Luxembourg life insurance: what CAA Circular Letter 26/1 changes

A text that takes over from Circular Letter 15/3

The Commissariat aux assurances (CAA⁠), the Luxembourg insurance supervisor, has published CAA Circular Letter 26/1 “on investment rules for life insurance products linked to investment funds”, dated 1 February 2026. It is based on Article 53(2) of amended CAA Regulation No 15/03 of 7 December 2015. Under that provision, the technical provisions of a contract linked to a unit-linked fund must be represented “as closely as possible” by the reference units or assets.

The text keeps the architecture of Circular Letter 15/3 of 24 March 2015, as amended in 2019. It covers contracts in which the policyholder alone bears the investment risk, and mixed contracts, which also include funds with a guaranteed return.

It applies to contracts issued on or after 1 February 2026. Contracts and dedicated internal funds that existed before that date remain governed by the investment rules in their annex, drawn up under Circular Letters 95/3, 01/8, 08/1 or 15/3; an amendment can bring them into line with the new rules. Internal funds already notified or authorised continue to operate under their own rules. The text contains no repeal clause, and the CAA still publishes Circular Letter 15/3 among its circular letters.

What does not change

Five policyholder categories. The category depends on the sums invested with the insurer and on the declared movable wealth (fortune mobilière). Category N applies by default. Category A requires €125,000 invested and €250,000 of wealth; category B, €250,000 and €500,000; category C, €250,000 and €1,250,000; category D, €1,000,000 and €2,500,000. The insurer must disregard the declared value if the file gives it reason to doubt it.

Three kinds of internal fund.

• The collective internal fund (FIC) is open to several policyholders. It comes in five types, from N to D, each available to policyholders in the corresponding category.
• The dedicated internal fund (FID) underlies a single contract and has a single manager. It requires, in principle, a minimum premium of €125,000 at subscription and a policyholder in category A or above.
• The specialised insurance fund (FAS) also serves a single contract, but the policyholder chooses each asset in it. It is subject to no premium or wealth condition; its investment limits depend on the policyholder’s category.

The assets of an FID or an FAS remain the insurer’s property: in a liquidation, the policyholder has only the preferential right (privilège) shared by all insured persons (points 7.3.4 and 7.4). This right attaches to the separate estate (patrimoine distinct) formed by the assets covering the technical provisions (amended Luxembourg Act of 7 December 2015 on the insurance sector, Article 118).

The main changes

Product governance. Before defining the target market, the manufacturer carries out a formal, documented assessment of the product’s complexity: options and guarantees, the nature of the underlying assets, the structure of the charges. The more complex the product, the more precise the target market must be. A negative target market is recommended; it is required for structured products, which are regarded as a factor of high complexity.

Structured products held directly. Circular Letter 15/3 admitted them only through an internal or external fund. Circular Letter 26/1 adds them to the assets that can cover a contract. Products “with enhanced guarantees” may account for up to 100% of the contract. They require, among other things, negotiable securities issued or guaranteed by a zone A bank rated at least BBB, and a guarantee of full repayment of the initial investment or an eligible index. For other structured products, the general limit is 0%, unless local legislation permits a higher ceiling. A product indexed to benchmark interest rates is never eligible for a category N policyholder. For categories A to C, these general limits give way to those of Annex 1; in category D, external funds and structured products are admitted without limit.

External funds. “UCITS” (OPCVM) now means only funds that comply with Directive 2009/65/EC. A “UCI” (OPC) category groups the other authorised and supervised funds that are liquid, invest in financial instruments, cap borrowing at 25% of net assets and rule out short selling. An alternative fund can qualify through its own supervision or through a manager authorised under Directive 2011/61/EU. The “liquid fund” (redeemable at least monthly, or listed on a regulated market in the EEA) replaces the “open-ended fund”. Zone A now includes the United Kingdom.

“Level playing field”. Some limits can be raised where the legislation of an EEA State allows policyholders who reside there, or who were able to choose its law, to invest more. The reference is no longer the fund’s country of origin but the policyholder’s State. Alternative funds held directly, whose general limit of 0% could not be raised under Circular Letter 15/3, can now benefit from this local ceiling, but only for liquid funds. The insurer proves the local rule by the texts themselves or by a legal opinion from a local law firm, and repeats this check at regular intervals.

FICs and FIDs. Prior notification to the CAA now applies only to type N FICs. FICs of types A to D must be managed by a single manager and held in a single account with a single custodian. For an FID, a partial surrender that brings the value of the contract below €125,000 means that it must be reclassified and the policyholder informed; a fall caused by the markets calls for no corrective measure.

Key information documents. The reductions in yield shown in the documents required by the PRIIPs Regulation must faithfully reflect reality. Where performance fees affect them significantly, the insurer analyses the “value for money” of the underlying investments concerned (annualised return and volatility, backtesting, distribution of returns).

What to review

• Contractual and pre-contractual documentation for new products, including the investment policy annexes.
• Product governance file: complexity assessment, target market, negative target market.
• Evidence for the “level playing field”: for a policyholder resident in France, the check will in principle concern French law.
• Existing contracts: whether an amendment is advisable.
• Subscription: information on the policyholder’s wealth and objectives, written information on the risks of early surrender.