Publié le, mardi 17 décembre 2019 News
Alternative Investments and Life Assurance
Louvre frequently recommends polices issued by Luxembourg based life assurance companies. There are three compelling reasons for this.
First, stability and expertise. Luxembourg is very stable politically and socially, has a triple A rating plus a well-developed financial services industry with a dedicated insurance regulator. Second, asset security. The Luxembourg policy holder protection regime is one of the strongest globally in case of winding-up of the life assurance company. It is commonly referred to as the “triangle of security” because the life assurance company must deposit all client assets with an independent custodian bank approved by the insurance regulator, the Commissariat aux Assurances. In addition, those assets must be held separately from the corporate assets of both the life assurance company and the bank. The policy holders also hold a “superprivilège” on their assets marked in the permanent inventory which overrides any other right without any exception. The third reason is asset flexibility. The Luxembourg insurance regulator permits a significantly wider range of investable assets than in some other EU states. This is where the interest lies for alternative asset funds.
Recently flows of premiums into alternative investments have been considerable. This is because of the constraints related to distributing such funds to clients directly coupled with the increase of interest in alternative asset classes. As institutions, insurers have no issue in purchasing funds based outside the EU. The client purchases the insurance product. The broker performs the insurance intermediation on behalf of the client and ensures the investment profile is appropriate for alternative investments.
The situations most frequently occurring are:
- Clients wish to access a fund available for institutions so achieve that by subscribing a Luxembourg issued life insurance policy
- A fund promoter has a group of clients interested in the same fund who individually do not meet the minimum subscription amounts, so an internal insurance fund is created as the investment vehicle with lower minimum investment levels
- Certain alternative investment funds being made available in markets where it would not be possible to distribute them directly
Conditions usually apply to ensure diversification and liquidity for capital calls. In order not to block the life policy in the event of surrender or death, the fund must confirm that the fund units are capable of being transferred in kind to beneficiaries.
The attractive combination of a Luxembourg life policy and alternative fund opens a wider investment universe for clients within the security of a policy. The shared long-term time horizon of fund and policy is complementary. The life policy provides long term tax deferral that enables efficient distribution and reinvestment of capital from the fund as well as simplifying reporting issues in many markets.