On 2 August 2024, the Luxembourg District Court, at the request of FWU LIFE INSURANCE LUX S.A. (“FLL“), ordered that the company be placed under a stay of payment (sursis de paiement) for a maximum period of six months.

The entry of FLL into a stay of payments follows the publication on 19 July 2024, by the Commissariat aux Assurances, the authority in charge of supervising the actors in the insurance product market in the Grand Duchy of Luxembourg (the “CAA“), of a press release notifying FLL’s insolvability in that it no longer complied with its mandatory capital and solvency requirements. In the process, on 23 July 2024, the CAA froze the assets representing technical reserves with the custodian banks.

The stay of payments declared by the judgment of 2 August 2024, marks the next, but undoubtedly not the last, phase in this unfortunate case.

At about the same time in July of 2024, FLL’s parent company and sole shareholder, FWU AG, entered in Germany into the provisional phase of insolvability.

FLL, a Luxembourg company with assets separate from those of its shareholder FWU AG, is under the CAA’s supervision.

FLL had distributed its insurance contracts in neighboring countries for several decades, particularly in Germany, Belgium, France and Italy.

In the above-mentioned situation, FLL’s policyholders are legitimately concerned about the protection of their rights under the insurance policies they have taken out with FLL. Pursuant to the Law of 7 December 2015 on the insurance sector, as amended (the “Insurance Sector Law“) the protection of their rights is based essentially on the mechanism specific to Luxembourg law known as the “triangle of protection”. This mechanism is based on the deposit of technical reserves (the term used to describe the assets invested using premiums paid by policyholders) with a bank approved by the CAA, under a “tripartite” deposit agreement drawn up strictly in accordance with the terms laid down in a CAA Circular, in which the CAA plays a “supervisory” role.

These assets are segregated from the insurer’s own assets, and the Insurance Sector Law grants policyholders a preferential claim, known as a “super-privilege”, which should enable FLL policyholders to recover their claim in priority to other creditors (notably the State, social security bodies, shareholders and employees of the insurance company) in the event of the company’s liquidation.

Depending on the type of contract entered into by each policyholder, whether a guaranteed-capital contract (which guarantees the return of the value of the technical reserves) or a unit-linked contract (which only guarantees the return of the number of units of account but not the value of the capital invested), the policyholder will be able to recover their investments either substantially or partially.

The freezing of representative values carried out by the CAA on 23 July 2024, aims to protect policyholders and beneficiaries. It is intended to ensure that the use of these technical reserves is handled in a way that treats all policyholders and beneficiaries equitably.

The freezing, together with the “stay of payment” status, are the reasons why FLL cannot, at present, make benefit payments to policyholders or beneficiaries in fulfilment of the contractual stipulations. The stay of payments concerns in particular all payments due prior to the date of the above-mentioned judgment. Payments falling due after this judgment are subject to the express approval of the supervisory commissioner appointed by the Court on 2 August 2024.

However, FLL’s current status does not affect the validity of contracts between the insurer and its customers. Policyholders and FLL remain bound by their respective contractual obligations. As to whether policyholders are obliged to continue paying premiums to FLL, it is advisable to refer to the contractual terms and conditions relating to premium defaults and, if necessary, to seek professional advice.

It should also be noted that, while the current status of FLL has no impact on the validity of contracts, certain specific conditions of contracts instituting a unit-linked investment policy for the fund mentioned below cannot be fulfilled for the time being, due to the decision dated 19 July 2024 to suspend the issue, redemption and conversion of units in the FWU Protection Fund SICAV.

It is noted that the temporary suspension of the issuance, redemption, and conversion of shares in the FWU Protection Fund Sicav has been lifted as of 4 September 2024, by decision of the fund’s board of directors. This includes the lifting of the suspension for all share classes of the three sub-funds, Dynamic Risk Control, Balanced Risk Control, and Conservative Risk Control.

Finally, although the main purpose of the stay of payments is to enable FLL to redress its financial situation, should this prove impossible, the CAA or the State Prosecutor could file a petition for judicial liquidation. A key phase in that regard is the CAA’s examination of the financing plan established by FLL, aiming at reestablishing within three months its own funds at the minimum capital requirement level. This plan, submitted by FLL the month after its 19 July 2024 insolvency declaration, is under examination by the CAA until 19 October 2024,

To find out more, consult the following websites:

By Marie-Paule GILLEN, Partner – Avocat à la Cour, Frédéric SEINCE – Avocat, and Ben GUEDES RIBEIRO, Legal Intern, DSM Avocats à la Cour.

Last update: September 2024