Explanatory note

These Regulations amend the Insurance Companies Act 1982 (“the 1982 Act”), the Banking Act 1987 and the Insurance Companies (Third Insurance Directives) Regulations 1994 (S. I.1994/1696) (“the Third Insurance Directives Regulations”).

The primary purpose of these Regulations is to implement the Agreement on theEuropean Economic Area (Cm 2073) as regards the application of Council Directive 92/49/EEC (O. J. No. L228, 11.8.92, p.1) and Council Directive 92/96/EEC (O. J. No. L360, 9.12.92, p.1) to Austria, Iceland, Norway and Sweden, and, in the case of Directive 92/96/EEC, to Finland. In accordance with a Decision of the Joint Committee of the European Economic Area (O. J. No. L160, 28.6.94, p.1), these Directives have applied to these States with effect from 1 July 1994.

One of the principal purposes of the Directives was to introduce for direct insurance business the principle of home State control. Under this system each member State has been required to assume 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 provided for further harmonisation of member States' rules concerning the authorisation and regulation of insurance undertakings. The Directives were given effect in the United Kingdom by the Third Insurance Directives Regulations together with the Insurance Companies (Accounts and Statements) (Amendment) Regulations 1994 (S. I.1994/1515) and certain provisions of the Insurance Companies Regulations 1994 (S. I.1994/1516).

The Decision of the Joint Committee did not extend Council Directive 92/49/EEC to Finland. In the case of Finnish general insurance companies, their branches in member States will continue to be regulated by those States. Similarly, the Finnish branches of general business insurers with their head offices in a member State will continue to be regulated by the Finnish insurance supervisory authority. The provisions of Council Directive 88/357/EEC (O. J. No. L172, 4.7.88, p.1) under which insurers may provide general insurance in one member State from an establishment in another member State will continue to apply.

The Regulations also make a number of minor amendments to the 1982 Act, the Third Insurance Directives Regulations and the Banking Act 1987.

Regulation 1 contains provisions for the citation and commencement of the Regulations.

Regulation 2 contains interpretation provisions.

Regulation 3 extends the meaning of the expression “member State” for the purposes of the 1982 Act to include Austria, Norway, Iceland and Sweden and, in relation to long term insurance business only, Finland.

Regulation 4 amends section 15 of the 1982 Act so that Part II of the Act applies to UK companies which carry on insurance business in other member States but not in the United Kingdom.

Regulation 5 amends the provision in section 31 of the 1982 Act which determines, for the purposes of that section, whether a person controls a company. This is a consequence of regulation 7(2) of the Third Insurance Directives Regulations (which provides that the definition of “controller” in section 7(4) of the 1982 Act shall cease to have effect).

Regulation 6 amends section 35A of the 1982 Act as it applies to the assets of insurance companies covering liabilities arising under linked long term insurance contracts. It enables such liabilities to be covered by reinsurance and excludes from the scope of section 35A(3) certain contracts to manage the investments of pension funds.

Regulation 7 makes a number of amendments to provisions of the 1982 Act which apply to transfers of insurance business, in particular those relating to the publication of details of proposed transfers (Schedule 2C, paragraphs 2(2)(a) and 7(1)(a)), the issue of certificates of solvency by the Secretary of State (section 52A), and the effect of transfers authorised in other EEA States (section 52B).

Regulation 8 amends Schedule 2E to the 1982 Act, which is concerned with the information to be provided to policy holders. The application of paragraphs 1 and 2 of that Schedule is limited to long term contracts entered into by policy holders who are habitually resident in the United Kingdom.

Regulation 9 amends section 75 of the 1982 Act so that a United Kingdom policy holder who concludes a contract of long term insurance with a branch of a UK insurer established in another member State is entitled to the same cancellation rights as if the contract had been concluded with the head office of the insurer in the United Kingdom.

Regulations 10 and 11 make minor amendments to various other provisions of the 1982 Act and to the Banking Act 1987.

Regulations 12 to 15 contain transitional and transitory provisions, both in respect of the Third Insurance Directives and the accession of new member States after the commencement of these Regulations.

Compliance Cost Assessments were prepared in respect of the Third Insurance Directives Regulations, the Insurance Companies (Accounts and Statements) (Amendment) Regulations 1994 and the Insurance Companies Regulations 1994 and placed in the Libraries of both Houses of Parliament. Copies are available also from the Insurance Division of the Department of Trade and Industry, Room 817, 10-18 Victoria Street, London SW1H 0NN. Those assessments concluded that the cost impact of the Regulations was broadly neutral. These Regulations will not impose any new burdens on business, and a further Compliance Cost Assessment has not been prepared.