German court ruling favours policyholders

Swiss insurer Zurich says it is satisfied that a July 26 ruling by a German court regarding compensation to life policyholders will not lead to its having to unwind a portfolio transfer which has been the subject of a long-running legal dispute.

The German Federal Constitutional Court in Karlsruhe ruled that the legal framework upon which a 1988 transfer of assets was based was effectively faulty and unconstitutional, and that the law has to be changed to favour policyholders. However, it also decreed that old portfolio transfers will not be affected. "This judgement provides for legal clarity and draws a line under a long-lasting court procedure," says Zurich.

The original case stemmed from insurer Deutscher Herold, which Zurich acquired in 2002. In 1988 German regulators forced Deutscher Herold to split its life business from its general insurance and savings and loans businesses. The result was a controversial portfolio transfer to a new legal entity, with unrealised capital gains (hidden reserves) staying within the company and not going to policyholders. This was contested unsuccessfully by a policyholder, with the case going through various courts and appeal courts.

The latest ruling means German legislators must have new laws in place to enable policyholders to participate in future hidden reserves by the end of 2007.