EP49 - Why Luxembourg's Insurance Wrapped Funds Change How Banks and Insurers Work Together
I often get asked a question about investment, and it points to something that makes Luxembourg genuinely different in the world of investment-linked life insurance. We can create a fund wrapped directly inside the insurance contract, and most other jurisdictions can't offer that.
In this Episode:
Francois Jacquemin explains why Luxembourg's ability to wrap a fund inside an insurance contract gives banks and insurers a genuine partnership advantage across the EU and EEA.
To understand why that matters, consider how investment normally works. Someone goes to their bank and says they want to invest. The bank has an asset manager and a range of funds, so the client buys units, whole or partial, of one of those funds. That unit sits in an investment account on the side. What the client doesn't see is everything that has to exist behind that transaction. A fund is a legal structure, and a heavy one. It needs governance, and the asset manager is only a small piece of that larger structure.
An insurance company can create a comparable fund without building the entire governance apparatus a standalone fund requires. It still gets unitized, and those units are still made available, but only to the policyholders of that specific insurance contract.
That's where the conversation with a bank usually shifts. Their instinct is often to see this as competition. Why would they sell an insurance product built around a fund that isn't theirs? My answer is that we're not competing with them at all, because we're not the asset manager. The bank keeps that role, or one of their divisions does. The client's money stays exactly where it always was, in an account at that bank. All that changes is that to access this particular fund, the client needs to hold our insurance contract, which wraps a unit of it.
For the bank, the long-term value is obvious: they keep and deepen the relationship with their client. But there's a more specific advantage too. Through this structure, the bank can develop a strategy it could never offer through its standard fund lineup. Maybe they don't think the market for that strategy will ever reach the scale needed to justify building a full traded fund. Their clients still want that exposure, though, and now there's a way to give it to them without the bank taking on any of the structural cost. They keep doing what they already do, advising on the investment, and they get paid for it.
That's what makes this a genuine win for everyone involved. The bank makes money and offers something distinctive. The client gets access to a strategy they actually wanted, in the short and long term. And we, as the insurer, build a partnership rather than a rivalry.
What makes this especially valuable is that it isn't confined to Luxembourg. Because of how the structure works, it can be extended to partnerships with institutions anywhere in the EU or the EEA. It's a competitive advantage tied to the place itself. We're not claiming to be the only ones capable of building this kind of structure, but we've built a whole ecosystem around it, one that's designed to support spot-on delivery, which in this business is everything.
Timecode:
00:00 Luxembourg Investment USP
00:31 How Traditional Funds Work
01:13 Why Fund Structures Are Heavy
01:39 Internal Funds Inside Insurance
02:06 Partnering With Banks
02:34 Custom Strategies Without Scale
03:36 Win-Win-Win Benefits
04:01 Cross-Border EU Advantage
04:32 Ecosystem And Delivery
François Links:
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Transcript:
Thank you for asking the question about investment. And, um, there's, there's, there's a, USP of Luxembourg in, the life insurance contract linked to unit linked or investment is the fact that, as opposed to other countries, in Luxembourg, we can create a fund wrapped into the insurance contract. Let's take the example that, Mr. Lambda goes to his bank or her bank, or Mrs. Lambda then, goes to the bank and says, "I want to do an investment." The bank will, say, "Oh, I have an asset manager, and, We, have funds. we, can sell you funds." So the person say, "Okay, I'm going to buy funds of that fund." And, what happens is that the person will then buy units of that fund, a whole unit or a part of the unit of the fund. It's like shares or a, piece of that fund that has a certain value and, is then put on the bank account of the person on the side as the investment account. and, the bank or the asset manager needs to, in advance of course, think about, the structure. So the, fund is a legal structure. it's heavy. there has to be a lot of governance around it and, there has to be also an asset manager behind who does his job. But the asset manager is a small part, or investment advisor is a small part of the whole, structure of it. The insurance can also create such a fund, but without the whole governance structure around it. And this fund will have, an, investment strategy, will also be unitized, and those units can also be made available to client. They're just not available to any client. They're only available to, the policyholders of insurance contract of that insurance company. So what does that mean for the bank? The bank says, "Oh, thank you very much Mr. Insurer, but you're, competing with me." And I say, "Well, no, we're not competing with you. We can work with you, Mr. or Mrs. Bank, because, we are not as insurer asset manager. You can be the asset manager, or one of division can be the asset manager. The money can stay at the bank, so it will be on the bank account that we open at, at the bank. And, um, to be able to sell that to your client, you will need to sell our insurance contract that's going to wrap a unit of that fund." Added value for the bank is, of course, the long term, that a relationship that they will have with a client. But the special that, that we can offer, from Luxembourg is that the bank can create a special strategy for that fund that is going to be not a strategy that they can offer with any of, their other fund. They say, "Oh, we'd like to sell that type of strategy. We don't know or we don't believe the market will get that enormous and we will not have the critical mass to set up the whole structure of, you know, a traded fund. But, our clients want that type of investment, and we think that we can be successful still, and, we would like to sell that to our client. Then we have a solution for them. It doesn't cost anything to the bank, simply the service that they will offer in, advising, the investment into the fund. But they will be retributed, for that. Therefore, they can make money, offer a special strategy, to their client, and, make their client happy in the short and the long term. So it's a win-win-win. And it's special, as I mentioned, the USP of Luxembourg creating an internal fund wrapped into this, our insurance contract, is something that from Luxembourg can be made available across all countries in Europe. So the partnerships doesn't have to be restricted to the, the country of Luxembourg or a bank in Luxembourg. It's really partnership that can be established with any, institution established in the, in the EU or the EEA. So, um, it's a competitive advantage of the place of Luxembourg versus the local players in, in those markets. I don't say that we are the only ones being able to do that, but we specialize in it, so we have a whole ecosystem that works and supports this USP or competitive advantage and ensures a, a spot on delivery, which is very important.