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Financial investors can buy German life insurance policies, but only indirectly

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Financial investors can buy German life insurance policies, but only indirectly

Investment firms looking to snap up a large portfolio of life insurance policies in Germany can do so, but only if they work with a locally licensed insurer, according to the country's financial market regulator, Bafin.

"The companies that take over policies from others must be registered in Germany, and thus, be German insurers under German supervision," a Bafin spokesman said in an email.

The acquiring companies are so-called runoff platforms, which are licensed insurance companies that specialize in the acquisition of insurance policies, under direct supervision from Bafin. Paying for a portfolio transfer to a runoff platform will enable any company — including financial investors — to acquire German life insurance policies. It is therefore generally no problem for foreign investment firms to get a piece of the German life insurance business, as long as they do not own the portfolios directly, Lars Gatschke, an insurance expert with the Federation of German Consumer Organisations, said in an interview.

Ownership structure 'irrelevant'

Faced with a low-interest-rate environment, and struggling to set aside extra capital for longer-term guarantees on life insurance products after the introduction of tighter capital requirements, many insurance groups want to off-load larger life insurance portfolios.

According to German law, there should be no change in the terms and conditions for assets before and after their transfer, and the fulfillment of insurance contracts should be ensured until expiry, Gatschke said. Since guarantees on life insurance policies could run for 40 to 50 years, the buyer is required to know the insurance business and be an active operator in it, he added.

Bafin is said to be critical of the plans of some local insurance groups, including Generali Deutschland AG and ERGO Group AG, to dispose of millions of life insurance policies. The watchdog will pay special attention to all companies looking to acquire large life insurance portfolios, Reuters reported Oct. 11.

"BaFin will not only look at whether or not the company acquiring policies is financially stable, but also if their organizational structure allows for an operational follow-through on all necessary processes," the regulator's spokesman told S&P Global Market Intelligence.

Yet he rejected a suggestion made in the Reuters report that Bafin believes large insurers such as Ergo's parent company Munich Re or Italy's Generali would be better placed to provide emergency capital to their subsidiaries, if needed, than financial investors. This, according to the spokesman, was a misrepresentation of a statement made by Bafin's head of insurance policy, Frank Grund.

"Ownership structure is irrelevant as runoff platforms have to abide by the same rule book as all other insurers," the spokesman said.

Putting a life insurance business in runoff means that the company ceases to accept new business in the portfolio and is either putting it up for sale or winding it down internally. Generali said in late September that it would put its German life arm, Generali Leben, into runoff in the first quarter of 2018 and it is yet to decide if it will sell or wind it down. The €44 billion book has drawn "great external interest," Generali's CEO Philippe Donnet said in an interview with Handelsblatt on Oct. 13.