The Sapin II Law: consumer protection or confiscation of savings ?
Comparison of different policyholder protection mechanisms in Europe
How the "special privilege" has been improved thanks to the Excell Life case.
The protection of assets
Following the European life directives that established the single market and the free movement of services on the basis of a single authorisation for insurance companies, it became necessary to introduce Community rules to ensure the protection of insurance creditors.
History of the asset protection system
- granting an absolute privilege to insurance claims;
- granting a special privilege to insurance claims.
When transposing the Directive, Luxembourg chose the first option.
The Luxembourg Triangle of Security
The Luxembourg asset protection system is based on two pillars:
- the grant of an absolute privilege to insurance creditors;
- the segregation of assets.
The term "Triangle of Security" refers to the tripartite relationship between the Insurance Company, the custodian bank and the Commissariat aux Assurances, materialised by a custody agreement.
Role and obligations of each party
The Insurance Company receives the premiums from its policyholders of which it then becomes the owner, with the policyholders holding in exchange a receivable from the insurance company. This receivable from policyholders triggers the implementation of the asset protection system. The Insurance Company has an obligation to:
- set up technical reserves on the liabilities side of its balance sheet to guarantee the commitments made by the policyholders;
- establish a permanent inventory of the representative assets in order to create a separate fund of assets;
- demonstrate that it has a sufficient solvency margin.
The Commissariat aux Assurances has a supervisory and control role. In the event of default, it can block the company's accounts with the custodian bank.
The role of the custodian bank is to hold the assets representing the commitments of insurance companies.
Protection further strengthened by the Law of 10 August 2018
When the Insurance Distribution Directive was being transposed, Luxembourg took this opportunity to further strengthen the regime for the protection of insurance claims by clarifying the procedures for applying the Triangle of Security and by individualising protection at the level of the policyholder.
This is how the Triangle of Security contributes to Luxembourg's reputation as a financial centre, particularly for the marketing of life insurance policies.