Think Diversification, Think Insurance-based Solutions
07 November 2022
Diversify and protect your wealth with insurance-based solutions as an alternative
As markets continue to whipsaw between inflation and recession, consider further diversifying your total wealth with alternatives such as insurance-based solutions. Shirley Low Storchenegger, Managing Director and Head of IPG Howden Switzerland, offers her insights.
Why should clients now consider further diversifying their asset allocation?
Having worked with institutional clients and Ultra HNWIs, I cannot stress enough the importance of a diversified asset allocation for our clients, especially in this market where we see both the value of bonds and equities declining at the same time. As a result, there has been a huge debate around the traditional 60/40 asset allocation among many professional asset managers. Coupled with surging inflation, market risks and a possible recession, there is an urgent need for investors to diversify and consider alternatives to traditional asset classes.
How can clients position their wealth for resilience?
One strategy is to diversify with asset classes that are less correlated to the market, for example, insurance-based solutions. We are seeing more clients, from family offices to HNW individuals, factoring insurance-based solutions into their overall asset allocation.
Traditionally, insurance-based solutions are seen through the lens of protection or legacy. In these challenging times, these solutions can reduce your exposure to market risks, act as a powerful buffer and protect your assets to give you peace of mind. Insurance-based solutions offer lower market correlated returns and asset optimisation through a powerful multiplier effect.
For instance, a 50-year-old who sets aside USD 2 to 4 million may see his life cover of USD 10 million, creating a buffer of USD 6 to 8 million for his total wealth. Simply put, insurance-based solutions help make your existing wealth work harder for you and your next generations.
Why are Ultra HNWIs building a diversified insurance portfolio?
Many Ultra HNWIs have gone from a single insurance-based solution to building diversified portfolios: a basket of different solutions from different insurers and jurisdictions to hedge their geographical concentration risk similar to the way they diversify their portfolio.
With this trend, we are seeing Ultra clients placing large deals in insurance-based saving solutions that offer lifetime principal protection upon a life event, actively or passively managed with zero floor structures while tracking the S&P 500 index to give them an additional advantage when the market recovers.
What advice would you offer to clients looking to diversify?
We recommend allocating 5-15% of your total assets into insurance-based solutions. Start as early as possible, as the multiplier factor is determined by your age, residency and health. In a nutshell, understand that insurance-based solutions are a part of your total wealth and use it as a tool to optimise and protect your wealth.
Shirley Low Storchenegger was a private banker for over ten years before joining the asset management industry. She is experienced in advising private clients as well as institutional clients from large pension plans to family offices. Shirley joined IPG Howden to lead the expansion of its Swiss business nearly five years ago.