C-241/97

FÖRSÄKRINGSAKTIEBOLAGET SKANDIA

OPINION OF ADVOCATE GENERAL RUIZ-JARABO COLOMER delivered on 17 December 1998 *

1. The Regeringsrätten (Supreme Adminis- company. Livförsäkringsaktiebolaget Skandia trative Court), Sweden, has asked the Court is a life insurance company wholly owned by for a preliminary ruling on two questions Skandia. Together they own Skandia Invest- concerning the interpretation of an article in ment AB, a company which invests in small Directives 73/239/EEC and 79/267/EEC 1 and medium-sized companies. under which Member States may not pre- scribe rules as to the choice by insurance companies of the assets in which they invest their free resources.

4. In a letter of 29 December 1995, Skandia informed the Finansinspektionen (Financial 2. The interpretation of the Community rules Supervisory Authority) that Skandia Invest- is required to enable the referring court to ment intended to increase its shareholding in determine whether a national law prohibiting Kungsdialysen AB, a company carrying on insurance companies from holding, without dialysis activity, an intention which it carried special administrative authorisation, more out. shares in other joint-stock companies than corresponds to 5% of the votes attached to all the shares (hereinafter 'the 5% rule') is applicable in the case at issue.

5. After the additional share acquisition Skandia Investment owned shares in Kungs- The facts and procedure in the main dialysen carrying 9.2% of the votes and rep- proceedings (according to the order for resenting 33.9% of the share capital (the pre- reference) vious figures were 5.0% and 30.8%). After the acquisition, the shareholding was within the company's free assets, that is to say within the assets not used as cover for the technical 3. Försäkringsaktiebolaget Skandia (herein- provisions. after 'Skandia') is a non-life insurance

'1. Is it compatible with Article 18(1) of Directive 73/239/EEC, as amended by Article 26 of Directive 92/49/EEC, 2 and The relevant national provisions with Article 21(1) of Directive 79/267/EEC, as amended by Article 27 of Directive 92/96/EEC, 3 for national legislation to prescribe that, so far as an insurance company's free assets (i.e. those assets not used to cover the tech- 8. The Försäkringsrörelselagen (Swedish nical provisions) are concerned, the insur- Insurance Business Law) of 1982 contains ance company may not, without special provisions concerning the pursuit of business administrative authorisation, own more of life insurance companies and non-life insur- shares in a domestic or foreign joint- ance companies. stock company than corresponds

2 — Council Directive 92/49/EEC of 18 June 1992 on the coor- dination 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 9. The first paragraph of Article 3 of Chapter Non-life Insurance Directive) (OJ 1992 L 228, p. 1). 1 provides that an insurance company may 3 — Council Directive 92/96/EEC of 10 November 1992 on the coordination of laws, regulations and administrative provi- not pursue any business other than insurance sions relating to direct life assurance and amending Directives business if there are no special reasons for 79/267/EEC and 90/619/EEC (Third Life Assurance Direc- tive) (OJ 1992 L 360, p. 1). such activity.

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10. The first paragraph of Artide 17 sets out holdings in companies which pursue some the 5% rule in the following terms: form of financial activity.'

12. Community insurance law has developed The first paragraph shall not be applicable to in three stages: shares or holdings in insurance companies or in legal persons whose business consists exclu- sively in owning shares in insurance compa- nies, to provide guarantee capital for mutual insurance companies, to administer insurance — A first 'generation' of directives (Directive companies' property or to assist insurance 79/267 on life insurance and Directive companies in the conduct of their business. 73/239 on non-life insurance, both cited The first paragraph shall, however, be appli- above) was designed to facilitate the effec- cable to shares or holdings in legal persons tive exercise of insurance companies' right whose object is to own, directly or indirectly, of establishment. assets referred to in the first paragraph of Article 10 if those assets do not consist of shares or holdings in public insurance com- panies or foreign companies of the same type. — A second 'generation' of directives (Direc- tive 90/619/EEC 4 on life assurance and

4 — Council Directive 90/619/EEC of 8 November 1990 on the coordination of laws, regulations and administrative provi- sions relating to direct life assurance, laying down provisions Article 17(a) shall apply as regards the right to facilitate the effective exercise of freedom to provide ser- vices and amending Directive 79/267/EEC (OJ 1990 L 330, of insurance companies to own shares or have p.50).

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OPINION OF MR RUIZ-JARABO — CASE C-241/97

16. The necessary harmonisation of the Member States' rules on the technical provi- sions which insurers are required to establish 14. To achieve the first objective, insurance to cover their commitments had already been undertakings authorised in a Member State effected. The third generation of insurance directives took a further step in the same direction, stating that 'the rules governing the spread, localisation and matching of the assets 5 — Council Directive 88/357/EEC of 22 June 1988 on the coor- dination of laws, regulations and administrative provisions relating to direct insurance other than life assurance, laying down provisions to facilitate the effective exercise of freedom to provide services and amending Directive 72/239/EEC (OJ 1988 L 172, p. 1). 6 — Fifth recital in the preamble to Directives 92/49 and 92/96.

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used to cover technical provisions must be 19. The assets not used to cover the technical coordinated in order to facilitate the mutual provisions constitute what might be described recognition of Member States' rules'. 7 as the insurance undertaking's 'free assets' or 'available or disposable assets'. The questions referred by the national court seek an inter- pretation of the rule, relating to those assets, contained in the two directives.

17. To that end, the articles on technical reserves in the first generation directives (Arti- cle 15 of Directive 73/239 and Article 17 of 20. As amended, that rule is set out in the Directive 79/267) were amended. As amended, following terms: they provide that the home Member State shall require every insurance undertaking to establish adequate technical provisions in respect of its entire business. The amount of such technical provisions must be determined in accordance with the rules laid down in (a) with respect to life assurance, Article 18(1) Directive 91/674/EEC 8 or Directive 92/96. of Directive 73/239 provides that 'Mem- The technical provisions in respect of the ber States shall not prescribe any rules as undertaking's entire business must be covered to the choice of the assets that need not by matching assets. be used as cover for the technical provi- sions referred to in Article 15';

24. The Commission and the appellants in the main proceedings take the opposite view, The first question maintaining that the rules contained in the two directives do not allow Member States to impose restrictions of any kind, qualitative or quantitative, on the choice by insurance com- panies of the assets in which they invest their free resources.

22. The first question referred by the national court seeks to ascertain whether the Commu- nity rule can be interpreted as meaning that the freedom in the 'choice of assets', accorded to insurance companies under the two direc- tives, may be limited by a national rule 25. For my own part, I incline to the latter imposing restrictions on that choice, as in the view. In giving my reasons, I shall first explain case of the aforementioned Swedish 5% rule. 9 why I disagree with the proposition that the 5% rule is necessarily connected with the limitation on insurance companies' business outside the insurance sector; I shall then try to show why that rule is contrary to the pro- visions on freedom of choice in the matter of disposable assets contained in the two 23. The Swedish Government (supported by directives. the Norwegian Government and, in part, by the Finnish Government) contends that the directives only prohibit the imposition of 'qualitative' limits on insurance undertakings' choice of assets, that is to say, Member States may not require those undertakings to invest (i) The proposition that the 5 % rule is based in certain 'categories' of assets. Conversely, so on the prohibition of pursuit by insurance long as that condition is met, Member States companies of business other than insurance business

29. I do not agree with that line of argument for various reasons. Before going into them, I must confess that the Swedish Govern- ment's explanation seems to me to have been thought up after the event to justify a restric- 27. In their view, a legitimate way of ensuring tion imposed on other grounds. In fact, as the compliance with that prohibition is to pre- appellant in the main proceedings has shown, vent insurance undertakings from owning sig- the original purpose of the 5% rule, in 1948, nificant shareholdings in companies outside was not to ensure that insurance companies the insurance sector. Holdings exceeding 5% complied with the prohibition on pursuing of the votes in such companies would enable business other than insurance business, but insurance undertakings to exercise a 'domi- simply to limit their influence on the eco- nant influence' on the companies in question. nomic life of the country as an alternative to According to the Swedish and Norwegian nationalisation of the insurance sector, which Governments, insurance undertakings could was advocated in certain political circles at then easily evade the prohibition on pursuing that time. business other than insurance business.

32. In short, I cannot see why a modest holding, albeit exceeding 5% of the vote- 35. It could be argued that this is a somewhat carrying shares, should be regarded as tanta- formalistic line to take and that, in the busi- mount to the shareholders 'pursuing' the par- ness life of undertakings, shareholders who ticular business of the company in which they have a relatively modest holding may some- own shares. It could be argued, by the same times have a decisive influence on a compa- token, that any individual shareholder who ny's management decisions. In my view, that owns 6% of the vote-carrying shares in a does not alter the fact that there is a differ- number of different joint-stock companies is ence between owning shares, on the one hand, pursuing the particular business of all those and pursuing a commercial business, on the companies at the same time. other.

33. Such a conclusion is not defensible in law. 36. The power, by means of vote-carrying A portfolio of vote-carrying shares may be shares, to influence the decisions of the bodies part of the assets of a natural or legal person (shareholders' meetings, boards of directors, but owning such a portfolio does not neces- etc.) that determine the business policy of a sarily presuppose or imply that the person joint-stock company is not tantamount to concerned is in every case pursuing the com- pursuing the business of that company. It fol- mercial business of the company. In other lows that a shareholder cannot, merely because words, for legal purposes, the fact that a he exercises his right to vote, be held to be shareholder owns shares in a company is not pursuing the particular commercial business to be confused with the business of that of the joint-stock company in which he owns company. shares.

38. The requirement that insurance under- takings limit their business to business in the insurance sector is stated in very clear terms in the directives, which refer to the 'objects' of the undertaking. Those objects must be 41. However, such conduct goes far beyond limited to insurance business (and operations mere financial investment. The investment of directly arising therefrom). So long as that free resources in shares, even vote-carrying rule is observed, there is nothing to prevent shares, ought not to be regarded as 'business an insurance undertaking's investment in other than insurance business', which shares in companies outside the insurance sector from exceeding 5%, or even a little more, of the share capital of those companies. 12 — The prohibition on modifying the objects of the undertaking by participating in other undertakings is absolute in some national legal systems. For example, Article 2361 of the Italian Civil Code prohibits joint-stock companies from acquiring shares in other undertakings, even in cases where the company's articles of association allow it, if the objects of the company as defined in its articles of association would be significantly modified as a result of the size and purpose of the holding. On the application of this principle to the problems arising from one company controlling others, see Schiuma, L., Controllo, governo e partecipazione al capitale, Padua, 1997. Italian writers have studied in detail the prob- lems caused by insurance undertakings participating in com- panies outside the insurance sector. See, in particular, Fanelli, 39. The problem that may arise in this con- G., 'Sulla legittimità dell'acquisto da parte di imprese di assi- curazione della partecipazione in imprese con diverso oggetto nection is far wider and is not confined merely sociale', Giur. Comm., 1987, I. pp. 817-826. to shareholdings. It is the problem of avoiding 13 — Under the Danish law on insurance business, an insurance company is considered to be pursuing business other than a surreptitious but significant modification in insurance if it has a decisive influence on a commercial com- the objects of the undertaking as a result of pany whose business is outside the insurance sector or con- nected with business outside the insurance sector. The Finnish the establishment, acquisition or control of law on insurance undertakings contains similar provisions, prohibiting them from holding more than 50% of the shares dummy companies, whether or not they are m companies outside the insurance sector. The Italian law subsidiaries in the strict sense of the term, prohibits insurance undertakings from acquiring holdings in undertakings outside the insurance sector that would give through which the insurance company effec- them control of those undertakings.

42. Only if an insurance company's acquisi- tion of shares is intended to circumvent the limitation on its objects by establishing dummy companies, which it controls and which enable it to pursue business other than insurance business, only then, in my view, may the national authorities act, in a par- 44. The freedom of choice in the matter of ticular case, to forestall the possibility of a disposable assets guaranteed by the two rules in the directives, to which I have already significant modification in the insurance com- referred, takes the form of forbidding Member pany's objects. States to prescribe 'any rules' on the subject. In my view, the negative form of words used is a sufficiently clear indication that Member States may not act in this area, as there are clear and exhaustive Community rules on the subject. To be more specific, they may not impose limits, either qualitative or quantita- tive, on the choice of these assets. 43. In my opinion, it is clear that the 5% rule contained in the Swedish legislation, in view of its abstract and rigid character, taking no account of the facts and applying without

48. Thirdly, the application of the 5% rule by a Member State to the insurance companies under its control significantly distorts the system of competition between undertakings 46. A second and more important point is of this type. Insurance companies established that an examination of the meaning of the in Sweden but subject to the control of another rule within the system of both directives leads Member State whose legislation does not con- to the same conclusion. The establishment of tain that rule could acquire holdings in Swedish a harmonised framework for competition or foreign companies corresponding to more between insurance undertakings that will be than 5% of the vote-carrying shares. They to the advantage of the policy-holder without could thus plan their investment decisions as jeopardising the financial health of the under- they think fit, in terms of market trends, and takings demands sufficiently clear rules on so improve their financial situation by pur- their assets. While the directives laid down suing a skilful investment policy. That oppor- rules on the obligation to establish technical tunity is restricted in the case of insurance provisions, which Member States were companies that are under the control of the required to enforce, they also intended to Swedish authorities and they are consequently leave to individual undertakings decisions as at a disadvantage compared with their com- to the investment of part of their assets, deci- petitors in the same sector. sions that are not and cannot be regulated by national provisions or national authorities.

50. This is altogether incompatible with a Community rule that is intended specifically to harmonise national legislation on insur- 53. There is consequently no doubt that par- ance, in particular the rules on the assets of ticipation in the capital of an undertaking is insurance undertakings, both the assets used among the capital movements that have been as cover for the technical provisions and the liberalised and that the Swedish 5% rule disposable assets. restricts the freedom thus accorded. Could it, however, be held to be justified by Article 73d of the EC Treaty, under which Member States may take '... all requisite measures to prevent infringements of national law and regulations, in particular in the field of taxa- tion and the prudential supervision of finan- cial institutions'? 51. Lastly, the 5% rule is contrary to the Community rules on free movement of capital enshrined in Article 73 b of the EC Treaty, 15 since a limitation on insurance companies' holdings in Swedish or foreign joint-stock companies constitutes a restriction on the movement of capital in one of its most char- acteristic forms, namely investment in shares. 54. In my view, the answer must be in the negative. I have already observed that the purpose of the 5% rule is not to protect the solvency of insurance companies but to limit their influence on other sectors of the econ- omy. 18 Such a broad and undifferentiated objective (undifferentiated in that it does not 52. 'Participation in new or existing under- even distinguish between the economic takings with a view to establishing or main- taining lasting economic links' is one of the capital movements to be liberalised pursuant 16 — OJ, English Special Edition 1960, p. 49. to List A of Annex I to the First Council 17 — OJ 1988 L 178, p. 5. Directive of 11 May 1960 for the implemen- 18 — At the hearing, the Swedish Government representative con- tended that the 5% rule did not affect the free movement of capital, inasmuch as it applied only to Swedish insurance companies, a view which I clearly cannot share, since those companies too are active beneficiaries of that freedom. In the course of the same statement, he admitted that the aim of the 15 — As inserted by point 15 of Article G of the Treaty on Euro- rule at issue was to 'prevent an excessive number of votes pean Union. falling into the hands of a single shareholder'.

19 — In Case C-148/91 Vereniging Veronica Omroep Organisatie [1993] ECR I-487, the Court held that the provisions of the Treaty on the free movement of capital and the freedom to provide services must be interpreted as not precluding leg- islation of a Member State which prohibits a broadcasting organisation established in that State from investing in a 58. Clearly, the question assumes that, at the broadcasting company established or to be established in relevant time in the dispute in the main pro- another Member State, where those activities are directed towards the establishment of a commercial television station ceedings, the period allowed for incorp- whose broadcasts are intended to be received, in particular, in the territory of the first Member State and those prohibi- orating the insurance directives into Swedish tions are necessary in order to ensure the pluralistic and law had expired, a point that is not at issue non-commercial character of the audio-visual system intro- duced by that legislation. and requires no further comment.

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60. From the ground-breaking judgment in 62. The Court has consistently held, most Simmenthal 20 to the recent decision in recently in IN. CO. GE. and Others, cited IN. CO. GE. and Others, 21that principle has above, that 'the interpretation which, in the been stated in sufficiently categorical terms: exercise of the jurisdiction conferred upon it every national court must, in a case within its by Article 177 of the Treaty, the Court of jurisdiction, apply Community law in its Justice gives to a rule of Community law entirety and protect the rights which the latter clarifies and defines where necessary the confers on individuals and must accordingly meaning and scope of that rule as it must be set aside any provision of national law which or ought to have been understood and applied may conflict with it, whether prior or subse­ from the time of its entry into force. It fol­ quent to the Community rule. lows that the rule as thus interpreted may, and must, be applied by the courts even to legal relationships arising and established before the judgment ruling on the request for interpretation, provided that in other respects . the conditions enabling an action relating to the application of that rule to be brought before the courts having jurisdiction are satis­ 61. When, as in this case, the provision at fied (Case 61/79 Denkavit Italiana [1980] issue is contained in a directive, the Court's ECR 1205, paragraph 16, and Case C-188/95 interpretation of that provision is universally Fantask and Others [1997] ECR I-6783, para­ graph 37)'. 2 2

2. A national court which is called upon to hear and determine an appeal against an administrative decision based on such a provision is under a duty to give full effect to the aforementioned directives, if necessary disapplying the provi- sion in question.

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