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Brussels, 25 May 2000

Financial Services: Commission welcomes political agreement on the winding up of insurance institutions

The Commission has welcomed the political agreement reached by the Council of Ministers on 25 May on a common position for the proposed Directive on the Reorganisation and Compulsory Winding Up of Insurance Institutions. The proposed Directive is an important element for the completion of a single legal framework for insurance in the Internal Market and the importance of its implementation was reiterated at the Lisbon Summit. Currently, if an insurance undertaking with branches across Europe has to be wound up and its assets divided among its creditors, the authorities in each Member State where the undertaking is represented can open separate insolvency proceedings which will be run according to local legislation. This can lead to conflicts of jurisdiction and means that creditors are not equally treated. The proposal also ensures protection of insurance creditors (policyholders, insured persons, etc.) by granting them a preferential treatment in case of winding up of an insurance undertaking. While winding up proceedings are, hopefully, rare, the Commission proposal is designed to guarantee consumer protection in such instances.

The Internal Market Commissioner Frits Bolkestein said: "There cannot be a cross-border market for insurance services until consumers are confident they are adequately protected. This legislation helps to provide that assurance."

Under the proposed Directive, where an insurance undertaking with branches in other Member States fails, the winding up process will be subject to a single winding up proceedings initiated in the Member State where the insurance undertaking has its registered office (known as the home state) and governed by a single bankruptcy law that of the home state. This approach is consistent with the home country control principle that is the basis for the EU's insurance directives. In addition, and in order to ensure the protection of insurance creditors (policyholders, insured persons).

The proposal provides two options for granting them a preferential treatment in case of winding up proceedings Member States can chose which to adopt. A special privilege, by which insurance claims should have absolute precedence over any other claim with respect to assets representing technical provisions. A general privilege, by which insurance claims should have absolute precedence with respect to the whole assets of the insurance undertaking over any other claim except claims on salaries, social security, taxes and what are known legally as rights in rem. Rights in rem refers to situations where a creditor may have a prior and specific right over a particular asset eg a mortgage.

This asset may be part of the general portfolio of assets of an insurance company but, in the event of failure to make the mortgage repayments, the creditor would have an over-riding right to the asset, in this case the property.

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