Guarantee Fund (Garantiefonds)
A guarantee fund is a statutorily mandated protection scheme that grants policyholders a basic level of protection in the event of a life insurer's insolvency.
Concept
A guarantee fund (in Germany organized as the life insurers’ protection fund, Protektor) is a statutorily mandated protection scheme that, in the event of a life insurer’s insolvency, secures a basic level of protection for the claims of affected policyholders by taking over and continuing the insolvent insurer’s contracts or otherwise securing the claims.
Financing
The guarantee fund is financed through contributions from all life insurers required to participate, which regularly must contribute a certain proportion of their technical provisions; if needed, when the fund’s ongoing resources are insufficient to handle an insolvency event, additional special contributions can be levied on participating insurers.
Scope and Limits of Protection
The protection provided by the guarantee fund generally relates to the contractually guaranteed minimum benefits and is in some cases capped at certain maximum amounts; it serves primarily to prevent a complete loss of confidence in the life insurance industry in the event of a single provider’s insolvency, and thereby complements, but does not replace, the preventive measures of ongoing insurance supervision.