In view of the development of risks on the financial markets, the Luxembourg legislator has decided to reinforce the existing policyholder protection scheme.
The European directive of 2001 concerning the reorganisation and failure of insurance undertakings offers member states two methods for the treatment of insurance claims. Since the entry into force of this directive, Luxembourg has opted to grant absolute precedence over all other claims on the insurance company.
The super privilege
This privilege granted to insurance claims is sometimes referred to as the super privilege. It constitutes a key element of the asset protection of creditors of insurance policies concluded with a Luxembourg insurance company. This feature grants them a preferential right above all other creditors of the insurance company – in particular the state, employees and social security institutions.
Luxembourg law requires insurance companies to treat the assets covering their insurance liabilities as an independent portfolio managed separately from their own assets. These assets must therefore be deposited with a custodian bank. A deposit agreement is concluded between the insurance company and the bank and must be approved by the Commissariat aux Assurances (CAA) prior to depositing the assets covering insurance liabilities. The insurance creditors (policyholders and/or beneficiaries) are therefore deemed to be super-privileged creditors with regard to the separate assets corresponding to their policies.
The triangle of security
This system of protection of insurance claims, commonly known as the triangle of security, is based on the protective intervention of three players: the insurance company, the custodian bank and the CAA. The triangle of security offers a unique legal protection in Europe and is one of the key benefits of a life insurance policy concluded with a Luxembourg insurance company.
In view of the development of risks on the financial markets, Luxembourg lawmakers have strengthened the existing mechanism with the Law of 10 August 2018 by clarifying the procedures for implementation of the triangle of security.
It is clearly stated that the total of all life insurance policies linked to investment funds and the total of all life insurance policies with a guaranteed return constitute separate portfolios. Each of these portfolios is reserved first and foremost for fulfillment of the liabilities of the corresponding policies. The super privilege of the insurance creditors with regard to these separate portfolios corresponding to their policies is from now on classified as a preferential right and accordingly reinforced.
The protection of clients' rights
The life insurance claims for which the investment risk is borne by the policyholder (investments in unit-linked products) are assessed in terms of the number of units held on the day of opening of the liquidation proceedings. For the other types of investment (with guaranteed capital), the insurance claims are equivalent to the value of the corresponding actuarial reserves on the day of opening of the liquidation proceedings.
The protection of clients' rights, and more specifically the possibility of compensation within a reasonable period, is strengthened by the right offered to super-privileged creditors to have all or part of the assets linked to their policies transferred instead of being liquidated.
Swiss Life Global Solution supports its clients to lead a self-determined life in financial confidence. The reinforced policyholder protection in Luxembourg enables us to further guide our clients and their advisors in planning their future and to protect their families and their estate in accordance with their choices.
Luxembourg life insurance contracts benefit from a unique legal protection. The levels of protection of a Luxembourg life insurance contract in combination with a tailor made wealth planning solution allow for an optimal estate and succession planning.