was gradually built-up and trained.

In 2001, the former monopoly state owned insurance company Ceska Pojistovna was privatized.

In the field of accounting of insurance undertakings, no implementation problems were identified. There were only partial differences and these were aligned in the drafted amendments of the Czech accounting legislation and in special regulations of the Ministry of Finance for accountancy on methodical procedures in accounting and instructions for financial accounting statements for banks and insurance undertakings.

All in all, the Czech Republic did not face significant problems in adopting to the EU legislation.

Current situation

Although it is relatively small, the Czech insurance market has promising growth rates and is considered as second after Poland in terms of investment potential. Most insurers are operating in the non-life arena and according to studies conducted by CEA (Comité Européen des Assurances), the new EU solvency requirements will demand only an additional 2.8 % of the capital of the Czech insurance companies.6

1992 1996 1997 1998 1999 2000 2001 2002GDP 22,645 46,056 43,967 52,256 55,008 56,612 67,620 72,244Population 10,318 10,314 10,304 10,294 10,286 10,272 10,224 10,201Exchange rate 0.029 0.029 0.026 0.028 0.029 0.029 0.031 0.032Inflation rate 68.98 108.80 118.00 130.60 133.30 138.50 145.10 147.10Total Premium 591 1,194 1,256 1,565 1,824 2,013 2,510 2,8856 Ibid., p. 35.

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- Life Premium 150 322 332 425 576 649 879 1,085- Non-life premium 441 872 924 1,140 1,248 1,364 1,631 1,799


c. Estonia

In the case of Estonia, Chapter 3 was opened in August 1999; it was provisionally closed in March 2001 and totally concluded in December 2002.


Based upon the conclusions of the screening on freedom to provide services, Estonia was prepared to accept the acquis on this Chapter and adopt it in full upon accession to the European Union. There were no requests for transitional periods or derogations on insurance. Estonia requested transitional periods only in respect of banking and investment services.


In the insurance sector, the Law of Obligations, which harmonised the provisions of the insurance directives regulating insurance contracts, entered into force only in June 2002. To complete its preparations for membership, Estonia also had to align its laws with EU Directives on motor third party liability, life assurance and non-life insurance.

In comparison with the other new Member States of the EU, Estonia, together with Lithuania and Latvia, was less adopted to the European insurance market and therefore, the process of harmonization was not quite smooth.

Current situation

Today Estonia, as a new EU Member State, does not have a strong insurance market. According to CEA estimates, Estonia might face difficulties to meet the new solvency requirements of the European Union due to the comparatively low capital of Baltic insureres. To raise the necessary capital, they will have to form alliances or be progressively taken over by foreign investors.7

1992 1996 1997 1998 1999 2000 2001 2002GDP 842 3,370 4,051 4,711 4,816 5,575 6,172 6,889Population 1,500 1,470 1,460 1,450 1,441 1,367 1,361 1,356Exchange rate 0.064 0.064 0.063 0.064 0.064 0.064 0.064 0.064Inflation rate 28.00 123.04 136.80 151.10 156.10 162.40 171.70 180.00Total Premium 60 67 79 86 102 114 139- Life Premium 4 8 13 14 19 23 29- Non-life premium 56 59 65 72 82 91 110


d. Hungary 7 Ibid., p. 36.

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The Chapter on freedom to provide services was opened in July 1999, provisionally closed in February 2001 and closed in December 2002.


The Hungarian request for transitional arrangements in the field of insurance was not under Chapter 3 but under Chapter 4: Free Movement of Capital, regarding the maintenance of certain restrictions on outward investment of insurance undertakings for a periof of five years. In line with this request, Hungary intended to seek a “temporary exemption” from the application of the obligation provided for in Article 17(3) of Directive 79/267/EEC, on the taking up and pursuit of business of direct life assurance.

The European Union, on the other hand, stated in its own position that the implications of any such request for this Chapter would need to be taken into account and the outcome considered in the overall context of right of establishment and freedom to provide services.

However, Hungary was not able to benefit from any transitional arrangements in insurance neither under Chapter 3 nor under Chapter 4.


The libaralization and the deregulation of the Hungarian insurance market had already started in the 1990s through the removal of the barriers to market entry for foreign and domestic companies and the alignment of the Hungarian legislation with EU law. Hungary did not face problems in the negotiating process because the Hungarian insurance market, with its high degree of competitiveness and stability, was regarded as the best prepared market for enlargement.

Current situation

Its accession to the EU did not bring significant changes to the insurance sector in Hungary. As for the implementation of the new solvency requirements of the European Union, Hungary is not likely to face difficulties for most insurers are foreign-owned and will be able to acquire the necessary capital via the parent company if necessary.

According to CEA studies, 90% of the market is taken by foreign companies and the former state insurers are fully integrated into the new competitive market environment. The problem of lower returns on life insurance policies was managed by the Hungarian supervisory authorities through lowering the technical interest rate at the end of 2002.8

1992 1996 1997 1998 1999 2000 2001 2002

GDP 28,967 33,424 37,966 39,967 42,999 49,688 60,418 72,047Population 10,313 10,196 10,155 10,114 10,068 10,024 10,188 10,155Exchange rate 0.0098 0.0048 0.0044 0.0040 0.0038 0.0038 0.0041 0.0042Inflation rate 53.53 123.50 146.10 166.70 183.40 201.40 219.90 231.50Total Premium 586 686 863 969 1,124 1,449 1,707 2,097- Life Premium 121 234 283 352 453 670 712 859- Non-life premium 465 452 579 617 671 779 995 1,238

8 Ibid., p. 36.

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e. Latvia

The negotiations between Latvia and the European Union under Chapter 3, were opened in August 2000, provisionally closed on 12 June 2001 and totally concluded in December 2002.


Although Latvia accepted in full the EU acquis communautaire in the area of "Freedom to Provide Services" it had requested transition periods under three headings, one of them relating to insurance. Latvia's other requests related to deposit-guarantee schemes and investor-compensation schemes.

Latvia requested until 1 January 2015 a transitional period for full implementation of Directives 84/5 and 90/232 on the approximation of the laws of the Member States relating to insurance against civil liability in respect of the use of motor vehicles. Latvia, in its position paper, stated that the transitional period for implementation of these directives was necessary because the increase of limits for the minimum cover would require considerable increase of the insurance premiums. This would only be done in correlation with overall economic development in Latvia, in particular with purchasing power. According to estimates, a transitional period until 1 January 2015 would be required for the full implementation of the limits for the minimum cover. However, Latvia also stated that it would be possible to shorten this transitional period.

At the end of the negotiations, Latvia has succeeded to get transition periods under Chapter 3 but these transition periods related to deposit-guarantee schemes and investor-compensation schemes, not to the insurance field.


The insurance services in Latvia are regulated by the Laws "On Insurance Companies and Their Supervision", "On Insurance Contract", "On compulsory Third Party Liability Insurance for Inland Motor Vehicle Owners", by the regulations of the Cabinet of Ministers as well as by the normative acts of the Insurance Supervision Inspectorate.

In Latvia, the supervision of insurance companies was carried out by the Insurance Supervision Inspectorate but starting from 1 July 2001, the single Finance and Capital Market Supervision Inspectorate became responsible for the supervision of financial institutions (banks, credit unions, insurance companies, private pension funds, broker and investment companies)

In its position paper, Latvia had undertaken to remove technical barriers for foreign insurance companies to establish their branches in Latvia and to implement the additional supervision of insurers from insurance groups by amending its national legislation in accordance with Directive 98/78. Latvia had also undertaken to make the necessary amendments in its "Law on Insurance Companies and Their Supervision".

Current situation

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According to studies conducted by CEA (Comité Européen des Assurances), Latvia held the second place in the Baltic region with a total of 170 million Euro of life and non-life insurance premiums in 2002. Today the EU solvency requirements are implemented in Latvian insurance legislation and the calculations made by the Latvian National Association show that the majority of Latvian insurers have already met new EU solvency requirements.9

1992 1996 1997 1998 1999 2000 2001 2002GDP 1,457 4,045 5,041 5,369 6,621 7,628 8,582 8,516Population 2,500 2,502 2,480 2,399 2,382 2,364 2,346 2,332Exchange rate 1.4500 1.4297 1.5390 1.4948 1.7021 1.7543 1.7830 1.6393Inflation rate 22.99 117.61 127.50 133.50 136.60 140.20 143.70 147.00Total Premium 61 103 131 161 168 174 169- Life Premium 13 10 12 11 7 6 7- Non-life premium 49 92 120 150 161 168 162


f. Lithuania

Negotiations with Lithuania under Chapter 3 were initiated in July 2000, the Chapter was provisionally closed in June 2001 and totally closed in December 2002.


For Lithuania, the object of negotiations in Chapter 3 was a transitional period for the introduction of the system for compulsory third party liability insurance of owners and users of motor vehicles. In the course of the negotiations, Lithuania requested for a transitional period until 31 December 2009. However, the European Union disagreed with it and asked to review the request. On 28 April 2001, the Government of the Republic of Lithuania adopted a decision to withdraw the request for a transitional period.

The only transitional periods acquired by Lithuania under Chapter 3 related to bank deposit guarantee and investor compensation.


In its negotiating position, Lithuania stated that its national legislation in this chapter was mainly in compliance with the requirements of the acquis. The main tasks would be the implementation of the system for compulsory third party liability insurance of owners and users of motor vehicles and the adoption of the Law on Insurance Contract and Law on Insurance Activities.

Lithuania adopted in September 2001, Rules on Compulsory Motor Third Party Liability Insurance of Vehicles Owners and Processors and established the Bureau of Compulsory Motor Third Party Liability Insurance.

9 Ibid., p. 37.

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The Board of the State Insurance Supervisory Authority (SISA) adopted several regulations in December 2001. The 1996 Law on Insurance was amended in February 2002 and entered into force in June 2002, further aligning the legislation with the acquis.

During the negotiations, Lithuania was one of the most problematic countries in terms of legislation and harmonization.

Current situation

The Lithuanian market is far from the average EU insurance market characteristics. To be able to meet EU criteria, especially in terms of solvency requirements, Lithuanian insurers will need to form alliances or they will be taken over by foreign investors.

1992 1996 1997 1998 1999 2000 2001 2002GDP 677 6,348 8,689 9,211 12,328 12,156 13,589 13,901Population 3,700 3,709 3,706 3,703 3,700 3,693 3,476 3,460Exchange rate 0.2000 0.2011 0.2266 0.2143 0.2890 0.2693 0.2834 0.2899Inflation rate 124.60 135.70 142.60 143.70 145.00 146.90 149.00Total Premium 73 86 85 118 111 126 215- Life Premium 14 14 21 21 26 40- Non-life premium 73 71 96 90 99 174


g. Malta

Under Chapter 3: Freedom to Provide Services, screening of laws started in October 1999, the Chapter was opened in January 2001, they were provisionally closed in May 2001 and totally concluded in December 2002.


In the field of insurance, Malta did not have any requests for transitional periods. The only request of Malta under Chapter 3 was a transitional period to allow for phasing out of inheritance scheme applicable to the port workers' pool but this request was later withdrawn.


In Malta, the MFSC (Malta Financial Services Center) is the competent authority responsible for regulating and supervising business of insurance and insurance intermediaries operating in or from the country. It gives authorizations to insurers, registers and enrolls insurance intermediaries. Applications are assessed taking into account the own funds held by the company, solvency ratios, the status of shareholders, directors and controllers.

The MFSC also carries out off-site (analysis of annual audited financial and business statements) and on-site (the inspection of books, records, accounts and other related documents) monitoring of authorized and enrolled companies.

In case of problems involving authorized and enrolled persons, the MFSC has the powers to take remedial action. It may impede the company from carrying out new business of insurance

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as well as suspend or revoke an authorization or enrollment. In carrying out its functions, the MFSC co-operates regularly with other local and foreign regulators.

In Malta, the Insurance Business Act and the Insurance Brokers and Other Intermediaries Act regulate the business of insurance and insurance intermediaries operating in or from the country. These Acts and the respective subsidiary legislation were broadly in line with the EU acquis during the negotiations.

The Insurance Business Regulations relating to companies assets and liabilities and the Insurance Business Regulations relating to long-term contracts transposed the provisions of Directive 73/239/EEC, as well as its amendments relating to solvency margins, guarantee fund and minimum guarantee fund, valuation of assets, determination of liabilities, etc. The Insurance Business Regulations relating to the accounts of companies transposed the provisions of Directive 91/674/EEC (annual accounts and consolidated accounts of insurance undertakings), while the Insurance Business Regulations relating to long-term business contract statutory notice transposed the life insurance directives.

The Maltese Motor Vehicles Insurance Ordinance and the Insurance Business Security Fund Regulations were broadly in line with the Motor Insurance Directives and subsidiary legislation was also adopted upon accession.

All in all, the negotiations were concluded without significant problems.

Current situation

The Maltese insurance market shows similarities with the Cypriot insurance market in the sense that both are very close to the average European insurance market indications. However, the small size of both markets put them in a less significant position compared to the other enlargement countries.

1992 1996 1997 1998 1999 2000 2001 2002GDPPopulation 370 374 377 379 380 383 384 385Exchange rate 2.2244 2.2198 2.3109 2.2645 2.5176 2.4564 2.5025 2.3887Inflation rate 88.46 104.03 107.78 110.15 113.00 115.00 117.88 120.00Total Premium 55 94 115 112 146 175 186 185- Life Premium 12 26 37 36 59 83 89 85- Non-life premium 42 68 77 75 87 92 97 100


h. Poland

In the case of Poland, Chapter 3 was opened in July 1999, it was provisionally closed in November 2000 and totally concluded in December 2002.


The only transitional periods acquired by Poland in this Chapter related to co-operative credit institutions and investor-compensation schemes.

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In its position paper under Chapter 3, Poland stated that the provisions of the Polish insurance legislation did not include restrictions related to a requirement of Polish nationality, residence requirement and obligatory membership of professional organizations.

Poland had transposed into its national legislation a group of Directives relating to life assurance and non-life insurance and undertook to implement legislation relating to international agreements upon accession.

In accordance with EC Directives on insurance agents and brokers (Directive 77/92/EEC), Poland undertook to establish a central register of insurance brokers and to introduce appropriate regulations to that effect. In its position paper, Poland had also undertaken to introduce regulations concerning insurance groups with the new Insurance Supervision Act.At the time being, there existed no regulations in Polish law which would provide for direct cross-border provision of insurance services. In its position, Poland stated that it would only be possible to introduce the uniform insurer’s licensing system, full freedom to provide services across borders and all connected regulations when Poland gained full membership to the European Union.

In the EU, it is required that the compulsory liability insurance in respect of the use of motor vehicles covers the whole territory of the European Union and is subject to no border controls each time. The Polish Insurance legislation did not include such regulations either. The new Polish Act on Compulsory Insurance was designed to include these provisions.

Current situation

Poland was the leading country in the Eastern enlargement wave of the European Union in terms of territory, population and GDP. The country represents about 50% of the overall insurance market of the 10 new members of the European Union. According to studies conducted by CEA, there exists the risk that new EU solvency rules can create problems for national insurers in Poland and the entire market needs an additional 1.5% of its current equity capital to meet the new EU solvency requirements.10

Like in the rest of the new Member States, the non-life sector is the leading insurance business in Poland but the promising potentials in the life insurance sector create opportunities for foreign companies. Development in life insurance depends largely on progress in increase average income in the country and overcoming economic stagnation.

1992 1996 1997 1998 1999 2000 2001 2002GDP 60,399 109,246 123,312 135,372 158,539 177,968 204,988 220,307Population 38,360 38,636 38,650 38,663 38,654 38,646 38,641 38,609Exchange rate 0.5255 0.2805 0.2581 0.2445 0.2577 0.2598 0.2841 0.2950Inflation rate 43.23 119.90 137.70 153.70 164.90 181.60 191.50 195.20Total Premium 1,100 2,277 3,141 3,812 4,849 5,414 6,358 6,790- Life Premium 286 776 1,051 1,315 1,792 2,165 2,631 2,883- Non-life premium 814 1,501 2,090 2,497 3,057 3,248 3,728 3,907

10 Ibid., p. 38.

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i. Slovak Republic

In the case of the Slovak Republic, Chapter 3 was opened in July 2000, it was provisionally closed in May 2001 and totally concluded in December 2002.


In the field of insurance, the Slovak Republic did not make any requests for a transitional period.


In its negotiating position, the Slovak Republic had stated that as far as fundamental requirements were concerned (such as the taking up and pursuit of business of insurance companies, the minimum equity of an insurance company, the obligations of insurance companies and the powers of the supervisory body), there was full alignment with the acquis.

The Slovak Act no. 101 of 2000 amending Act No. 24 of 1991 on Insurance was designed to be in compliance with Directives 73/239/EEC and 79/267/EEC. The amendment allowed the branches of foreign insurance companies to pursue businesses of insurance, to insure risks not covered by domestic insurers. The amendment also introduced the mandatory specialization into life and non-life insurance and the classification of insurance type in accordance with areas of insurance. The powers of the supervisory body were enhanced in the licensing process and the body was also entitled to approve persons appointed to the statutory bodies of insurance companies, the acquisition of shares of an insurance company, if such shares have voting rights exceeding 10% of the sum of the nominal values of all the shares of the insurance company.

When the Slovak Republic's position paper was submitted for Chapter 3, there were areas where full harmonization was lacking, like insurance accounts, requirements for insurance brokers and insurance supervision. The Slovak Republic had requested technical assistance from the European Commission due to its lack of expertise in these areas, especially in insurance supervision.

In the field of motor vehicle insurance, the Slovak Insurance Company had a monopolistic position with regard to two types of statutory insurance- insurance against civil liability in respect of the use of motor vehicles (third party liability insurance) and insurance against liability in respect of accidents at work or occupational disease. The EU Directives were gradually transposed into national law.

During the accession process, the Ministry of Finance was in charge of the implementation of the acquis relating to the insurance sector in the Slovak Republic. A special supervisory body for the financial markets (the Financial Market Office) was also established to work in close co-operation with the Ministry of Finance.

Current situation

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According to CEA, Slovakia is in fourth position after Slovenia, Poland and the Czech Republic in the new Eastern European members of the EU in terms of real growth rates and long-term trends in the life insurance sector. With accession to the European Union, it is expected that competition on the Slovenian market will become more effective, while an increase in the proportion of market share taken by foreign companies seems likely.11

1992 1996 1997 1998 1999 2000 2001 2002GDP 9,104 15,214 17,881 18,361 19,461 20,659 23,085 25,788Population 5,269 5,368 5,379 5,388 5,396 5,401 5,379 5,378Exchange rate 0.0274 0.0251 0.0261 0.0237 0.0233 0.0227 0.0233 0.0240Inflation rate 65.09 105.77 112.20 119.70 132.40 148.40 159.20 164.20Total Premium 172 346 442 504 551 621 743 872- Life Premium 47 89 123 154 198 258 324 377- Non-life premium 125 257 319 351 353 363 420 495


j. Slovenia

In the case of Slovenia, Chapter 3: Freedom to Provide Services was opened in July 1999, it was provisionally closed in November 2000 and closed in December 2002.


In its negotiating position on Chapter 3, Slovenia clearly stated that its legislation on insurance only partly conformed to the acquis. Although requesting transitional periods in the fields of banking and securities market, Slovenia did not have any such requests in the field of insurance.


In the Republic of Slovenia, the insurance sector is regulated by the Insurance Companies Act and the Act on Obligatory Insurance against Civil Liability in Traffic.

In its position paper, Slovenia stated that its legislation on insurance did not contain provisions of Directives 92/49/EEC and 92/96/EEC establishing internal market for insurance services. Inconsistencies also existed with regard to Directives 64/225/EEC, 73/239/EEC and 79/267/EEC, such as: property, property interests and persons in the Rapublic of Slovenia could only be insured with insurance undertakings with their head office in the Republic of Slovenia; the supervisory authority was allowed to refuse to grant an authorization if the director of an insurance undertaking was not a Slovenian national; an insurance public limited company holding a majority or controlling foreign equity share was not allowed to perform reinsurance operations; members of the mutual insurance company could only be Slovenian nationals and insurance undertakings could only invest in the Republic of Slovenia.

In harmonization with the EU, an Insurance Act taking into account of the acquis was adopted and implemented progressively. However, Slovenia undertook to implement certain

11 Ibid., p. 39.

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provisions regulating single license, home country control and cross-border provision of services only upon actual accession to the European Union.

The new Act not only set out detailed rules for safe and prudent management and supervision of insurance and reinsurance undertakings, agents and brokers and insurance agencies and brokerage companies but also abolished the discriminatory treatment against foreign natural and legal persons with regard to establishment of subsidiaries of insurance and reinsurance undertakings and with regard to the acquisition of holdings. The Act also abolished the possibility of a refusal to grant an authorization if the director of an insurance undertaking is not a Slovenian national and enabled the insurance undertakings with a head office in the Republic of Slovenia to also invest in Member States of the European Union and OECD countries.

The Act on Obligatory Insurance against Civil Liability in Traffic almost fully complied with the acquis, except for the part relating to minimum amounts for personal injuries.

In its position paper, Slovenia stated that it would fully align its legislation on insurance with the acquis by the date of accession to the European Union and that it would strengthen the professional capacity of its institutions (the Ministry of Finance, the Insurance Supervisory Authority within the Ministry of Finance and the Slovenian Insurance Association) and ensure their more efficient operations.

Current situation

According to studies conducted by CEA (Comité Européen des Assurances), the EU solvency laws are not likely to cause problems to the Slovenian insurance companies. The Slovenian non-life insurance market has a high penetration level of 4 %, where in the life sector the country has the lowest market penetration of all the new EU Member States.

1992 1996 1997 1998 1999 2000 2001 2002GDP 6,786 14,434 15,714 17,233 17,192 18,893 20,868 24,579Population 1,990 1,993 1,973 1,969 1,966 1,990 1,994 1,996Exchange rate 0.0067 0.0056 0.0054 0.0053 0.0047 0.0047 0.0046 0.0047Inflation rate 59.71 109.90 119.10 128.50 136.40 148.50 161.00 173.00Total Premium 219 688 700 816 808 903 1,051 1,242- Life Premium 16 114 124 139 146 175 225 282- Non-life premium 203 574 577 676 662 728 827 960


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BIBLIOGRAPHY

BOOKS:

Comité Européen des Assurances (CEA), European Insurance in Figures, June 2004.

Comité Européen des Assurances (CEA), European Union Enlargement 2004: Insurance in the New EU Countries: 1992-2002 Data and CEA Comments, CEA ECO, No: 18, October 2003.

Economic Development Foundation (IKV), Avrupa Birliği ile Katılım Müzakereleri Rehberi, İKV Yayınları No: 184, Istanbul: 2005.

Paul Craig ve Gráinne de Búrca, EU Law: Text, Cases and Materials, Oxford: 1998.

WEBSITES:

Secretariat Affairs for the EU Affairs http://www.abgs.gov.tr

Delegation of the European Commission to Turkeyhttp://www.deltur.cec.eu.int

Ministry of Foreign Affairshttp://www.mfa.gov.tr

EU Acquis List (2003 National Program Priorities) http://www.abgs.gov.tr/UVT/UPoncelik.htm

European Commission DG Internal Market (Freedom to Provide Services and Insurance) Websitehttp://www.europa.eu.int/comm/internal_market/insurance/index_en.htm

European Commission DG Enlargementhttp://www.europa.eu.int/comm/enlargement

Negotiating Position of the Czech Republic in Insırance http://www.euroskop.cz/eng

Negotiating Position of Estonia in Insırance http://www.vm.ee/eng/euro/aken_prindi/3454.html

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http://www.vm.ee/eng/euro/aken_prindi/3454.html

http://www.euroskop.cz/eng

http://www.europa.eu.int/comm/enlargement

http://www.europa.eu.int/comm/internal_market/insurance/index_en.htm

http://www.abgs.gov.tr/UVT/UPoncelik.htm

http://www.mfa.gov.tr/

http://www.deltur.cec.eu.int/

http://www.abgs.gov.tr/

Negotiating Position of the Greek Cypriot Administration in Insırance http://www.eu-coordinator.gov.cy/Harmonization/Harmonization.nsf/0/00AD857B46C1AFD9C2256E4B0024FBCD/$file/common%20position%203%20freedom%20to%20provide%20services.doc

Negotiating Position of Latvia in Insırance http://www.am.gov.lv/en/eu/4358/4359/4362/?print=on

Negotiating Position of Lithuania in Insırance http://www.euro.lt/showitems.php?TopMenuID=41&MenuItemID=53&ItemID=478&LangID=2 Negotiating Position of Hungary in Insırance http://www.kum.hu/euint/index_access.html

Negotiating Position of Malta in Insırance http://www.mic.org.mt/Malta-EU/position_papers/chap_03.htm

Negotiating Position of Poland in Insırance http://www.negocjacje.gov.pl/neg/stne/pdf/stne3en.pdf

Negotiating Position of the Slovak Republic in Insırance http://www.foreign.gov.sk/En/files/add.php3?text=Slovakia%20and%20EU&file=eu_poz3e.html

Negotiating Position of Slovenia in Insırance http://www.uvi.si/eng/slovenia/publications/facts/eu-negotiations/

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http://www.uvi.si/eng/slovenia/publications/facts/eu-negotiations/

http://www.foreign.gov.sk/En/files/add.php3?text=Slovakia%20and%20EU&file=eu_poz3e.html

http://www.foreign.gov.sk/En/files/add.php3?text=Slovakia%20and%20EU&file=eu_poz3e.html

http://www.negocjacje.gov.pl/neg/stne/pdf/stne3en.pdf

http://www.mic.org.mt/Malta-EU/position_papers/chap_03.htm

http://www.kum.hu/euint/index_access.html

http://www.euro.lt/showitems.php?TopMenuID=41&MenuItemID=53&ItemID=478&LangID=2

http://www.euro.lt/showitems.php?TopMenuID=41&MenuItemID=53&ItemID=478&LangID=2

http://www.am.gov.lv/en/eu/4358/4359/4362/?print=on

http://www.eu-coordinator.gov.cy/Harmonization/Harmonization.nsf/0/00AD857B46C1AFD9C2256E4B0024FBCD/$file/common%20position%203%20freedom%20to%20provide%20services.doc



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