Creating Tax-Free and RBC Efficient Equity Position

High reward, high risk?

Insurance companies commonly attempt to increase portfolio yield by increasing allocations to higher risk investments. If the investment performs as desired the associated taxes reduce returns. Once the position is entered it may not be exited without paying tax on gain. Riskier investments also carry a higher risk-based capital (RBC) reserving charge. So, to enter the higher risk investment position the insurance company needs to reserve for the risk, allocate the principal, and then hope the investment performance compensates for the risk based capital reserving lockup, the investment risk itself, and the tax drag. There is another way.

A different strategy

Insurance Company Owned Life Insurance (ICOLI) is routinely used by carriers to create tax-free and RBC efficient equity positions that increase yield without increasing risk.  ICOLI offers investments from a wide array of asset managers and includes traditional equity and fixed income fund options, nontraditional asset classes, and fixed or general account options. The ICOLI asset grows tax-deferred and those gains are tax-free if the contracts are never surrendered. Fund reallocations can be made at the request of the purchaser and are tax-free. The NAIC sets the RBC charge to 0% for life and health carriers and 5% for P&C carriers. Side by side, an ICOLI allocation can outperform on balance sheet investments.

Variable life insurance products are long-term investments and may not be suitable for all investors. An investment in variable life insurance is subject to fluctuating values of the underlying investment options and it entails risk, including the possible loss of principal.


Our Team

Our team is committed to providing critical consulting to insurance carriers to evaluate insurance-based investment strategies. To make an appropriate recommendation we analyze carrier investment style and philosophy, investment risk, investment tax implications, risk based capital reserving requirements, cash flow constraints, asset accounting, purchaser liquidity needs, and rating agency impact.

Let us model your potential yield enhancement.  Please reach out or schedule a call via this link.


Jacob Bosacki, JD
Senior Consultant
(920) 819-4365



About Mullin Barens Sanford Financial

Through a powerful combination of independence and experience, Mullin Barens Sanford Financial and Insurance Services (MBS Financial) is a leading consulting firm that assists companies with 409A and other executive benefit needs.

Disclaimer: The materials are designed to convey accurate and authoritative information concerning the subject matter covered. However, they are provided with the understanding that Mullin Barens Sanford does not engage in the practice of law, or give tax, legal or accounting advice. For advice in these areas please consult your appropriate advisors.

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