Antonio Flores (Columnist)
A RECENT Supreme Court ruling (March 2015) has sent shockwaves through the many insurers that are offering single-premium life insurance policies.
Whether named as unit-linked single-premium life assurance policy, life assurance bonds, capital assurance or any other more or less fanciful denomination, any life insurance bond made up solely for the purpose of investment faces one very serious prospect: being declared void by Spanish Courts.
But this ruling has not come from nowhere. For some years, the administrative section of the Spanish Supreme Court has been applying a not too well-known article of the Consolidated text of the Private Insurance Supervisory Act, which states the following:
Article 4. Forbidden transactions and sanction of nullity
It is forbidden for insurance companies, and its conclusion will determine it utter nullity and voidness, the following transactions:
- a) Those that lack actuarial technical base
But what does the term ‘actuarial base’ mean? Simply put, traditional actuarial base or science largely revolves around the analysis of mortality and the production of life tables, and the application of compound interest.
Which is exactly what these ‘life insurance’ policies, for want of a better word, actually lack.
The Spanish highest Court, in declaring the nullity of these contracts in at least 8 rulings, has argued the following:
“Judging by its features, this contract cannot be classed as an insurance policy but a capital investment”.
“In normal insurance death impacts the assurer in such way that, when a claim occurs, it is the company that suffers a loss”
“The blurring of the risk element is, in these contracts, complete and distorts the very nature of an insurance contract”
“If there is no transfer of risk from insured to insurer there is no insurance contract”
“it makes no palpable difference if the insured lives or dies”
“Where age or medical condition –absence of medical questionnaire being symptomatic- are not parameters of any interest, the contract is doubtfully an insurance policy”
“The nature of financial product has been repeatedly concluded by Section 3 of the Supreme Court”
Judging by these conclusions, thousands of contracts signed by expats face a serious risk of nullity: to name a few, Lex Life/Altraplan’ life policies, Nordea’s Capital Managed Plan, Seb-Irish Life’s Spanish Portfolio Bond, Prudential’s Spanish International Prudence Bond, Old Mutual’s Executive Investment Bond, Danske Life/Danica Life…and there is no time limitation to being a claim.
Oh dear this will have many worried and with good reason. The Judge’s ruling is spot on – the lawyers are already rubbing their hands in glee, anticipating some very juicy profits.
Maybe a step towards reform of UK vulture business practices?
I hate to burst your balloon but the biggest vulture funds are US based. As it happens most of the named firms are’nt British at all.
Yup, its all global. All complexity systems, nothing linear.
Spain is the great nullifier. They can nullify your house ownership, nullify your job prospects, nullify your rental income, and now they can nullify your life insurance. Many lives have been nullified in Spain through the stress of it all. Still, it’s nice when the sun shines.
Fred,
excellent comment, loved the kicker at the end.
Forgot to mention that the consequence is that the premiums are to be returned in full to the assured, irrespective of the losses incurred by the investments.
Antonio, excellent, this may stop other dodgy products being sold to those who do not check out what they are buying into.