Insolvency of FWU Luxembourg: The Luxembourg Framework Tested

The Luxembourg insurance sector is in the spotlight following the insolvency of FWU Life Insurance Luxembourg S.A., a subsidiary of the German FWU Group.

This event highlights the robustness of the protection mechanisms in place in the Grand Duchy, notably the renowned ‘security triangle.’ This mechanism proves crucial for safeguarding the interests of clients in the face of an insurer’s financial difficulties.

The Intervention of the Commissariat aux Assurances (CAA)

On July 19, 2024, FWU Life Insurance Lux S.A. informed the Insurance Commission (CAA) that it no longer met the required solvency capital requirements (SCR) and minimum capital requirements (MCR). In response, the CAA immediately took measures to protect policyholders’ assets.

• On July 23, 2024, the Management Committee of the CAA decided to activate one of the mechanisms of the ‘security triangle.’ This activation led to the blocking of the technical provision assets held by the depositary institutions. This measure aims to ensure the ‘super-priority,’ which gives policyholders and beneficiaries precedence over all other creditors in the event of the company’s bankruptcy.
• On August 2, 2024, the Luxembourg District Court granted FWU Life Insurance Lux S.A.’s request for a suspension of payments for a maximum period of six months.

These two measures have immediate and significant effects on the insurer’s operations.

The Consequences of the Measures Taken

The combined measures of the CAA and the court primarily aim to protect the rights and claims of policyholders and beneficiaries. Their immediate effect is to:

• Temporarily suspend any new insurance contract subscriptions.
• Temporarily suspend all payments of benefits provided for by the insurance contracts.
• Impose a freeze on FWU Life Insurance Lux S.A.’s accounts.

These actions ensure that the assets in the frozen accounts will be used exclusively to cover the obligations arising from the active insurance contracts, thus providing optimal protection for clients against the insurer’s financial risks.

Reactions of the CAA, the ACA, and Ongoing Procedures

For any questions, the CAA has set up a dedicated webpage and email address: QA_FWULife@caa.lu. Policyholders and beneficiaries can thus obtain clear and prompt answers regarding their rights and the protection measures in place.

The Association of Insurance and Reinsurance Companies of the Grand Duchy of Luxembourg (ACA) has also sought to clarify the ongoing procedures and remind stakeholders of the security triangle mechanisms and policyholder privilege. According to the ACA, these measures are primarily aimed at protecting policyholders and maintaining the stability of the insurance market in Luxembourg. The ACA emphasizes that the ‘security triangle’ and policyholder privilege are fundamental elements of the Luxembourg regulatory framework, providing enhanced protection for policyholders.

You can consult the ACA’s FAQ on the topic: “Questions/Answers: the ‘Security Triangle’ and the Law of August 10, 2018.“

Conclusion

The FWU Life Insurance Lux S.A. case demonstrates the robustness of the Luxembourg regulatory framework and the effectiveness of the ‘security triangle’ in protecting clients.

Although FWU’s situation is concerning, the measures taken by the CAA and the existing protection mechanisms show that policyholders can rely on a robust system to secure their assets, even during a crisis.