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BaFin frowns upon large life insurance portfolio sales to financial investors

The German financial market supervisory authority will pay special attention to any company acquiring a large life insurance portfolio as it worries about risks to clients if the assets are in the hands of financial investors, Reuters reported Oct. 11.

The size of portfolio sales to date has been rather small, with some life insurance companies giving away a few policies with no new business to buyers, mostly backed by financial investors.

In August, Viridium Group, a specialist manager of German life insurance portfolios, acquired 100,000 policies and assets under management of around €1.8 billion from Protektor Lebensversicherungs-AG, a voluntary rescue company for the German life insurance industry. Viridium is owned by private equity firm Cinven and German group Hannover Re.

In February, Basler Versicherungen, the German arm of Bâloise Holding AG, sold a closed portfolio of 130,000 life insurance policies and investments amounting to approximately €1.72 billion to Frankfurter Lebensversicherung AG, backed by Chinese investment company Fosun.

Now, however, companies such as ERGO Group AG and Generali Deutschland AG are looking to sell four to six million life insurance policies, and the German arm of French group AXA has also said it would consider a similar sale. Bafin's concern is that financial investors would not be as prepared as Ergo's parent company, Munich Re, or Generali's Italian parent group to prop up the life insurance businesses in case they need extra capital.

Traditional life insurance products with longer-term guarantees have become less attractive on the market as a result of the low-interest-rate environment and increased capital requirements for insurance companies with the introduction of the new Solvency II rules at the beginning of 2016. This has pushed some of the larger groups to consider disposing of existing active life portfolios.