CAA Circular Letter 26/1: Luxembourg Unit-Linked Rules

What CAA Circular Letter 26/1 is and when it applies

The Commissariat aux Assurances (CAA), Luxembourg's insurance supervisor, published Circular Letter 26/1 on investment rules for unit-linked life insurance products on 28 January 2026. It is listed on the CAA's life insurance circular letters page, with the authoritative text in French (LC 26/1 PDF).

Point 10 of the circular sets the timing. The new rules entered into force on 1 February 2026 and apply to contracts issued from that date. Contracts and dedicated funds that existed before 1 February 2026 continue to be governed by the investment annex attached to the policy under the older circulars: 95/3, 01/8, 08/1 or 15/3. That annex can be amended by addendum to bring the policy under the new rules.

The CAA issued a companion text at the same time. Circular Letter 26/2 amends Circular Letter 16/9 on the deposit of securities and cash, and it is the piece that governs when assets may be held with a depositary outside the European Economic Area (EEA).

Paperjam reports that 15/3 had become partly outdated as products and EU investor protection rules moved on. The Luxembourg insurers' association ACA calls 26/1 a revised version of 15/3 rather than a new architecture, and that matches what the text shows: the structure, client categories and asset catalogue carry over, with targeted changes layered on top.

For the broader case for Luxembourg as a PPLI jurisdiction, including asset segregation and policyholder protection, see our page on Luxembourg PPLI and the triangle of security. This article stays with the investment rules.

Client categories and the thresholds behind them

Everything in the Luxembourg investment regime keys off the policyholder's category. Point 2 of LC 26/1 sorts policyholders into five groups, N, A, B, C and D. Category N is the default. The others require two conditions at once: a minimum amount invested across all the policyholder's contracts with that insurer, and declared wealth in securities at or above a set figure.

These bands are identical to those in the consolidated version of 15/3. The wealth figure is a net measure: the circular counts financial instruments plus bank deposits plus the value of life insurance contracts, minus debts of any kind.

The category determines which internal funds the policy can use and how loose the concentration limits are.

The investment vehicles LC 26/1 recognises

The circular sets out five routes for linking a policy to assets, each with its own eligible asset list, limits and controls (a point Paperjam also summarises).

External funds

Third party investment funds. The definitions now refer expressly to the UCITS Directive 2009/65/EC and the AIFM Directive 2011/61/EU, as CMS notes. Annex 2 sets usage limits per category. UCITS funds can be used up to 100% for every category; non-UCITS and alternative funds face tighter limits for category N. Annex 2 also allows a higher limit where the legislation of the policyholder's EEA country of residence permits it.

Internal collective funds (FIC)

Funds created by the insurer and shared across many policies. There are five types, N, A, B, C and D, open to policyholders of the matching category (point 7.1.1). This is where the most visible change sits, covered below.

Dedicated internal funds (FID)

A fund that backs a single policy, typically run by a discretionary manager chosen with the client. Point 7.3.1 restricts dedicated funds to contracts with a minimum premium at subscription of EUR 125,000, the same floor as before. Type C funds must stay within the Annex 1 asset catalogue, with no global or per issuer limits. Type D funds may invest without restriction in any category of financial instrument and in bank accounts of any kind, including precious metals accounts, but in no other assets. Types A and B keep per issuer and global caps set in Annex 1.

Specialised insurance funds (FAS)

The circular defines an FAS as an internal fund other than a dedicated fund, with or without direct lines, carrying no guaranteed return and backing a single contract. Unlike the FID, it is available to every category, including N. FAS existed under 15/3 as well.

Structured products held directly

New in 26/1. Section 6 explains that the Annex 2 table is no longer limited to external funds and now also covers direct investment in structured products, which is why Baloise describes them as treated like external funds. Section 6 distinguishes two kinds.

• Products with enhanced guarantees (point 6.1) must be negotiable securities, issued or guaranteed by a Zone A bank rated at least BBB or equivalent, carry full capital protection or track a compliant index, be linked to Annex 1 assets, and not be unilaterally redeemable early by the issuer below issue price. Annex 2 allows up to 100% of the contract in these.
• Other structured products (point 6.2) need negotiable form, a Zone A issuer rated at least BBB, and linkage to Annex 1 assets or observable reference interest rates. Annex 2 gives a general limit of 0%, which can be lifted up to the cap set by local legislation in the policyholder's country.

Two further rules matter in practice. A structured product whose return depends on observable reference interest rates can never back a category N contract (point 6.4). And where a structured product tracks alternative funds, the policyholder must give explicit consent by signing an information notice on the specific risks.

Circular Letter 15/3 vs 26/1: what changed

Each row below was checked against the French texts of both circulars.

The ACA summary puts it simply: FIC A to D now get operational advantages once reserved for dedicated funds. Point 7.1.5 still requires each FIC of types A to D to have a single manager and a single bank account or sub account with a single depositary.

One gap worth knowing. CMS observes that the definition of financial instruments was not aligned with Luxembourg's financial sector law on instruments issued using distributed ledger technology, so tokenised securities remain a grey area under the circular.

New policies vs existing policies: the addendum decision

A policy issued on or after 1 February 2026 simply follows 26/1.

For an existing policy, the default is stability. Point 10 keeps it on the investment annex written under whichever older circular applied when it was issued. Internal funds notified or authorised before the new circular keep operating on their notified or authorised rules. External non money market funds authorised before 1 January 2002 under 95/3 with higher usage limits can keep those limits for contracts existing at that date.

The addendum is the bridge. It is an amendment to the policy's investment annex, signed by insurer and policyholder, that moves the policy onto 26/1. Reasons a client might want it:

• The manager wants to hold structured products directly rather than through a fund.
• The policy uses an internal collective fund and the client or manager wants a depositary outside the EEA, which LC 26/2 ties to category A to D policyholders under the new framework.

Reasons to leave it alone are just as concrete. A dedicated fund of type C or D already enjoys broad freedom under 15/3, and the substance of those limits did not change. An addendum reopens documentation, may trigger a fresh suitability or target market check, and in some countries a contractual amendment can raise tax questions about whether the policy has been materially modified. That is a question for tax counsel in the client's country.

A simple test: list what the 15/3 annex stops the manager doing today, then check whether 26/1 fixes it.

What it means for dedicated funds and portfolio managers

For managers running FIDs, the day to day changes are modest. The EUR 125,000 floor, the single manager and single depositary rule (point 7.3.5), and the type C and D freedoms all carry over. Point 7.3.3 requires the investment grids for dedicated funds to be included in the technical file the insurer prepares when it markets the product.

The bigger shift is competitive. A manager who previously needed a dedicated fund to get a non EEA custodian or to avoid a notification step can now consider an internal collective fund of type A to D. That makes a shared model portfolio, run by one manager for a group of sophisticated policyholders, easier to set up. Baloise frames it as a middle path between a bespoke FID and a menu of external funds. For the comparison between a dedicated insurance fund and a separately managed account structure, see IDF vs SMA in PPLI.

The non EEA depositary option comes with strings. Under LC 26/2 the contract terms must place on the policyholder the risks of negligence, fraud or default of the depositary; the policyholder must either take part in choosing it or be informed and accept the choice; both parties sign a declaration on the heightened risks and the absence of EU supervisory cooperation; and the policyholder can ask at any time to change depositary. LC 26/2 also requires that the depositary's home regime has fully implemented Basel III capital requirements to count as comparable.

For structured products, managers gain a direct route but also a governance burden. The circular treats structured products as a factor that raises a product's complexity, and it requires a negative target market for them whether held directly or inside an internal fund.

Documentation and target market duties for brokers and advisors

Section 4 of 26/1 sets the CAA's expectations on product governance and supplements the EU rules in Commission Delegated Regulation (EU) 2017/2358, as CMS notes. The insurer, as product manufacturer, must make a formal, documented assessment of the product's complexity before defining the target market (point 4.1). The target market must consider, at a minimum, factors such as age, family and professional situation, income, knowledge and ability to understand the product, investment objectives and horizon, risk tolerance and capacity to bear losses (point 4.2).

For intermediaries this changes the paperwork in several ways:

1. Category evidence. The insurer must be able to show why a client is category C or D. Expect requests for a signed wealth declaration on the net basis the circular uses, not a gross balance sheet.
2. Target market fit. Distributors should be ready to explain how the client falls inside the target market and outside any negative target market, particularly where structured products are planned.
3. Consents and notices. Paperjam reports that investments in hedge funds, real estate or complex products call for specific risk information and, in some cases, the client's explicit documented consent. Structured products linked to alternative funds require a signed information notice.
4. Depositary declarations. Where a non EEA depositary is used, the LC 26/2 declaration must be in the file.
5. KID review. Section 9 requires reductions in yield in the Key Information Document under Regulation (EU) No 1286/2014 to be shown accurately, fairly, clearly and without misleading the reader. Where performance fees materially affect those figures, the insurer must run a value for money analysis using return and volatility assumptions, backtesting and the distribution of annualised returns at the recommended holding period.

The file now has to connect client category, target market and asset choice in one consistent line.

For families outside the US considering Luxembourg alongside other EEA options, our guides on PPLI for non US persons and international families and Liechtenstein insurance wrappers cover the jurisdiction choice. The jurisdictions hub lists the rest.

A note for US persons

LC 26/1 tells a Luxembourg insurer what it may hold. It says nothing about whether a policy qualifies as life insurance for US tax purposes. For a US taxpayer, that turns on US rules: the diversification requirements of Internal Revenue Code section 817(h) and the investor control doctrine.

The gap can be wide. A type D dedicated fund may invest without restriction under Luxembourg rules, but the Treasury regulations under section 817(h) still cap any one investment at 55% of the account, any two at 70%, any three at 80% and any four at 90%. Likewise, a dedicated fund's terms may let a policyholder influence its investment policy in ways Luxembourg permits, yet that level of influence could jeopardise US tax treatment under the investor control doctrine. Our page on the investor control doctrine covers the US side. Luxembourg permission is not a US safe harbour.

Questions about CAA Circular Letter 26/1

Sources and editorial notes

Primary texts: CAA Circular Letter 26/1 (French), CAA Circular Letter 26/2, consolidated Circular Letter 15/3, the CAA circular letters index and Treas. Reg. 1.817-5. Secondary summaries: CMS Luxembourg, Baloise Life, ACA and Paperjam. Point numbers refer to the French text of LC 26/1; translations are our paraphrases. Only selected Annex 1 and Annex 2 limits are reproduced; check the annexes before relying on a figure.

This article is general information, not legal, tax or investment advice.