In today’s unpredictable financial markets, sluggish economic recovery and political instability, wealth preservation has become one of the most significant concerns for high net worth individuals. In the concrete case of Portugal and Spain, these concerns are truer than ever. The economic crisis and the political instability of the last twelve months has not helped in providing comfort and security to wealthy Portuguese and Spanish investors.
In light of the above, an optimal investment strategy should not only involve a balanced geographical distribution of financial investments or a suitable weighting of financial risks between different financial products, but should also include wealth preservation and asset protection as a long term objective. This would ensure financial security not only at personal level but for the family and any future generations. With the right planning in place, investors may be able to attain all these objectives and ensure that personal and family financial matters are secure in the long term irrespective of the economic, financial and political situation.
Based in Luxembourg, with one of the strongest policyholder protection regimes in Europe, Lombard International Assurance specializes in designing wealth structuring solutions based on a flexible yet secure life insurance contract. The solution we offer to our Portuguese and Spanish clients is adapted to meet the local requirements and to benefit from all possible legal and tax advantages available to life insurance policies (for example, personal income tax deferral, optimization of wealth tax, flexible succession planning features, etc.).
Thanks to Luxembourg’s unique policyholder protection regime (i.e. known as the “Triangle of Security”), the Grand Duchy of Luxembourg offers maximum security through a State controlled and regulated scheme that ensures:
Policyholders’ assets are held by an officially approved and independent custodian bank that is required to “ring fence” the assets and is bound by the regulator’s legal powers to protect the assets on behalf of the policyholder.
Policyholders’ assets are legally separated from the insurance company’s assets for shareholders and creditors. Should the custodian bank or insurance company fail, the policyholders will hold preferential rights (1st rank) on the assets linked to the life policies issued by the insurer. This involves, in practice, that the assets linked to the life policies held by the clients will remain segregated and will be fully protected and reserved for the clients in case of default of either the bank and/or the insurer. This specific legal protection adds up to the fact that Lombard International Assurance exclusively issues unit-linked (i.e. not-guaranteed) life insurance policies, which entails that its clients will not be exposed to situations where adverse investment markets impair the insurer’s capacity to meet its’ liabilities vis-à-vis policyholders. This is key to private clients as other insurers offering other types of insurance products may carry on this potential risk (guaranteed products where the investment risk is borne by the insurer may affect the policyholders, having invested through unit-linked contracts in case the insurer liquidates as both businesses are not strictly segregated).
Should any problem arise with the insurer or the custodian bank, the Luxembourg Insurance Regulator, the Commissariat aux Assurances (“CAA”) is fully empowered to immediately block and “freeze” the assets linked to life policies in custody with said bank.
To the contrary, neither the “policyholder’s assets protection mechanism” put into place by the Luxembourg CAA, nor the flexibility in the custody of the policyholder’s assets, exists under the Portuguese or Spanish insurance regulatory framework. Also, in Spain, policyholders of policies issued by local insurers are not, in principle, privileged creditors.
To conclude, the Luxembourg asset protection regime together with Lombard International Assurance’s business model, provides Spanish investors with a unique scheme. This ensures to its maximum extent that the assets held through a life insurance policy are fully immune to any financial contingency, in a jurisdiction, Luxembourg, with well-proven and demonstrated track record in the financial global industry and with a stable AAA credit rating.
By Pablo Peciña and Gonzalo García Pérez