Keywords: credit portfolio transactions, insurance,
Insurance companies are playing a larger role as purchasers in the credit portfolio transactions market than they used to. There are both legal and economic reasons behind insurance companies' entrance into this market as both purchasers and sellers. Some insurance companies want to redesign their current risk and capital resource profile, while others want to purchase already extended real estate loans with higher interest rate accruals to be able to guarantee the current assumed rate of interest for life insurance. For banks, credit portfolio transactions are already today part of the mix for managing existing risks and in some instances, a successful line of business. This market will be further strengthened by the recently published government draft for the "Act on the Implementation of the Directive on the Access of the Activity of Credit Institutions and the Supervision of Credit Institutions and Investment Firms, and the Regulatory Alignment of the Regulation (EU) on the Supervisory Requirements of Credit Institutions and Investment Firms (CRD IV-Umsetzungsgesetz, BR Drs.510/12)" (Gesetz zur Umsetzung der Richtlinie über den Zugang zur Tätigkeit von Kreditinstituten und die Beaufsichtigung von Kreditinstituten und Wertpapierfirmen und zur Anpassung des Aufsichtsrechts an die Verordnung (EU) über die Aufsichtsanforderungen an Kreditinstitute und Wertpapierfirmen, CRD IV-Umsetzungsgesetz, BR Drs.510/12) (hereinafter the "Government draft"). In the following sections, various insurance-related topics will be described.
Insurance companies as purchasers
Insurance companies may only carry out "insurance transactions" and transactions that have a direct connection to these insurance transactions. This raises the question whether, from a regulatory perspective, insurance companies can actually purchase credit portfolios on the secondary market. Insurance companies can make investments for their tied assets if the general requirements for security, liquidity and profitability are met pursuant to section 54 German Insurance Supervisory Act (Versicherungsaufsichtsgesetz, VAG). Which investment vehicles are available to be used in this market is more clearly defined in the Investment Ordinance (Verordnung über die Anlage des gebundenen Vermögens von Versicherungsunternehmen, AnlV). When considering a secondary purchase of a credit portfolio, special consideration should be given particularly to the investment opportunity of receivables collateralized by a mortgage pursuant to Section 2 paragraph 1 no. 1 AnlV. Furthermore, the restrictions of the German Banking Act (Kreditwesengesetz, KWG) must also be considered if the contemplated loan transactions are subject to authorization. Pursuant to Section 2 paragraph 1 no. 4, paragraph 6 sentence 1 no. 4 KWG, insurance companies are not considered to be credit institutions if the "banking" transactions carried out are transactions specifically carried out by insurance companies. Consequently, in accordance with the KWG, insurance companies may grant new loans with no authorization required in the context of the investment of tied assets. Regarding the transfer of collateral under the current legislation, mortgage transactions can be entered in a funding register in accordance with Sections 22a et seq. KWG (to save transfer costs) and the purchaser can be granted an insolvency-proof position. Pursuant to the currently valid version of the law, however, insurance companies are not directly authorized to act, so loan transactions must be structured to make use of Sections 22a et seq. KWG. The amendments planned for in the Government draft will bridge this gap. In accordance with the amendment to Section 1 paragraph 24 and Section 22a paragraph 1 KWG, insurance companies will be allowed to directly use the funding register. As a consequence, credit portfolio transactions will be considerably more simple and cost-efficient for insurance companies. It is expected that the amendment to the act will come into force early 2013.
Insurance companies as sellers
As the seller is a private insurance company active in the life insurance sector, the question arises whether Section 203 paragraph 1 no. 6 German Penal Code (Strafgesetzbuch, StGB) applies in the context of the transfer of loan receivables by such an insurance company. Section 203 imposes a penalty on the unlawful disclosure of the secrets of another by members of certain insurance companies. This question is decisive not only against the background of a potential punishability of the persons involved. A violation of Section 203 paragraph 1 no. 6 StGB, as a civil law consequence, nullifies the underlying legal transaction. According to a respected older legal opinion, the obligation of secrecy of an insurance company also covers, for instance, information on the amount of the loan, the payment conditions, possible outstanding payments as well as financial problems. In the following sections, arguments are listed that speak against the applicability of Section 203 paragraph 1 no. 6 StGB to credit information.
Section 203 paragraph 1 no. 6 StGB makes unlawful and punishable the disclosure of a secret of another, in particular, a secret which belongs to the sphere of personal privacy or a business or trade secret, which was confined to or otherwise made known to him in his capacity as a member of a private health, accident or life insurance company or a private medical invoicing service.
It is questionable, however, if Section 203 paragraph 1 No. 6 StGB covers only information that becomes known to the insurance company in its capacity as insurer, that is, personal data related to signing and maintaining insurance contracts, or if Section 203 paragraph 1 No. 6 StGB also covers information that the insurance company receives in connection with its activity as a creditor. After all, pursuant to Section 54 paragraph 2 no. 1 VAG, the tied assets can be invested (inter alia) in loans. A type of allowed capital investment by insurance companies is the "granting of money loans" according to Section 1 paragraph 1 sentence 2 no. 2 KWG. Accordingly, in the context of their typical investment activities, insurance companies carry out "bank transactions." They, however, are not considered credit institutions in line with the KWG because the notion of protection that predominates the KWG is already part of regulatory scheme covered by the insurance supervisory authority. It is decisive for a review in the context of Section 203 paragraph 1 No. 6 StGB to define the prote ctive purpose of this Section. Section 203 paragraph 1 No. 6 StGB exclusively refers to members of private health, accident and life insurance companies. It does not, however, cover members of other insurance companies. One reason for this difference is the purpose and scope of Section 203 paragraph 1 no. 6 StGB, which aims, inter alia, to provide comprehensive protection of medical professional secrecy and, thus, extend professional secrecy to those areas of certain private insurance companies.
The protective purpose of the provision, therefore, depends on the nature of the information available at the insurance companies. The requirements of Section 203 paragraph 1 no. 6 StGB are not impinged upon if an insurance company passes on loan information in connection with the transfer of a credit portfolio, as this information is not covered by the protective purpose of the provision.
Another argument for the inapplicability of the provision is the fact that equal facts would be dealt with in different ways.
The prevailing opinion in literature is that Section 203 StGB is not applicable to private and cooperative banks. Moreover, the XI. Civil Senate of the Federal Supreme Court (Bundesgerichtshof, BGH) held in a decision dated February 27, 2007, that the effectiveness of the assignment of a claim should not be impaired by a credit institution's possible violation of its data protection and secrecy obligations.
Rather, information that banking secrecy covers not the same "secrecy" protected by Section 203 StGB. Since the information that private credit institutions and cooperative banks must keep is confidential under the requirements for banking secrecy and is not covered by Section 203 StGB, and since there are no identifiable substantive grounds for differentiating between credit institutions and savings bank on this point, this interpretation of Section 203 StGB should apply with equal force to savings banks governed under public law in order to avoid conflicting interpretations.
If an insurance company governed under private law, however, discloses data that (i) is non-insurance-related, (ii) solely relates to loan/credit information that it received in connection with its investment activities and (iii) does not concern its own policy holders, then its activity is comparable to that of a private bank and it should be treated as such. In this instance, as already indicated, the applicability of Section 203 paragraph 1 no. 6 StGB would not be appropriate.
Life insurance as security
In its decision of February 10, 2010 (VIII ZR 53/09), the BGH had to decide on the admissibility of an assignment of commission claims of a self-employed insurance agent to a third person. As is always the case with assignments of claims, it could be inferred from Section 402 BGB in the constellation to be decided upon that there is a basic obligation to provide the assignee with sufficient information to allow him to lodge a claim, and to deliver the certificates serving as a proof of the claim. As far as commission claims are concerned, such information contains almost inevitably personal data of the policy holders such as their name, address, date of birth as well as the information on the type and scope of the insurance taken out. The passing on of such information may, however, conflict with Section 203 paragraph 1 no. 6 StGB.
The BGH held that the passing on of the personal data of a self-employed insurance agent to a third person without the policy holder giving his consent, falls into the application area of Section § 203 paragraph 1 no. 6 StGB, and the assignment is, therefore, ineffective. The decision did not treat the admissibility or assessment of credit portfolio sales involving insurance companies, and therefore does not provide any insight on this topic. Nevertheless, one may argue from the broader context provided by this decision that, if assignments of life insurance claims are available as securities in credit portfolios which are to be transferred in connection with the transaction, these are to be assessed as bank securities and fall out of the protective area of Section 203 StGB for the reasons explained.
As long as an insurance company does not disclose insurance-related data in connection with a transfer of a credit portfolio, but information solely related to credits that a commercial bank as well would pass on in connection with a transfer of a credit portfolio, the conditions of Section 203 paragraph 1 no. 6 StGB are not met.
Based on the available reasoned opinion in former literature, and due to the scope of consequences of a possible violation of Section 203 paragraph 1 No. 6 StGB, it may be beneficial to back up this question with an expert opinion.
Originally published November 8, 2012
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