For a number of years insurance companies have been granting loans to finance large real estate transactions. The low rates of interest currently to be obtained in Germany on real estate transaction financing are increasingly leading insurance companies to finance real estate transactions in foreign countries with higher margins than those currently available in the German market. The loans are frequently financed out of funds received by the relevant insurance companies under life assurance policies; in respect of such life assurance policies the insurance companies usually have promised a guaranteed rate of interest to the insured individuals. Thus, it is essential for real estate financing by insurance companies to generate returns which are at least equal to the guaranteed interest rates under life assurance policies.

Like the financing for German transactions, cross-border real estate financing transactions must be compliant with the regulatory framework applicable to insurance companies, in particular the German Insurance Supervision Act (Versiche-rungsaufsichtsgesetz), the German Investment Regulation (Anlageverordnung) and pronouncements (Verlautbarungen) of the German Federal Financial Supervisory Authority (BaFin). Financing transactions which involve insurance companies from other countries must also comply with the legal framework of the relevant foreign jurisdictions. Further, a number of additional requirements must also be observed.

Granting real estate loans in foreign jurisdictions

When embarking on this type of transaction it is essential to ascertain at an early stage whether insurance companies which do not hold a banking licence are authorised to grant real estate loans in the relevant foreign jurisdiction. Some jurisdictions may make the granting of loans contingent on criteria such as notifying national regulatory/supervisory authorities or application for a tax ID. In some cases, a specific structure may be necessary. For example, in some jurisdictions insurance companies may not be allowed to act as “original lender”, though they may be allowed to acquire loans which have been originally granted by a bank.


Under German supervisory law insurance companies are entitled to grant loans under a documentation governed by foreign law; however, the specific provisions of German supervisory law have to be observed. This normally makes it essential for each of the insurance companies involved to grant a separate loan, to be able to freely transfer its loan and accelerate its loan once certain “major” events of default have occurred. Hence, acceleration of a loan granted by an insurance company under such circumstances must not be subject to a majority decision of the lenders. In particular, BaFin currently holds the view that the principles set out in Circular (Rundschreiben) no. 126 of the Association of German Mortgage Banks (Verband deutscher Pfand-briefbanken) dated 17 December 2012 – according to which German mortgage banks can, under certain preconditions, accept majority lender clauses – do not apply accordingly to insurance companies.


Mortgages are of great importance in real estate financing transactions. In real estate financing transactions involving insurance companies an individual first ranking mortgage needs to be granted in favour of each insurance company. Alternatively, where one of the financing entities is a German bank which operates a refinancing register, it is possible to create one single mortgage in favour of this German bank to secure all the loans. However, this requires the relevant bank to hold the mortgage as a security trustee and the claims for the transfer of such mortgage of the individual insurance companies to be entered in the refinancing register. The latter is a feasible option if the foreign jurisdiction in which the property to be financed is located does not provide for two or more first ranking mortgages and if there are no other legal alternatives which would comply with regulatory/supervisory requirements. However, in connection therewith, additional issues may arise. Owing to the link between the mortgage collateral and the loan receivables (accesority (Akzessorietät)) in some jurisdictions there may be a necessity that all loan receivables are held by the relevant bank, in particular if parallel debt structures may trigger tax issues.

Summary and outlook

Cross-border financing through insurance companies is more complex than national transactions. Ascertaining what requirements exist under the applicable jurisdictions at an early stage is therefore very important. Also, it is advisable to get the guarantee asset trustee (Treuhänder für das Sicherungsvermögen) of the insurance companies involved prior to signing the relevant documentation so that any concerns which may be raised by the guarantee asset trustee can be taken into account when preparing the loan documentation.

The regulatory framework for financing by insurance companies will change when Solvency II comes into effect in 2016. Solvency II will presumably introduce a number of changes which will make it easier for insurance companies to grant loans for the financing of real estate transactions.