Investment principles

(1) Insurance undertakings must invest all their assets in accordance with the prudent person principle. In doing so, the following requirements must be complied with: 1. insurance undertakings may only invest in assets and instruments whose risks they can a) adequately identify, measure, monitor, manage, control, and report, and b) adequately take into account in the assessment of their overall solvency needs under section 27(2), point 1; 2. all assets must be invested in such a way as to ensure the security, quality, liquidity, and profitability of the portfolio as a whole; in addition, the localisation of the assets must ensure their availability; 3. assets held to cover the technical provisions must also be invested in a manner appropriate to the nature and duration of the undertaking's direct insurance and reinsurance liabilities; these assets must be invested in the best interest of all policyholders and beneficiaries, taking into account the investment policy, insofar as it has been disclosed; 4. in the event of a conflict of interest, it must be ensured that the investment is made in the interest of policyholders and beneficiaries; 5. the use of derivative financial instruments is permissible only insofar as they contribute to a reduction of risks or facilitate efficient portfolio management; this condition is not met by transactions in derivative financial instruments intended solely to build up pure trading positions (arbitrage transactions), or where corresponding holdings of the underlying securities do not exist (short sales); 6. investments and assets not admitted to trading on a regulated financial market are held at prudent levels; 7. investments must be appropriately mixed and diversified in such a way as to avoid excessive reliance on any particular asset, issuer, or group of undertakings, or on any geographical area, and excessive risk concentration in the portfolio as a whole; and 8. investments in assets issued by the same issuer, or by issuers belonging to the same group, must not lead to excessive risk concentration.
(2) Subsection (1), points 5 to 8, does not apply to life insurance contracts where the investment risk is borne by the policyholder, subject to the second sentence, point 3. In addition to subsection (1), points 1 to 4, for these contracts, in respect of the assets concerned: 1. where the benefits under a contract are directly linked to the value of units in undertakings for collective investment in transferable securities within the meaning of Directive 2009/65/EC, or to the value of assets contained in an internal fund held by insurance undertakings, generally divided into units, the technical provisions for those benefits must be represented as closely as possible by the units concerned or, where no units have been established, by the assets concerned; 2. where the benefits under a contract are directly linked to an equity index or to a reference value other than that named in point 1, the technical provisions for those benefits must be represented as closely as possible by the units representing the reference value; where no units are established, the provisions must be represented by assets of appropriate security and marketability, which correspond as closely as possible to the assets on which the particular reference value is based; and 3. where the benefits named in points 1 and 2 include a guarantee of investment performance or another guaranteed benefit, subsection (1), points 5 to 8, applies to the assets held to cover the corresponding additional technical provisions.
(3) Where insurance relationships belong to a separate portfolio of an insurance undertaking in a state outside the member states or contracting states, subsections (1) and (2) apply, unless foreign law prescribes otherwise.