Continuing our focus on jurisdictions where Association for International Life Offices (AILO) membership is increasing, let’s take a closer look at Luxembourg, writes AILO chief executive Bob Pain.
Of course, its banking sector has provided firm foundations for decades, but Luxembourg has never stood still.
It has constantly evolved its offering and continues to take inspiration from the ‘let’s make it happen’ mantra in pursuit of its mission to become the world’s leading financial centre for insurance, investment funds and private banking.
Today, it is internationally recognised as a European financial hub worth €5.5trn (£4.72trn, $6trn) and attracts clients from across the globe.
The key factors behind the finance sector’s success are that it is supported by an ecosystem of legal and administrative providers, a skilled multilingual global workforce, and forward-thinking and communicative regulators.
The Fond d’Assurance Spécialisé/Specialized Insurance Fund (FAS) is also a strong differentiator in the life insurance market. It serves as a single investment vehicle, allowing the policyholder to perform a direct selection of the policy’s underlying assets, including stocks.
A ‘triangle of security’
Luxembourg is home to over 70 insurance and 194 reinsurance companies, according to the most recent data from the insurance sector regulator, Commissariat Aux Assurances (CAA).
The CAA has overseen some major changes to regulations in recent years which allows not only for increased flexibility of investment, but also enhanced protection of investors.
Most notably, in 2018 there was an update and clarification to the special privilege uniquely offered by the Luxembourg life insurance sector (commonly known as the ‘triangle of security’).
This cornerstone of protection which oversees Luxembourgish life insurance policies is a tripartite agreement unique to Luxembourg between the custodian bank, regulator and insurance company.
It ensures investors are fully protected in the event of a default by the custodian or insurance company.
From a life insurance investment perspective, the CAA has evolved to meet the needs of investors and the industry by introducing new, more flexible fund structures as well as revaluating client suitability profiles in terms of opening up investment limits and access to dedicated internal funds which are bespoke to Luxembourg life insurance contracts.
A home for sustainable finance
The Grand Duchy can be considered the home of sustainable finance. For example, in 2016 Luxembourg Stock Exchange (LuxSE) introduced the Luxembourg Green Exchange (LGX) to directly contribute to the objectives of the UN Sustainable Development Goals and the Paris Agreement.
This exchange has issued over €830bn of Environmental, Social & Governance (ESG), impact funds and sustainable bonds since its inception and accounts for over half of the green bond issuances globally.
Furthermore, in July 2018 Luxembourg established the world’s first legal framework for green bonds (a new type of bond utilised to finance the generation of renewable energy). This introduction reaffirms the country’s determination to drive forward global innovation in sustainable finance.
Luxembourg is also looking to the future of the finance industry in terms of fintech, eCommerce and payment solutions.
This article was written for International Adviser by AILO chief executive Bob Pain.