The Insurance Companies (Third Insurance Directives) Regulations 1994

Explanatory Note

(This note is not part of the Regulations)

These Regulations, which come into force on 1st July 1994, make amendments to the Insurance Companies Act 1982 (“the 1982 Act”) and the Financial Services Act 1986 (“the 1986 Act”).

The Directives

The Regulations give effect to provisions of Council Directive 92/49/EEC 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 (OJ No.L228, 11.8.92, p.1); and of Council Directive 92/96/EEC on the coordination of laws, regulations and administrative provisions relating to direct life assurance and amending Directives 79/267/EEC and 90/619/EEC (OJ No.L360, 9.12.92, p.1) (“the Directives”).One of the principal purposes of the Directives is to introduce for direct insurance business the principle, which has already been adopted in the banking sector, of home State control.Under this system each member State assumes sole responsibility for the authorisation and supervision of the business carried on throughout the EC by undertakings having their head office in that State. The Directives also provide for further harmonisation of member States' rules concerning the authorisation and regulation of insurance undertakings.

Part I

Part I of the Regulations makes provision for the citation and commencement of the Regulations and contains interpretation provisions.

Part II

Part II of the Regulations contains amendments to the 1982 Act.Chapter I amends Part I of the Act, which is concerned with the authorisation of insurance business.It extends the list of classes of long term business in Schedule 1 to the Act (regulation 3).It inserts into the Act the definition of “EC company” and excludes from the authorisation requirement under section 2 of the Act insurance business carried on in the United Kingdom by such companies which meet specified conditions (regulation 4). It also inserts into the Act the definitions of “UK company” and “non-EC company” and introduces the requirement that the Secretary of State shall not authorise such companies under section 3 of the Act if it appears to him that the criteria of sound and prudent management-set out in Schedule 1-may not be fulfilled (regulation 5).It amends the restriction on the extent to which companies may be authorised to carry on both long term and general insurance business, as it applies in respect of the combination of long term and accident and health insurance business (regulation 6), and the provisions of the Act concerning the withdrawal of authorisation (regulations 10 and 12).It also provides the Secretary of State with a new power to suspend the authorisation of a UK or non-EC company where it appears to him that this should be done as a matter of urgency (regulation 11).

Chapter II amends Part II of the 1982 Act, which is concerned with the regulation ofinsurance business.Except in certain specified circumstances, this Part of the Act no longer applies to EC companies (regulation 13).The principal changes relate to:

• the adequacy of the assets by which UK companies cover the liabilities of their insurance business and the adequacy of the premiums payable under their long term business contracts (regulations 17 and 18),

• the grounds on which powers of intervention under the Act are exercisable (regulation 19),

• the power of the Secretary of State to require a company to maintain within the United Kingdom assets to a specified value (regulation 21),

• new powers which enable the Secretary of State to obtain, on specified grounds, an injunction to prohibit a UK company from disposing of assets to the value of the liabilities of its business in the EC (regulation 22) and to appoint persons to carry out investigations to assist him in carrying out certain of his functions under the Act (regulation 23),

• the power of the Secretary of State to obtain information and to impose requirements for the protection of policyholders (regulations 24 and 25),

• restrictions on the disclosure of information relating to individual insurance undertakings except in specified circumstances and for specified purposes (regulations 26 and 27 and Schedule 2),

• the transfer from one insurance undertaking to another of rights and obligations under contracts of insurance (regulations 28 to 30 and Schedule 3),

• the grounds on which the Secretary of State may petition for the winding up of a UK company (regulation 30),

• the approval of proposed managing directors, chief executives and controllers of UK or non-EC companies and of the acquisition by existing controllers of holdings in UK companies, including new powers enabling the Secretary of State to seek further information before deciding whether to serve a notice of objection in such cases, to make the giving of approval subject to compliance with such conditions as he may impose, to serve a notice of objection where the requisite notice has not been given, and in respect of existing controllers of such companies, and, where a person has become or continues to be a controller of, or obtained or retained a holding in, a UK company in breach of the provisions of the Act, to impose specified restrictions in respect of shares in the company held by that person or to apply to the court for an order directing that such shares shall be sold (regulations 32 to 35 and Schedule 4), and

• the duty to notify changes of directors, controllers and managers (regulations 36 and 37).

Chapter III amends Part III of the 1982 Act, which is concerned with the conduct ofinsurance business.The changes relate to the information and statutory notices to be provided to policy holders and potential policy holders (regulations 40 to 43 and Schedule 5) and the conduct of linked long term insurance business (regulation 44).

Chapter IV replaces the whole of Part IIIA of the 1982 Act, with the provisions of Schedules 6 and 7 relating to the recognition in the United Kingdom of companies having their head office in one of the other States of the European Economic Area and to the recognition of United Kingdom insurers in such States (regulations 45 and 46).Schedule 6 contains a new Schedule 2F to the Act which sets out procedural requirements in respect of EC companies which propose to carry on direct insurance or reinsurance business or to provide insurance in the United Kingdom and in respect of companies which have their head office in an EFTA State which propose to provide insurance in the United Kingdom, including the information to be provided and in respect of changes to that information.It also specifies the Secretary of State’s powers of intervention in respect of such companies.Schedule 7 contains a new Schedule 2G to the Act which sets out procedural requirements in respect of United Kingdom insurers which propose to carry on direct insurance business or to provide insurance in another member State, including the information to be provided and the criteria to be fulfilled by the insurer and in respect of changes to that information. It also sets out procedural requirements in respect of United Kingdom insurers which propose to provide insurance in an EFTA State, or to provide insurance in the United Kingdom through a branch in another State of the European Economic Area.

Chapter V amends Part IV of the 1982 Act, which is concerned with special classes of insurers.The changes relate to proposed transfers of industrial assurance business (regulation 47) and the powers of the Secretary of State in relation to, and transfers of insurance business to or from, Lloyd’s underwriters (regulation 48).

Chapter VI amends Schedule 3A to the 1982 Act, which is concerned with the law applicable to certain insurance contracts (regulation 49) and inserts new and amended interpretation provisions into the Act (regulations 50 to 55).

Part III

Part III of the Regulations amends the 1986 Act.The principal changes relate to:

• the rules of self-regulating organisations as they apply to EC companies (regulation 56),

• the automatic recognition of such companies as authorised persons under the 1986 Act (regulation 57),

• the conduct of investment business by such companies (regulation 58),

• the powers of intervention in respect of such companies (regulation 59),

• an extension of the power of the Securities and Investments Board to obtain information from authorised persons and certain specified recognised bodies where this information is required for the exercise of the Board’s functions under Part III of the Regulations, and provision that the requirement to appoint an auditor shall no longer apply to EC companies (regulation 60),

• a new requirement for designated agencies to co-operate with supervisory authorities in other member States for the purpose of complying with the Directives (regulation 61),

• a modification of the provisions of the Act which prevent restrictive practices being adopted by designated agencies and certain other bodies (regulation 62),

• an extension of the provisions of the 1986 Act concerning contracts effected in contravention of section 2 of the 1982 Act so that they apply to contracts effected in contravention of Part IIIA of the 1982 Act as inserted by the Regulations (regulation 64), and

• restrictions on disclosure of information obtained by the Secretary of State or a designated agency for the exercise of his or its functions (regulation 66).

Part IV

Part IV of the Regulations and Schedule 8 contain minor and consequential amendments and transitional and transitory provisions (regulations 68 to 71).