Germany’s BaFin wants insurance linked investors to be sticky

BaFin, Germany’s main financial regulator the Federal Financial Supervisory Authority, has expressed a desire to see investors in insurance showing a commitment to stick around for the long-haul.

This article by Oliver Suess on Bloomberg cites comments made by BaFin’s head of insurance supervision Felix Hufeld at a recent conference where he said that private equity investors seeking to access the return of closed life insurance funds should be investing for the long-term if they want to be tolerated.

Firms that show a commitment to running off closed books of business would be accepted said Hufeld, but investors who try to buyout policies with a short-term view of investment would not be acceptable.

Bloomberg quotes Hufeld as saying that investors would be tolerated who; Don’t act in too rough a way and don’t try to push through overly short investment horizons to run away after three or four years. Should that happen, we would stop talking about run-off as an option for Germany for the next 25 years.”

This perhaps reflects some of the difficulties that insurance-linked securities (ILS) investors have had in the German market. The regulator is looking for those participating in insurance, or reinsurance, to show commitment and a willingness to be there when claims need paying.

Direct investors in ILS have struggled in Germany in the past, hence they tend to invest through funds and vehicles domiciled elsewhere.

Hufeld also said; “It’s very important for us that every run-off firm has the necessary knowledge of the German insurance industry. A pure private-equity vehicle without that would be problematic.”

Artemis wonders what BaFin thinks about investors such as pension funds taking on catastrophe reinsurance risks? While these are shorter-tailed, so tend to be settled faster, there is still likely some concern over the capital’s stickiness at the regulator.

As home to some of the largest insurance and reinsurance firms in the world, including the largest Munich Re, it is perhaps not surprising that the regulator in Germany is conservative about investors entering the insurance sector. We suspect that BaFin is watching developments in ILS and the capital markets involvement in reinsurance, particularly any moves by investors to take on longer-tail risks, very closely.