Some of the largest institutional investors in Germany are insurance companies and pension funds. Prior to Solvency II, both large and small German insurance com-panies as well as German pension funds were subject to the German Act on the Supervision of Insurance Undertakings (Versicherungsauf-sichtsgesetz, or VAG) and the German Regula-tion on the Investment of Restricted Assets of Insurance Undertakings (Anlageverordnung, or AnlV). These German institutional inves-tors were required to invest in accordance with the Act and the Investment Regulation.

After the recent introduction of Solvency II, large insurance companies are no longer subject to the German Investment Regulation. Under Solvency II, they now have to invest according to the “prudent person principle”. However, the German regulatory authority, the Federal Finan-cial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, or BaFin), has yet to publish much guidance on what exactly the “prud