Monetizing Life Insurance – A New Asset Class
Traditionally, investment professionals have kept the life insurance world separate from the investment world. Although, recently, a convergence has occurred:
- A sustainable secondary market for life insurance policies has emerged.
- The Life Insurance industry has created new investment-oriented products that leverage the inherent qualities of life insurance.
- Innovators in the capital markets have started combining the proven techniques of their world with life insurance contracts and have created a rapidly emerging new asset class.
Life insurance may now be evaluated alongside other more traditional investment asset classes. The new breed of insurance-linked products and investment solutions provides alternative investment scenarios for individual and institutional investors. This convergence makes for a more accurate and holistic view of life insurance’s role within the context of asset management.
From an investment perspective, a life insurance contract can be viewed like a special form of corporate bond. A life policy is an investment grade corporate promise to pay a defined amount at a point in time determined by an event (death of insured) in exchange for a negative coupon (premiums). This product has many attributes which can be utilized to benefit different types of investors. Each solution takes advantage of distinct asset attributes.
The US market for in-force life insurance is in excess of $20 Trillion and the benefits may include: predictable IRR, pass through investment grade ratings, tax advantages, leverage plays and uncorrelated performance – all contributing to its rapid emergence as a tool used by modern portfolio managers.