Viridium Group acquires life insurance companies and portfolios or enters into service agreements for the management of closed life portfolios. Like any other life insurance company, the life insurance businesses acquired by Viridium operate fully consistent with all regulatory and contractual obligations. The key difference – compared to “conventional” life insurers – is that Viridium’s life insurance companies do not sell new insurance policies. They focus exclusively on the efficient management of their existing life insurance portfolios.
This business model, which is often referred to as “run-off”, is still comparatively new in Germany. Viridium’s approach is based on a simple underlying concept: The sole focus on the operational and financial requirements of existing policyholders enables life insurance policies to be managed much more efficiently.
Viridium’s consolidation platform approach is fully aligned with policyholders’ economic interests, as they benefit directly from the improved efficiencies and the associated lower administrative costs. The relevant regulatory framework, especially the regulation on profit sharing rules (“Mindestzuführungsverordnung” or “MindZV”), ensures in a transparent and reliable way that policyholders participate in the profits generated – including the cost result (as part of the so-called “other result”).
Success factors of the Viridium model
The improved management of life insurance policies is based on a combination of several success factors:
- Exclusive focus on the management of closed life insurance portfolios, combined with reduced complexity in the context of a specialised business model
- Significant investments into the migration of life insurance policies to modern and scalable IT platforms
- Comprehensive optimisation of processes and costs
- An asset management strategy designed to significantly reduce the exposure to market volatility
Having acquired and integrated four life insurance companies since 2014, Viridium benefits from significant economies of scale and in-depth specialist expertise.
Policyholders benefit directly from the Viridium model
Policyholders of Viridium’s life insurance companies benefit directly from Day 1: The costs of administrating the life insurance policies are reduced immediately after the acquisition by Viridium compared to the cost level under prior ownership.
The immediate and permanent cost reduction has as positive impact on the gross surplus of the individual life insurance company. This improves the allocation to the provision for premium refunds (“Rückstellung für Beitragsrückerstattung” or “RfB”) and thus the profit participation of policyholders from Day 1, as the profit sharing rules (MindZV) determine that policyholders participate with at least 50 percent from this profit source.
Another positive effect results from the fact that Viridium focuses exclusively on the requirements of existing policies: Marketing and sales expenses – pertaining to the origination of new life insurance policies but borne by all policyholders of the insurance company via the “other result” – are essentially eliminated within its life insurance companies. The discontinuation of these activities leads, in turn, to an increase in the gross surplus, with existing policyholders again benefiting via the profit sharing rules (MindZV).
Tangible advantages for customers
- Stable recurring returns: The success of Viridium’s efficient closed life management of life insurance companies ensures stable and recurring returns to policyholders, despite the challenging capital market and interest rate environment.
- Significantly higher profits for policyholders: Cost reductions, improvements in the investment portfolio and the stabilisation of the so-called “risk result” achieved in Viridium’s business model lead to higher gross surpluses and, therefore, higher policyholder participation via the profit sharing rules (MindZV). The increase in profit allocation to policyholders – beyond guarantees and allocations to the additional interest reserve (“Zinszusatzreserve”) – are significant:
- Special bonuses for policyholders based on successful modernisations: The execution of modernisation projects allows the release of potentially existing provisions for administrative expenses. For example, Entis Leben was able to meaningfully increase allocations to the provision for premium refunds (RfB) in 2017 and 2018. Additionally, two special bonuses were granted to customers: In 2019, a total of €37 million were credited to policyholders, followed by another €50 million in 2021. On average, policyholders at Entis Leben received an additional credit of more than €1,000 per policy.
- Increased long-term financial stability: The improved profitability and focus on a sustainably strong capital base under Solvency II are important features of Viridium’s business model. All life insurers that are part of the Viridium Group are capitalised above the level that the Federal Financial Supervisory Authority (BaFin) considers necessary for permanently stable operations even for long and sustained crisis scenarios. Viridium’s life insurance companies are financially highly resilient and operationally robust.
- Protection against cost risks: Policyholders are protected against the potential risk of rising costs per policy in a shrinking closed book, as Viridium is providing the servicing of policies at a fixed cost per policy (subject to potential index-based inflation adjustment). The risk of rising administration costs per policy is therefore borne by Viridium and not by policyholders.
- Sustainably improved operating stability: Significant investments into portfolio management systems – including portfolio migrations to modern and scalable IT platforms – and comprehensive process and cost optimisations ensure that the businesses remain stable and viable in the long term.
Low lapse ratios
Lapse ratios, i.e. early surrenders by policyholders, are an important indicator of whether policyholders believe that their policies are safe. Since becoming part of Viridium, lapse ratios have consistently declined across all companies:
The lapse ratios of Viridium’s life insurance companies also declined more than the market average in the period following the ownership change. Across Viridium, the most recent (2020) average lapse ratio of all four life entities stands at 2.4%, which is below the market average of 2.6% (source: Statista / GDV).
Policyholder rights remain unchanged
The acquisition of life insurance portfolios by Viridium – whether through legal entity sale or portfolio transfer – transfers the life insurance policies with all their associated rights and obligations. The rights of policyholders remain unchanged for the entire duration of the contracts, without any need for policyholders to act. Apart from a few exceptions, service contacts, addresses and contact details remain unchanged. Continuity combined with reliability are invaluable assets – for both sides!
Distribution partner terms remain valid
When a life insurance company is acquired by Viridium, generally all relevant agent relationships remain in place. This includes all agreed commissions for distribution partners (commissions for sales, premium increases and portfolio maintenance), which remain unaffected by the acquisition.
Detailed regulatory oversight
To date, Viridium has acquired four life insurance companies following extensive examination by BaFin: Heidelberger Leben, Skandia Leben, the portfolio of Protektor Lebensversicherungs-AG (former portfolio of Mannheimer Leben, today Entis Leben) and Generali Leben (today Proxalto Leben). A key priority for BaFin is to ensure that the rights of policyholders are fully protected and the contracts are permanently fulfilled.
The sale of a life insurance company therefore needs to pass a detailed regulatory review, which is conducted in order to safeguard the interests of policyholders.
For example, in its review of Viridium’s acquisition of Generali Leben, BaFin came to the following conclusion after completing the ownership control procedure (BaFin webpage from 9.4.2019, translated):
“BaFin has reviewed that, for the planned acquisition of Generali Lebensversicherung AG by Viridium Group, the interests of the policyholders are adequately protected. […] In addition to the financial resources of the acquirer, the technical and operational implementation is particularly important. BaFin must be convinced that the acquirer, among others, has appropriate structures and concepts in place for continuing and developing the company.”*