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Luxembourg is widely recognized as a center for the distribution of insurance

products under EU rules on the freedom to provide services. The financial center
currently hosts around one hundred insurance companies, mainly the subsidiaries of
large international groups.

The insurance profession in Luxembourg is strictly regulated. All legal entities or

natural persons wishing to operate in this sector must be approved by the competent
minister. The conditions for this approval are designed to ensure the financial solidity
of insurance companies.

All participants in and activities of the insurance sector are regulated by the insurance
industry supervisory authority, the Commissariat aux Assurances (CAA), a public
body under ministerial authority.

Luxembourg insurance companies do more than 90% of their business outside the
country, particularly in the area of life assurance. These companies specialize in life
policies linked to investment funds, products that offer clients the combination of life
cover and the prospect of financial returns. Life assurance contracts are often linked
to dedicated funds, instruments that are increasingly favored in the wealth
management industry.

Non-life (property & casualty) insurance companies based in Luxembourg also

mainly target the international market. This is particularly true of the maritime
insurance mutual companies and other specialist insurance providers.

Since 1984, Luxembourg offers a specific legal framework for reinsurance activity.
Today it is the domicile of around 250 reinsurance companies, particularly captives
belonging to major international industrial, commercial or financial groups.
Growth in Luxembourg’s life assurance sector is increasingly driven by the practice
of establishing life contracts using a Luxembourg legal entity.

Luxembourg life-assurance products offer a unique level of protection to the investor,

a high degree of flexibility with regard to contract design and asset management,
complete tax neutrality and confidentiality guaranteed by law. These advantages make
the Luxembourg life insurance contract one of the best tools available for asset
management and succession planning for wealthy European and international clients.

The applicable tax rate for both subscribers and beneficiaries is that of their country
of residence and life assurance enjoys favorable tax treatment in most European
countries. Luxembourg charges no tax on premiums, nor on capital gains made at the
time of the contract’s purchase or expiry nor on death benefits. Luxembourg life
assurance contracts are designed to respect the legal and tax requirements of the
subscriber’s country of residence.

With regard to the distribution of life assurance products, banks account for a very
significant proportion of sales, whereas the use of brokers is negligible.

Luxembourg’s legal and regulatory framework gives life assurance companies

substantial investment flexibility, allowing them to offer their clients a wide range of
sophisticated products.


Luxembourg life assurance contracts offer a number of distinct advantages including
a unique level of investor protection, flexibility in contract design and asset
allocation, fiscal neutrality and confidentiality guaranteed by law. These advantages
make the Luxembourg life assurance contract one of the most widely used tools for
wealth managment and inheritance planning for sophisticated European – and
international – clients.

Unit linked life assurance contracts, a speciality of Luxembourg life assurance

companies, enables investors to combine insurance cover with the potential for capital
growth, notably by linking the contracts to dedicated investment funds. These
instruments are increasingly used in wealth management.

The applicable tax rules, for both subscribers to and beneficiaries of a Luxembourg
life assurance contract, are those of their country of residence. Life assurance benefits
from favourable tax treatment in most European countries. Luxembourg does not tax
the premiums nor the capital gains realised at the time of repurchase or maturity of a
contract, nor the capital sum paid out to beneficiaries in the event of death.
Luxembourg life assurance contracts are designed to respect the legal and tax
requirements of the subscriber’s country of residence.

Luxembourg laws and regulations are designed to ensure that subscribers enjoy a high
level of protection. Both life assurance companies and their activities are supervised
by the insurance industry regulatory authority, the Commissariat aux Assurances
(CAA). A mechanism know as the "triangle of security" together with the "super
privilege" make the Luxembourg life assurance contract an excellent wealth
protection vehicle.

Unit-Linked Insurance Products

Traditionally, life assurance companies offer guaranteed return products, where
premiums are managed in the insurance company’s general fund or in that of the
mother company.

In addition, Luxembourg firms offer a wide range of so called “unit linked” products
that are based on one of the following:

External investment funds, managed by experienced asset managers;

internal collective funds, which operate like undertakings for collective investment in
transferable securities (UCITS) and which allow mandated collective management
tailored to the different risk profiles of investors;
internal dedicated funds that permit discretionary, mandated management that takes
the subscriber’s personal objectives into account. Several dedicated funds can be
grouped within the same life assurance contract.
The possibility of diversifying assets held in a life assurance contract increases in
proportion to the amount invested and the type of funds chosen. Hence, the range of
potential assets widens from national or international equity, money market and bond
funds, through alternative funds and structured products, and goes as far as integrating
portfolios of listed and non-listed securities.

The management strategy can be changed at any moment throughout the life of the

With the aim of ensuring maximum security for subscribers to Luxembourg life
assurance contracts, the law stipulates that assets matching an insurer’s liabilities
must be deposited with a bank approved by the insurance industry regulatory
authority, the Commissariat aux Assurances (CAA). Each life assurance company is
required to sign a depositary agreement with a custodian bank and have this
agreement approved by the CAA.

This mechanism, know as the "triangle of security", ensures that the assets matching
the insurer’s liabilities are clearly separated from the company’s other assets and
lodged in a separate bank account. Client assets are thus legally separated from those
of the insurance company’s shareholders and creditors. Furthermore, the custodian
bank itself is required to segregate assets and to protect the interests of subscribers to
a life assurance contract.

The law of 6t December 1991, as modified, grants subscribers to a Luxembourg life

assurance contract the status of first ranking creditor on all assets in the technical
reserves. This privilege, which is known as the "super privilege", takes precedence
over all other creditors, whoever they are, granting contract holders priority in the
recovery of credit related to the execution of their insurance contracts in the event of
the insurance company going bankrupt.