Liechtenstein Investment Privilege

(* the following description about Liechtenstein Investment Privilege is from publication of Alexander T. Skreiner - "The Advantages of Liechtenstein Annuities and Life Insurance")

In contrast to traditional insurance contracts in which the policy holder has no influence on or transparency and knowledge about the investments made by the insurance company, the fund-linked solutions that grant the policy holder significantly greater influence have been available since the beginning or middle of the 1990s.

Liechtenstein has developed a third-generation, or unit-linked, insurance in which the savings part of an annuity or life insurance policy may be invested not only in internal or external funds (at the request of the policy holder) but in any bankable and even non-bankable assets.

The framework conditions required for this innovation are found in section 43 of the insurance supervision regulations. These stipulate that in insurance contracts in which the policy holder bears the investment risk, the insurance company can in principle make use of any investment for which the policy holder is willing to accept the risk. The policy holder thus participates directly in the development of the investment.

The development of insurance products in Liechtenstein has led to the situation in which some providers now offer individualized premium reserve accounts. The term “premium reserve” refers to assets that reflect the value of the policies of an insurance company. This means that the sum of all claims from the policies must be covered by the premium reserve of the insurance company, which is, in the case of traditional insurance products, solely responsible for investing in the premium reserve. In fund-linked insurance products, however, the insurance company keeps in its premium reserve the sum of all those parts of the fund that it has acquired on the basis of the policy holder’s specifications and assigns the shares to the individual policies. The policies then have an accounting par value and assignable but not assigned assets. This situation, which is not insignificant especially for private banking clients, is resolved by the individual premium reserve account solution offered by Liechtenstein providers.

An individual premium reserve account is differentiated with respect to each policy; that is, the insurance company effectively runs a designated securities deposit (including a clearing account) for each individual policy, and most providers even allow several banks. But it also allows individual assets to be assigned quite specifically to individual policies and gives the policy holder greater say in structuring the premium reserve account of the policy. Thus he or she can determine the investment strategy, designate the external asset manager who implements the desired investment strategy, and select a depositary bank permitted by the insurance provider.

In conjunction with external asset managers, private banks, and private banking departments, such individual premium reserve account solutions allow highly individual solutions, completely in line with the client’s preferences, specifications, and ideas. This makes such annuity or life assurance solutions an ideal instrument for structuring investment and pension assets.

The commissioned asset manager can now implement the desired investment strategy in these individual premium reserve accounts. The client’s wishes and ideas may range from very conservative bond deposits all the way to dynamic share deposits with a mixture of private equity or alternative investments. However, investments may also be made in unquoted stocks. Only direct investments in real estate, in limited partnerships (the well-known KG model for closed-end funds), and in investments with the obligation to make additional contributions are excluded.

It should in general be noted that policy holders cannot make the investment decisions themselves but can only define the strategy and designate the asset manager or else select them from a specified number of options. These regulations are also known as owner-control rules.

Liechtenstein life insurance solutions are also very popular with private investors who are keen to avoid restrictions or constraints in their selection of investments and thus to optimize and extend their scope of action. Numerous jurisdictions place restrictions on alternative investments, particularly on hedge funds, private equity funds, and real estate funds. As a rule, clients can avoid these restrictions by acquiring a fiscally and legally recognized life insurance solution from Liechtenstein within the scope of which their designated asset manager may invest in funds of just this type.

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