What is the purpose of the bank holding a Luxembourg life insurance contract?

The custodian bank holds, on behalf of the insurer, the assets representing its commitments to policyholders. It operates under a deposit agreement subject to the approval of the Insurance Commission (CAA). These assets must remain strictly separate from the insurer's other commitments and holdings with this bank, without any possibility of offsetting them. The custodian complies without delay with the CAA's instructions to freeze the accounts, and the standard agreement also stipulates that the insurer may freely access the accounts (Art. 4). It does not protect your capital against market downturns: with a unit-linked contract, this risk remains yours.

What the custodian does

The model deposit agreement published by the CAA, attached to its circular letter 16/9, sets out the obligations of the depositary. These are described below.

Why this bank matters in a crisis

Three elements stand together.

The privilege. The deposited assets are allocated by priority to the payment of insurance claims. Once entered in the permanent inventory, this priority "takes precedence over all others" (art. 2 of the model agreement).

The blockage. The CAA's 2025-2026 annual report indicates that the deposit can be frozen at the custodian's discretion if the company's financial stability is called into question. The same report states that this deposit "constitutes a separate asset for the benefit of policyholders.".

A public case. In the FWU Life Insurance Lux SA case, the CAA (French Insurance Court) describes assets deposited with custodian banks that had signed a tripartite deposit agreement, and kept separate from the insurer's own assets. Its press release of July 19, 2024, reports the freezing of representative securities held by the custodians. The text dates the freezing decision to July 23, 2024. This page makes no mention of the amount ultimately recovered by the policyholders.

Which texts to read

Three documents from the CAA allow us to understand the filing system:

• circular letter 16/9, dated 16/08/2016, and its model filing agreement; ;
• circular letter 26/2, dated 01/02/2026, which amends 16/9; ;
• the 2025-2026 annual report, which describes the system in its section 4.2.

Where is the bank?

Securities must be deposited with a credit institution headquartered in the European Economic Area (EEA), authorized in accordance with Directive 2013/36/EU, and admitted by the CAA. The requirement that assets be located within the EEA remains the general rule. The CAA may grant an exemption upon a reasoned request from the insurance company.

A limit governs liquidity. Liquidity held in accounts not covered by a deposit agreement cannot exceed 5% of the technical provisions. Without such an agreement, it is only permitted up to the insurer's net credit balance with the bank. This is an overall limit for all commitments, whether in units of account or in a specific currency, and not a limit applicable to each individual contract (Circular Letter 16/9, point 4).

Non-EEA depository: Circular letter 26/2 of 01/02/2026

Circular letter 26/2 from the CAA, dated 01/02/2026, amends circular 16/9. For a depositary located outside the EEA, the choice of this depositary is presumed to be an essential condition for the conclusion of the contract. This presumption applies under five cumulative conditions. The text uses "outside the EEA" in its introduction and "outside the European Union" in its fourth condition:

1. the subscriber is classified in one of the categories A, B, C or D of circular letter 26/1; ;
2. the general terms and conditions place the risk associated with the depositary on him; ;
3. he participated in the appointment of the custodian, or he was informed of it and accepts it; ;
4. the scope is limited to dedicated funds, specialized insurance funds or internal collective funds of type A to D; ;
5. A special declaration, signed by the policyholder and the insurer, is attached to the contract.

The special declaration includes, in particular, the following certifications, as outlined in Circular 26/2: the risk is borne solely by the policyholder; cooperation between European Union supervisory authorities does not apply; the policyholder may request a change of custodian at any time, with the new custodian being chosen from among banks already party to a deposit agreement. It also includes a statement regarding the policyholder's participation in the appointment of the custodian, or their notification.

February 1, 2026, is the date of the circular. Its text does not specify an effective date or the categories of contracts concerned. If your contract involves a custodian located outside the EEA, the special declaration is the document to read carefully before signing.

What the custodian does not change

The custodian operates within the framework designed to mitigate the insurer's insolvency. It does not act on market risk. In a unit-linked contract, the investment risk is borne exclusively by the policyholder (Circular Letter 26/1, dated 01/02/2026).

For a dedicated fund, the policyholder only has the privilege common to all insured parties, and the assets are the property of the insurer (same circular, point 7.3.4).

Numerical example (fictitious profile)

Situation. A hypothetical policyholder reads in their insurer's public documents that the technical provisions relating to all their unit-linked commitments amount to €800,000,000. This figure is hypothetical, as is its scope.

Issue. He wants to know the limit that applies to cash held in accounts not covered by a deposit agreement.

Strategy. Apply the ceiling of 5 % for technical provisions set out in circular letter 16/9, assuming that the basis is the set of commitments in units of account.

Result. These funds cannot exceed €40,000,000. This is a maximum, not an automatically authorized amount: the limit related to your net credit balance is added to this, and the limit is overall. This figure is a guideline. It does not represent the portion of your contract that would be recovered in case of difficulty.

CALCULATION: 800,000,000 × 5 % = 40,000,000. The €800,000,000 is an assumption of the fictitious profile, as is its scope (commitments in units of account).

Questions to ask before signing

• Which bank is the custodian, and is it established in the EEA?
• If it is outside the EEA, does the contract include the special declaration signed by you and the insurer?
• What type of fund is it: dedicated fund, specialized insurance fund or collective fund?

What changes depending on your situation

• The bank's location. Within the EEA or outside the EEA: the conditions are not the same.
• Your subscriber category. It determines the regime for a depositary outside the EEA.
• The type of funds. For a dedicated fund, the policyholder only has the privilege common to all insured parties.
• The date the contract was issued. It determines the applicable circular for investment rules (circular 26/1); for circular 26/2, the text does not specify.

These points are examined on a case-by-case basis. No result is guaranteed in advance.