Offshore Variable Insurance Products

Abstract

The authors start by observing that recent years have shown a dramatic growth in the sales of variable annuities, a trend they attribute to the fact that Americans may be concerned about having sufficient funds available to cover them for the ever-increasing retirement period. They note that sales of variable life insurance products have also risen dramatically, although the total sales volume is still a fraction of that of the annuities, though the variable life insurance products are judged to be a superior product for tax and financial planning. They argue that, with the increased interest in variable insurance products, has come to the demand for more diversified investments to underlie the products, but much of this demand has been frustrated by the many regulatory burdens imposed on such products when issued to U.S. citizens by a domestic life insurance company. As a result, there has grown an increasing demand for variable insurance products to be purchased outside the U.S., which will be free of the unnecessary regulatory burdens and make available the types of investments wanted by these high net-worth individuals. They then focus on a particular type of offshore variable insurance program and, having made the point that many existing programs are often structured on an ad-hoc basis, they describe a particular program which can be set up in Bermuda as an illustration both of the issues which ought to be considered and of the solutions which the regulatory environment makes possible.