After last July 25th Ivass informed the Italian market about the deterioration of the financial conditions of insurance companies Fwu Life Insurance Lux SA., based in Luxembourg, and Fwu Life Insurance Austria AGbased in Austria, over 100 thousand Italian customers ask answers on the fate of the policies subscribed. In fact, both companies have been operating in Italy since 2006, selling life insurance policies, especially unit-linked ones, and have a secondary office in Milan.
The halt to new contracts
The Luxembourg Supervisory Authority, the Insurance Commissioner (Caa) – similar to our Ivass – has communicated that, due to the deterioration of financial conditions of the group from 3 July 2024, Fwu Life Insurance Lux SA has resolved to do not sign any new contractsAlso in Italy.
A few days later, the Munich court declared the state of insolvency of the German non-insurance parent company Fwu Ag. At the same time, the Austrian supervisory authority, Financial Market Authority (FMA), July 22, 2024 has Fwu Life Insurance Austria Ag banned from entering into new contracts on life, including in Italy, with immediate effect and until 30 September 2024; to carry out intra-group transactions exceeding 100 thousand euros, without the prior consent of Fma, with immediate effect and for a period of six months. The following day, the Board of Directors of the Caa, the Luxembourg Authority, decided to freeze the assets linked to the technical reserves of Fll’s clients deposited with the custodian banks, in order to protect the interests of the policyholders and beneficiaries.
The Fwu’s response
Fwu has communicated to the distributors an opinion from its own law firm and a series of answers to be provided to customers. Fwu Luxembourg has announced that it has filed an application to the Luxembourg courts for the application of the precautionary regime of suspension of payments. In the event that the request for suspension of payments is accepted, this latter regime could last up to a maximum of six months.
The “Security Triangle”
In Luxembourgthere is a regulatory framework in force which protection Customers’ assets. This assets are held at a third-party custodian bank, Caceis Investor Servicesfully operational. In Luxembourg there is a special regime called “Security Triangle”designed to safeguard the customer’s rights in the event of financial problems of the insurance company. This system, in short, works according to three principles: tied assets; special protection And tripartite participation. Encumbered assets are assets (client investments) that back the value of the insurance policy. They are essentially the underlying asset of the policy. Special protection involves assets that are subject to specific rules to ensure they are safely stored and have priority for insurance claims. Tripartite participation involves the insurance company, its designated custodian bank and the CAA (Luxembourg Insurance Supervisory Authority) working together to protect these assets.
The “coverage pool”
There Austrian legislative discipline provides that in order to ensure that the claims of the insured are met, Fwu Life Austria, as an insurance company, is obliged to establish a “coverage pool”The coverage pool is a special fund of an insurance company that must be managed separately from the company’s assets. In the event of bankruptcy, the coverage pool constitutes a special heritage from which the credits of the insured receive preferential treatment. The Austrian Financial Market Authority (FMA) must appoint a cover pool trustee to monitor the cover pool. In particular, the trustee must immediately notify the FMA of any circumstances that may give rise to doubts regarding the expected compliance.
The consumers’ point of view
“Hope – he underlines Confconsumatori – is that the systems of protection of the two countries ensure that compensation claims of customers are given priority and protection over other creditors. In the event that Fwu loses its license, a external administrator to manage and liquidate the insurance company and provide reimbursement to customers. This is not the current situation”. “It is clear – comments the president of Confconsumatori Marco Festelli – that for the 100 thousand Italian customers there is a concrete dangerconsequent to the blocking of liquidations and redemptions and in general of the exercise of contractual rights”.
Therefore, the Association will collaborate with Ivass to ensure a constant flow of information and updates on what the Luxembourg and Austrian authorities will establish to protect the rights of the savers involved. It is also necessary avoid ‘panic selling’ and keep in mind that European legislation still provides for forms of protection and pre-emption for customers with respect to the technical reserves and underlying assets of the policies in which the customer has invested. times unfortunately to get compensation they will certainly be long and uncertain in their quantumbecause no one today can know the real situation of the two Companies and their conduct with respect to the obligations imposed by clear European Directives such as Solvency. It will be important to verify whether, as has already positively occurred in the case of Eurovita, the intervention of a ‘White knight’that is, another insurance company that is interested in acquiring Fwu’s customer portfolio and could therefore purchase the business branch, reactivating all the insurance contracts currently suspended”.
