MIAMI – In a time of long low interest rates, owners of insured companies should consider alternative investment strategies to increase returns, says a panel of experts.
By investing in structured financial vehicles beyond traditional investment in real estate, owner owners can potentially achieve significantly higher investment rates and still guarantee the return on the invested principal, they say.
When caught insurance companies became popular in the 1970s and 1980s, interest rates were so high that the owners could receive significant investment income from traditional safe investments, such as short-term bonds and other interest-rate investments, says Arthur G. Koritzinsky, CEO, captive solutions at Marsh USA. Inc.
Since the 2008 financial crisis, interest rates have remained in the low simple figures, which has led to significantly lower returns from conservative investment vehicles favored by captive owner, he said on Friday during the session of the World Captive Forum, which sponsored by Business Insurance in Miami.
But alternative investments like structured forward deposits give the caught owners a chance to give better returns, says Koritzinsky. 1
A typical structured futures fee would run for a five-year period guaranteeing repayment of the principal and the higher of 1% per annum or return on an agreed credit index, says Philippe Combescot, CEO, financial institution of BNP Paribas Securities Corp. In New York.
The indexes used can range from S & P500 to Morningstar Stockpickers to indexes that track more asset classes and regions, he said.
Captive owners can draw a credit rating against deposits if they need to pay a significant claim But they must be comfortable with the credit risk of the financial institution providing the structured forward accounts before the investment is made, Combescot says.
"If you can get comfortable with the credit risk, you can't make it worse than 1% per year," says Mr. Koritzinsky of Marsh.