Luxembourg was the first EU country to implement, in the insurance field, the principle of the “Convention de dépôt”, also known as the “Triangle of Security”. The law requires insurance companies to hold policyholders’ savings in an approved credit institution known as the custodian bank, and to ensure the legal segregation of the policyholders' assets from the insurance company's assets.
Luxembourg’s laws and regulations are directed to warrant maximum protection of policyholders on several different layers.
In the first place, all companies within the insurance field, as well as their actions, are administered by the Commissariat aux Assurances (CAA), a public institution under Ministerial authority.To gain access to the insurance profession, any physical or legal person who wants to carry out insurance activity in the Grand Duchy of Luxembourg must be authorised by the Minister responsible for the insurance sector. The very strict conditions of authorisation are designed to ensure the financial solidity of all insurance companies.
All Luxembourg life companies must maintain, at all times, a minimum level of own funds (solvency margin and guarantee fund) sufficient enough to cover the entirety of the liabilities agreed upon on behalf of insured parties.
In order to guarantee the highest possible security for Luxembourg life assurance policyholders, the law states that the assets underlying the technical provisions must be lodged with a credit institution authorised in advance by the Commissariat aux Assurances. All life assurance companies are obliged to sign a Deposit Agreement with the custodian bank, which must also be approved by the Commissariat aux Assurances.
This process, known as the “Triangle of Security”, ensures that the money deposited in respect of policyholder liabilities are clearly segregated from the other company assets and are held on separate bank accounts.
It also provides for the legal separation of the clients’ assets from those of the life company shareholders and creditors.
Moreover, the custodian bank is itself also required to isolate the assets and protect the interests of life assurance policyholders.
The segregation of assets is monitored each quarter by the supervisory authority. In the unlikely event of insolvency of the insurer, the Commissariat aux Assurances may block the accounts in order to protect the policyholders’ rights.
Furthermore, the insurance law of 6th December 1991, as amended, introduced the notion of the “super privilege”, which bestows upon Luxembourg life assurance policyholders the capacity of preferential first line creditors of the insurance company on the assets underlying the technical provisions.
This policyholder privilege, which ranks ahead of all other creditors, whoever they may be, gives insured parties priority when recovering the liabilities related to the insurance contracts in the event of bankruptcy of the insurance company.
Ultimately, conscious of maintaining policyholder personal privacy, the Luxembourg legislator guarantees the protection of life assurance policyholders’ personal data.
Since 1991, all companies within the Luxembourg life sector have been subject to professional secrecy.
The legislation imposes on life companies and related parties the necessity to “keep secret confidential information confided to them in the course of their professional activity”.
Notwithstanding the necessity to maintain secrecy of personal data of insured parties, Luxembourg implements particularly strict procedures with regard to the fight against money laundering and the financing of terrorism.