Committee Reports::Report No. 03 - Life Assurance Non-Life Assurance::07 February, 1978::Report



Proposals examined

1. The Joint Committee has examined the following proposals for Council Directives relating to assurance and insurance:—

Draft Directive, as amended, on the co-ordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of direct life assurance [R/3247/73 as amended by R/3134/74 and R/402/75].

Draft Directive on the co-ordination 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 [R/95/76].

Legal basis

2. The proposed co-ordination Directive on life assurance is based on Article 57 (2) of the EEC Treaty which enables the Council to issue Directives co-ordinating national laws “concerning the taking up and pursuit of activities as self-employed persons”. It is part of the Council’s General Progranne for the abolition of restrictions on the right of establishment. The proposed Directive on non-life assurance is also based on Article 57 (2) insofar as it supplements Directive 73/239/EEC of 24 July, 1973 on the right of establishment in non-life insurance and is based on Articles 59 and 66 of the Treaty insofar as it deals with the provision of services in Member States other than the one in which the insurance undertaking is established.


Scope of Proposal

3. The object of the proposal is to enable life assurance undertakings which are established or have branches in any Member State effectively to exercise their right of setting up a branch or agency in any other Member State. For this purpose it seeks to co-ordinate and liberalise the conditions under which the business of life assurance may be carried on in the Member States.

4. The draft Directive provides that the carrying on of life assurance shall be subject to the issue of an authorisation by the host Member State and specifies the conditions which that State may impose for the issue of an authorisation. It lays down the rules which a Member State may apply in relation to reserves, solvency margins and guarantee funds and to the exercise of its general supervisory role over life assurance business within its territory. It also has special provisions dealing with life assurance firms whose head offices are outside the Community.

Localisation of assets

5. The Joint Committee understands that while there is at present no legal obligation on firms dealing in life assurance in Ireland to keep their funds within the country, they in fact invest a proportion of approximately 80 % here pursuant to a gentleman’s agreement with the Minister for Industry, Commerce and Energy. It notes that under the proposed Directive “technical reserves, including mathematical reserves, shall be required to be covered by equivalent and matching assets localised in each country where business is carried on” but “Member States may, however, permit relaxation of the rules as to matching assets and the localisation of assets. It would seem to the Joint Committee that if the proposed Directive is adopted, the localisation of assets should be made a statutory obligation and it believes that in our economic circumstances no relaxation of the rule should be permitted.


6. Ireland in common with a majority of the Member States favours the principle of specialisation in that Irish law precludes a life assurance undertaking from underwriting any risks in the non-life sphere. Some Member States including the United Kingdom allow firms to act as composite undertakings practising both life and non-life insurance. The Commission’s proposal was directed towards applying specialisation to all undertakings set up after the Directive came into force but allowing existing composites to continue as such provided they introduce separate managements. The Joint Committee understands that this point is still under discussion in the Council Working Party examing the draft Directive.

7. The Joint Committee would prefer to see existing composites phased out over a period. It believes that if any composite wishes to undertake life assurance business in Ireland the existing Irish law should apply and it should be required to set up a specialist subsidiary in this country.

Solvency Margin

8. The Irish Insurance Association made a number of points to the Joint Committee in connection with the Directive’s requirements regarding the solvency margin namely (1) that a limit of 20% in respect of re-insurance should be allowed in calculating the solvency margin, (2) that the solvency margin in respect of liabilities under term life assurance should be calculated in accordance with the formula under article 19 (b) rather than article 19 (a) of the draft Directive, and (3) that individual companies should be allowed to choose between the two methods of calculating the implicit element in the solvency margin. The Joint Committee recommends that sympathetic consideration be given to those points by the Council Working Party.


Right of establishment

9. On 24 July, 1973 the Council adopted Directive 73/239/EEC co-ordinating national laws so as to enable undertakings dealing in non-life insurance to establish branches and agencies in the Member States other than the one in which they are permanently established. It achieved for non-life insurance what the draft co-ordination Directive already discussed in this report is seeking to achieve for life assurance. Directive 73/239/EEC was implemented in this country by the European Communities (Non-Life Insurance) Regulations, 1976 [S.I. No. 115 of 1976].

Scope of proposal

10. The proposed Directive supplements Directive 73/239/EEC by laying down standard rules to be observed by Member States in the calculation of technical reserves, the choice of law in insurance contracts and the supervision of insurance undertakings. It also seeks to facilitate the effective exercise of the freedom to provide services in the field of indemnity insurance. This involves insurance undertakings doing business across national frontiers without setting up a branch or agency in the Member State in which the risk covered is situated. The draft Directive would make the transaction of such business by an undertaking subject to the authorisation of its home State only though the undertaking would be obliged to observe certain specified rules of the Member State in which the risk is situated. The draft Directive also includes provisions relating to insurance contracts and special trading accounts. Technical reserves for the risks in the recipient country would not have to be localised in that country but merely within the Community generally.

Views of Joint Committee

11. As the Joint Committee understands the position the decision of the Court of Justice in Van Binsbergen v Bestuur van de Bedrijfsvereniging voor de Metaalrijverheid (Case 33/74 [1974] ECR 1299), has established that the right to provide services across national frontiers within the Community must not be frustrated by rules based on nationality or residence. It seems, therefore, that co-ordination of national laws to enable the right to be effectively exercised is inevitable.

12. It should be mentioned that up to 1976 freedom to provide services in the marine, aviation and transit fields existed in this country by virtue of the fact that such classes were not controlled by the Insurance Act, 1936. Since 1976 third country insurers require the authorisation of the Minister to transact this business. EEC insurers can do so if they notify the Minister.

13. The Joint Committee has heard evidence that the adoption of the proposed Services Directive would expose the Irish insurance industry to a great deal of extra competition which it would find difficult to withstand. In particular the industry is concerned that the smallness of the Irish insurance market in the context of the world wide operations of some of the larger insurance undertakings could lead the latter to engage in unfair practices to the detriment of the industry here without affecting in any way their own solvency.

14. While not averse to the prospect of increased competition in the Irish insurance market the Joint Committee considers that the Irish industry should be given a reasonable chance of competing in the new circumstances. It would prefer, therefore, that there should be some years experience of the right of establishment Directive and also of the proposed co-insurance Directive before a Services Directive is adopted. Moreover it believes that the provision of services should be subject to a national law regulating fair trading.

15. Also, the Joint Committee considers that where insurance intermediaries provide on behalf of outside undertakings services such as advertising for business, issuing proposal forms, conducting surveys of risks, issuing cover, collecting premiums, and settling claims, such services should be subject to the supervision of the supervisory authority in this country just as if the undertaking had established a branch here.

Fair Trading

16. The Joint Committee notes that the proposed Services Directive would make the provision of services subject to the rules relating to fair trading in force in the Member State in which the risk is situated. It understands that no such rules exist in Ireland. It believes that it is imperative that such rules be worked out in consultation with the industry and implemented before any Services Directive comes into operation.

Insurance Compensation Fund

17. The Insurance Act, 1964 established the Insurance Compensation Fund to meet certain liabilities of insolvent insurers. Insurers in Ireland are required to contribute to the Fund. It is not within the terms of reference or the competency of the Joint Committee to comment on whether the provisions of the Act relative to the Fund constitute an adequate safeguard for companies, which manage their affairs prudently, from the potential damage to their interests (and the interests of their policy holders) caused by companies not so managed. But until such time as a similar type of fund is established for the Community as a whole undertakings, wishing to provide insurance services here without setting up a branch or agency, should be required to make contributions to the national fund.


18. The Joint Committee is deeply appreciative of the considerable help it received from the Irish Insurance Association in examining these proposals and wishes to express its thanks to the Association.


Chairman of the Joint Committee.

7th February, 1978.