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Securitisation as a pooling and access vehicle under different regimes – General information

Investment Regulation (AnlV)

The Regulation on the Investment of Restricted Assets of Insurance Undertakings (AnlV) that was adopted on the basis of section 217 sentence 1 no. 6 of the German Insurance Supervision Act (VAG) in conjunction with section 219 (1) VAG and section 235 (1) sentence 1 no. 10 VAG sets out the qualitative and quantitative requirements for restricted assets.

Section 1 (2) AnlV lists the general investment principles applicable to the investment of restricted assets. The additional requirements were imposed because the procedures for determining the solvency of pension funds do not correspond with the procedures for life insurance undertakings that are, instead, subject to the Solvency II regulatory system.

The purpose of an insurance undertaking’s investment activities is to ensure that the type, scope and quality of cover funds ensure that the company is permanently able to fulfil its insurance contracts. However, given the increased variety and complexity of the investment products, the lower risk-free returns and high volatility of investments, insurance undertakings are facing ever increasing requirements in connection with their investment activities.


The insurance business consists of asset investment and maintenance of the asset base for the purpose of covering the insurance-related liabilities. In order to safeguard the interests of the insured persons and to ensure that the obligations under insurance contracts can be met on a sustainable basis, insurance undertakings have to manage their asset investments with a high degree of expertise and care, taking into account the nature of their liabilities and their entire risk/return profile.

Insurance undertakings must have a sufficient capital investment portfolio, the nature, maturities and liquidity of which ensures that they can meet their obligations, even in times of changing market conditions. Therefore, a detailed analysis of the risks associated with the assets and liabilities in their balance sheet and the relation between these assets and liabilities (asset and liability management) are an essential prerequisite for formulating an investment strategy and putting it into practice.

Every portfolio is exposed to a number of investment-related risks that could endanger the coverage of the insurance-related liabilities. At the same time, the use of derivative financial instruments in order to hedge, prepare acquisitions and increase earnings (see section 15 (1) sentence 2 of the German Insurance Supervision Act; with regard to derivative instruments, see BaFin’s most recent circular on derivative instruments and structured products) changes the risk situation of insurance undertakings. Insurance undertakings are required to identify, measure, monitor, manage and control the specific risks of capital investments and the derivative financial instruments and to include them in their reporting.

Every portfolio is exposed to a number of investment-related risks that could endanger the coverage of the insurance-related liabilities. At the same time, the use of derivative financial instruments in order to hedge, prepare acquisitions and increase earnings (see section 15 (1) sentence 2 of the German Insurance Supervision Act; with regard to derivative instruments, see BaFin’s most recent circular on derivative instruments and structured products) changes the risk situation of insurance undertakings. Insurance undertakings are required to identify, measure, monitor, manage and control the specific risks of capital investments and the derivative financial instruments and to include them in their reporting.

Specifically, the following significant risks need to be taken into consideration with regard to capital investments: market risks, credit risks, concentration risks, liquidity risks and operational risks (cf. Section 7 German Insurance Supervision Act (VAG) for definition of terms). These also include the legal risks associated with the investment, especially in the case of complex investment conditions and foreign legal norms, as well as external risks that may result primarily from changes in legislation and the administration of justice.

Insurance undertakings must ensure that they can always respond appropriately to changing economic and legal circumstances, in particular developments in the financial and real estate markets, major catastrophic events or other unusual market situations. This must be reflected in the structure of the capital investment portfolio.

The German Investment Regulation (AnlV) includes a corresponding investment catalogue (Section 2 (1) AnlV) in order to provide the insurance companies that are subject to the Regulation with a guideline.

Securitisation can help to positively influence the classification of capital investments, meaning they better reflect the risk-return profile of the respective capital investment than a direct investment.

Solvency II

Certain insurance undertakings are governed by the European supervisory regime Solvency II since 1 January 2016, requiring them to back capital investment risks with equity capital. Solvency II establishes a second, principle-based framework alongside the existing, rule-based framework. Therefore, different objectives and approaches apply under the respective systems to the use of securitisation as a vehicle to pool financial assets and create marketable instruments.

Undertakings that continue to make capital investments under the German Investment Regulation are still largely governed by defined regulatory triggers. Securities structuring primarily focuses on making investments efficiently acquirable subject to compliance with regulatory proportion. This provides structuring options for both direct acquisitions for the portfolio of the undertaking and indirect acquisitions via an existing special fund structure.

The Solvency II framework replaces the rule-based approach of the German Investment Regulation by a qualitative approach.


The Solvency II regime essentially focuses on risk-based capital requirements that are implemented by means of a three-pillar model.

Pillar 1 determines the capital requirements for capital investments. Pillar 2 basically implements the Investment Regulation requirements within the insurance undertaking by way of an internal assessment process (Own Risk and Solvency Assessment, ORSA), comprising mainly the supervisory review procedures. Pillar 3 defines the corresponding reporting requirements vis-à-vis the public and the supervisory bodies.

Pillar 2, in particular, shifts most of the rule-making responsibility in connection with capital investment to the undertakings themselves. Insurance undertakings are therefore faced with two main questions: “Which capital investments are suitable under the specific requirements a) of our corporate obligations and b) of the Solvency II regime?” and “Which possibilities do we have under the requirements to acquire and/or hold investments that call for less SCR capital and that are favourable under administrative viewpoints?”

Thus, the initial question when structuring securities in line with the requirements of Solvency II is: “What is the current contribution of the specific investment to the overall regulatory Solvency Capital Requirement (SCR)?” The second step is to consider whether and how it is possible under the Solvency II regime, and given the structuring options available, to allocate or hold the investment with lower capital requirements.

Structuring options are usually considered for investments with “typically” strong SCR drivers such as:

  • non-rated assets or assets with low ratings, combined with a high duration,
  • foreign investment structures,
  • opaque fund structures,
  • multi-tranche investment structures.

Often, this refers to existing investments that were entered into before Solvency II and that the undertaking does not want to or cannot part with.

Usually securitisation is not the only structuring option, but should be seen in the context of an existing investment architecture and, above all, in the context of company-specific requirements.

In summary, securitisation solutions offer structuring options under Solvency II. The approach, however, is fundamentally different from the approach under the German Investment Regulation (AnlV). In this respect, there is no suitable “one-fits-all” solution. In order to narrow down the choice of options, it is advisable first of all to determine the current contribution of the existing or planned investment to SCR, possibly also initially under benchmarked company guidelines, in order to derive corresponding options. Thereafter, the results are evaluated internally and discussed with the external audit bodies.

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