Investment restriction

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An investment restriction is a restriction on the investment of capital.


An insurance company's investment policy cannot be entirely free. It is subject to various influencing factors.

Regulatory framework

In most countries, insurance companies are bound by statutory investment regulations when choosing their investments. In Germany, these provisions are primarily contained in the Insurance Supervision Act (VAG) and in the regulations and administrative principles of the Federal Financial Supervisory Authority (BaFin), which define the framework of the insurance company's individual investment policy, mainly with regard to the types of investment.

The purpose of these investment regulations is to ensure that the insurance company can meet its obligations at all times.

Asset blocks

The starting point for the investment regulations, both for the general principles and for the special requirements, is the division of the investments into three asset blocks, the delimitation of which results from the liability items to be allocated from which the investments are financed.

The respective scope cannot be taken from the assets side of the balance sheet, as it is structured according to the type of investment and not according to the asset blocks. The amount is communicated to BaFin on a quarterly basis as part of internal accounting.

Guarantee assets (until December 2003 "cover pool")

The amount of the guarantee assets is based on the Insurance Supervision Act (VAG); an important item to be covered by it is the actuarial reserve . The actuarial reserve is formed from the interest-bearing accumulation of the annual contributions and interest after the administrative costs and insurance benefits have been covered. It is determined according to actuarial principles for each insurance. The actuarial interest on the actuarial reserve is specified in the technical business plan of an insurance company.

The insurance company that serves premium reserve thus to compensate for the period between the contribution and the due date in the balance sheet as standard. This period averages 27 years for life insurance companies, which illustrates the large extent of the actuarial reserve for life insurance companies.

To secure the claims of the insured in the event of bankruptcy, the security assets are separate assets internally from the other assets of the insurance company and which are not accessible to other creditors. The assets belonging to the security assets are kept in a security asset register and monitored by a trustee for life and private health insurers.

Other tied assets (until December 2003 "Other tied assets")

Assets outside the cover pool in the amount of the other technical obligations belong to the other tied assets. Other technical obligations are technical provisions and the liabilities and prepaid expenses and deferred items arising from insurance relationships.

Tied assets

Together, the security assets and the other tied assets make up the tied assets.

The target values ​​of the cover pool as well as those of the other tied assets result from the VAG regulations.

Any shortfall in the remaining tied assets can be offset against excess coverage of the actuarial reserves. In view of the special position of the cover pool, reverse offsetting is not possible.

Free (remaining) assets

The remaining assets are therefore the equivalent of the liabilities that are not of an actuarial nature. This mainly includes own funds and all non-technical liabilities.

General investment principles

The cover funds are to be invested in such a way “that the greatest possible security and profitability is achieved with the insurance company liquidity at all times while maintaining an appropriate mix and diversification”.

This general investment principle only applies to the capital investments that serve to cover the tied assets. There are no restrictions on investing free assets.

Principle of security

With regard to the feasibility of the insurance contracts, priority must be given to the requirement of the greatest possible security, which the legislature deliberately calls first.

Current and identifiable future risks in the investment excluded. This asset management, which is as risk-free as possible, requires permanent monitoring and excludes speculative investments.

Profitability principle

Taking into account the framework conditions, investments must generate a sustainable return. A minimum return is not required. However, interest rates below the actuarial rate of the actuarial reserve are not acceptable. This would result in a shortfall.

Principle of liquidity

An insurance company must be able to meet its payment obligations at all times. As part of a comprehensive financial and liquidity planning, the investments must therefore be structured in such a way that a business-necessary amount of liquid or easily realizable investments is available at all times.

Principle of mixing and dispersion

This is a general principle that does not aim directly at the security of individual investments, but rather helps to avoid a one-sided investment policy and to balance the risks between the investments as a whole. Risk balancing is done by distributing the investments over different types of investments (mix) and between different debtors (diversification), so that a one-sided investment policy is avoided.

Interdependencies between the investment principles

The principles of security, liquidity and profitability cannot be reconciled without compromise. The “magic triangle” of investments illustrates the tension.

None of the investment principles can be fully implemented without conflicting with the others.

  • On the one hand, in order to achieve the highest possible level of security, a tendency towards lower returns must be accepted.
  • On the other hand, there is a conflict between liquidity and profitability, since more liquid investments are often associated with disadvantageous returns.

The principle of mixture and diversification takes into account the conflicting investment principles and thus leads to a compromise.

Special investment rules

In addition to the general investment principles of the VAG, special investment regulations are provided for the cover pools and the other tied assets, which can be found in the BaFin “Ordinance on the investment of tied assets of insurance companies ( Investment Ordinance - AnlV)”. The special investment regulations place the following requirements on the tied assets:

  • Restriction to the permitted types of investment: The VAG lists the types of investment permitted without special approval from the supervisory authority.
  • Observance of the special mixing quotas and diversification regulations: In addition to the general principle of mixing and diversification mentioned above, the VAG lists special quotas for the distribution of assets among the permitted types of investment and different debtors.
  • Observance of the currency-congruent coverage: According to the principle of currency congruence , investments are mostly to be made in the currency in which the obligations were entered into. The legislator's additional security concept is that the ability to meet obligations in the event of non-congruent coverage could be jeopardized by the opposite development of the investment currency and the obligation currency.
  • Observance of the principle of location: Just as congruent coverage of the currency in which the obligations are denominated and the currency of the cover values, the principle of location requires that the location of the cover values ​​correspond. The close connection between the location of the obligations and the location of the corresponding facilities is not required, a location in the EC / EEA area is sufficient.

Commercial valuation regulations

The balance sheet of insurance companies does not differentiate between fixed and current assets . The valuation of the assets of the insurance companies is regulated in §§ 341b ff. HGB. These special regulations are based on the general regulations for fixed and current assets of §§ 252 ff. HGB.

For fixed assets include land, buildings, registered bonds , promissory notes and mortgage loans . These assets are reported at amortized cost. For registered bonds and mortgage loans, according to According to Section 341c (1) HGB, the nominal value can also be selected.

Current assets, which include stocks , investment units and other fixed-income and non-fixed-income securities, are valued using the lowest value principle .

As part of the system control, the choice of evaluation methods can be freely chosen. However, the methods permitted for accounting purposes must also be taken into account. This avoids a balance sheet shortfall in liabilities.

Capital market conditions

The implementation of the investment strategies is linked to developments and the opportunities that the financial markets offer.

In recent years, a massive structural change has shaped the national and international financial markets. The main cause lies in the changed global economic environment.

Because of the increasing globalization of the financial markets, the boundaries of the individual national and international market segments have been removed. This internationalization had the consequence that the volatility and vulnerability of the financial markets increased. The insurance companies were now confronted with new opportunities and risks in their investment decisions.

Insurance company's risk profile

The asset management of an insurance company is not an end in itself, but serves to cover future obligations. An investment strategy that does not take into account the time structure of the obligations entered into becomes an asset management risk. As a result, the timely and cost-effective provision of the promised services is jeopardized in the long term.

This objective risk must have an impact on the insurance company's investment strategies. This influence can be illustrated by comparing two extremely different pension funds.

The already closed Pension Fund A, which no longer accepts new entrants and whose portfolio consists mainly of pensioners and older prospective students, has a much shorter investment horizon than the newly established Pension Fund B due to its short-term payment obligations. The length of the investment horizon thus represents the investor's risk tolerance Pension fund A can only take a low risk with regard to the stable value of its investments. Pension fund B, whose portfolio consists mainly of younger candidates, does not need to forego any short-term investment risk, at least with regard to its low liquidity requirements. Pension fund B will generally be able to generate higher returns than pension fund A due to the longer investment horizon.

This example shows that insurance companies are dependent on the commitments they have entered into (risk profile) in terms of their investment strategy.

In practice, however, the situation is not as simple as outlined above.

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