The sale of an insurance undertaking is subject to strict legal requirements aimed at safeguarding the interests of the insured. "No policyholder may be worse off as a result of a company being sold", explains BaFin's Chief Executive Director of Insurance Supervision, Dr Frank Grund. "Where necessary, we take appropriate measures to ensure this." BaFin can prohibit the planned acquisition if the interests of the insured are not sufficiently safeguarded.

An insurance undertaking continues to be subject to full supervision by BaFin even if it is sold. Contractual guarantees remain in place and unchanged. For contracts with profit participation, the legal requirements arising from, among others, the Minimum Allocation Regulation (Mindestzuführungsverordnung – MindZV) still need to be fulfilled. BaFin also has a broad range of ways to obtain information and, if necessary, respond to deficiencies.

A qualifying holding procedure is carried out before the acquisition of a qualifying holding in an insurance undertaking. During this procedure, BaFin examines the trustworthiness of the acquiring company, its business model and its structures, among other things. In particular, the acquiring company must have an effective risk management system and fulfil extensive reporting requirements.

Moreover, the company must be able to adequately manage the acquired in-force business. The technical and operational feasibility of the transaction is therefore a particular focus of the examination. This means, for instance, that it is important to clarify the extent to which existing systems and employees will be retained. BaFin can demand that additional measures be taken, for example that structures or outsourcing arrangements be established or extended, if this is necessary to ensure adequate management.

Furthermore, BaFin examines the acquiring company's credit standing and its ability to sufficiently capitalise the insurance undertaking. The level of protection for customers does not just depend on the financial situation of the individual company, however; it also rests on the ability of the group to support a company that gets into difficulties. "The circumstances in the new group are usually different from those in the previous group, which from a customer's point of view can mean that protection is higher or lower", says Grund. "If there is a fear that protection will be lower, we demand that safeguarding measures be put in place."

One possible safeguarding measure is for a specific level of capital resources to be guaranteed by the acquiring company. This requires that a group company within the scope of the German Insurance Supervision Act (Versicherungsaufsichtsgesetz – VAG) prove that it is backed by adequate resources. Another possible safeguarding measure is a contractual cap on administrative costs. This too can require capital backing from within the group. For the transaction to go ahead, it must also be ensured that the acquiring group meets the capital requirements at group level.

BaFin carries out a thorough examination every time it receives a notification about the planned acquisition of an insurance undertaking. For its examination, BaFin requires comprehensive information. The acquiring company must provide this information before BaFin can formally confirm that the notification is complete and initiate the qualifying holding procedure. The duration of the procedure depends on the individual case. "From experience, it is to be expected that, especially with larger transactions, completing all of the documents to be submitted will take several months in itself", says Grund.