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Stand:updated on 26.06.2020 | Topic Investments of insurance companies Prudent Person Principle

The prudent person principle is based on section 124 of the German Insurance Supervision Act (VersicherungsaufsichtsgesetzVAG) (Article 132 of the Solvency II Framework Directive). It sets out the requirements applying from 1 January 2016 to investments and the associated risk management of primary insurers and reinsurers subject to Solvency II. Prior to the implementation of Solvency II, these undertakings were subject to the Investment Regulation (Anlageverordnung – AnlV), which now only applies to undertakings outside the scope of Solvency II.

The prudent person principle stipulates that insurers may only invest in assets and instruments whose risks the undertaking concerned can properly identify, measure, monitor, manage, control and report and appropriately take into account in the assessment of its overall solvency needs. All assets are to be invested in a manner that ensures the security, quality, liquidity and profitability of the portfolio as a whole.

In practical terms, this means that investments as such are no longer restricted by external quantitative requirements. Rather, the insurer must prepare an internal schedule of investments, which describes the undertaking's investment universe and defines the investment limits (e.g. counterparties, asset classes, etc.) the insurer must observe. The requirement under this schedule is that undertakings invest only in products whose nature and risks they fully understand and that they are thus always able to react appropriately to current developments.

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Publications on this topic

Cir­cu­lar 11/2017 (VA)

Guidance on Investing the Guarantee Assets of Primary Insurance Undertakings which are subject to the Provisions for Small Insurance Undertakings (sections 212 to 217 of the German Insurance Supervision Act, as well as of German Pensionskassen and Pensionsfonds (Investment Circular)

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In times of low interest rates, insurers increasingly reach for derivatives – for hedging purposes but also to increase their yields. BaFin requires them to have the risks under control.

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How insurers design their asset-liability management (ALM) and the role played by sustainability risks

Cir­cu­lar 3/2016 (VA) - Trustee for Mon­i­tor­ing of the Guar­an­tee As­sets (Sicherungsver­mö­gen)

Circular 3/2016 (VA) - Trustee for Monitoring of the Guarantee Assets (Sicherungsvermögen)

In­vest­ments: In­sur­ers search­ing for yield?

Towards the end of 2016, BaFin carried out a survey on behalf of the European Insurance and Occupational Pensions Authority (EIOPA) into insurers' investment behaviour. The results are published on the EIOPA website.

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