ACA DAYS 2023
Quintet provides support for insurers in the processing and management of alternative assets
For years, Quintet Private Bank has been offering life insurance products dedicated to wealthy and sophisticated private clients, as well as custodian banking and execution services to insurers and their entire ecosystem. According to Stéphane Ries, Managing Director Financial Intermediaries (FIM), the increasing use of non-traditional assets as underlyings meets a growing demand from insurers, their partner-managers and their increasingly sophisticated policyholders. It also requires expertise and know-how that few banks in Luxembourg possess.
Stéphane Ries, what does Quintet Private Bank's life insurance business represent today?
Quintet currently serves 27 insurance companies, mainly Luxembourg life insurers. We manage EUR 13 billion in deposits. This represents around 8,000 policies and includes all types of life insurance support, such as internal collective funds (ICF), internal dedicated funds (IDF), specialised insurance funds (SIF), external funds, etc., as well as insurers' own funds deposited with us.
How does your bank work together with Luxembourg life insurers?
We work together on two levels: firstly, through a range of life insurance products designed for wealthy and sophisticated private clients; and secondly, through custodian banking services.
For decades now, Quintet has had a business line dedicated to institutional and professional activity. This combines all the skills of the insurance industry with those of investment funds, pension funds, banks and third-party managers.
In practical terms, what services do you offer life insurers?
As a custodian bank, our collaboration with life insurers involves the safekeeping of assets, in accordance with the custody agreement signed between the Commissariat aux Assurances (CAA, Luxembourg insurance agency), the insurance company and the custodian. This forms the so-called 'security triangle'. It also concerns execution on the underlying assets of the life insurance policy.
Each time a new insurance policy is activated, a life insurer's partner bank must also be able to offer the following services: extremely rapid opening of new bank accounts; a range of 'tax services', i.e. reclaiming withholding tax and access to reduced rates; support for our insurance partners in their reporting obligations to their clients and to the regulator; and, last but not least, banks like Quintet must also be able to offer their clients easy access to all types of target investment (equities, bonds, structured products, simple external funds, such as UCITS, complex external funds, etc.) - either internally or via external platforms, with banks providing access - as well as to non-traditional assets (NTAs), also known as private assets (PA).
Banks & Insurance Companies
We offer full coverage execution to custody services (E2C) across asset classes.
What do these non-traditional assets amount to today? And what are their underlying assets?
Until recently, the underlyings of life insurance policies consisted solely of simple/plain vanilla investment funds (UCITS and others), structured products, live securities, etc.
But today, private assets represent around EUR 16 billion, or around 10% of the total life insurance market.
These assets are therefore increasingly used as underlyings in insurance policies. According to the latest figures, life insurers allocate EUR 2 billion to private assets every year.
As a custodian bank, we at Quintet are currently seeing an increasing exposure of the 27 insurers that we serve to so-called 'alternative' investments, such as these private assets (private equity, venture capital, real estate, Infra, etc.) and alternative funds, such as hedge funds and funds of hedge funds.
Handling all these investments requires real know-how. In Luxembourg, few banks have this recognised expertise in execution on this type of underlying asset. At Quintet, our Fund Execution Desk was set up over 40 years ago to meet our private banking needs. It has evolved over the last few decades to handle more and more complex funds, including in the context of our relationships with other institutional clients, such as funds of funds and banks working with us in the form of omnibus accounts.
What type of know-how are you referring to?
The ability to place subscription and redemption orders for private assets or hedge funds with transfer agents. On the one hand, this is done by gathering documentation, but also by managing the specific operating features of this type of fund, such as possible prepayments in the case of hedge funds and for commitments, capital calls/drawdowns for all private equity, real-estate funds, etc., as these funds are generally closed to redemptions. All this therefore requires structured management, in conjunction with the insurer and anyone to whom policy management has been delegated.
How does Luxembourg stand out from its competitors in this field?
Luxembourg's complete ecosystem is an asset for all players in the financial centre. Its investment fund industry (second largest in the world with over EUR 5,000 billion in assets), the growth of private equity with a strong representative body (Luxembourg Private Equity and Venture Capital Association - LPEA) and its very broad toolbox enabling private equity to be structured (investment company in risk capital (SICAR), specialised investment fund (SIF), reserved alternative investment fund (RAIF), Limited Partnership, etc.) and valued quite easily as the underlying asset of a life insurance policy. The life insurance world is now benefiting from the know-how accumulated over the last 30-40 years. The world of external funds and private equity is also benefiting from the growth of life insurance.
So, it's a win-win collaboration for everyone: for the players and associations such as the ACA (professional association of Luxembourg insurers and reinsurers), ALFI (association of the Luxembourg fund industry) and the LPEA, and above all for our clients and partners. Especially as access is guaranteed to all types of underlying assets that can be included in life insurance policies.
As you can see, over the years Quintet Private Bank has become a real partner for insurers as a service provider.
In what types of mandates and insurance products are private assets used as underlyings?
Wealthy clients will want to be sure of active involvement in the management of the assets underlying their policies, including private assets. To this end, the life insurance sector has seen the emergence of specialised insurance funds (or SIF) offering discretionary, advisory or execution-only management mandates.
As far as the bank is concerned, the multiplicity of different management mandates has always existed because the wealthiest clients have always wanted to retain a degree of control over their assets.
This is why a life insurance layer now coexists with discretionary management, advisory or execution-only mandates.
In practice, how is this managed for private assets?
As custodian of the entire policy or of the medium holding the private assets, there are two types of management: either the policy is managed by a third party with the insurer who has given this third-party manager power of attorney over the account deposited with us, or the policy is managed directly by the insurer.
In both cases, the private asset part of the portfolio - i.e. placing orders, monitoring investments, etc. - will be 'administered' by the insurer or be under their control.
Either as a “nominee”: the bank underwrites for the insurer under a “nominee” agreement between the two companies; or, on behalf of the insurer, with the positions reflected on the bank's side. The route taken will generally depend on whether the GP/TA (of the target fund) can accept the bank as nominee.
Wealthy clients may be exposed to private assets through their life insurance policies.
→ Joint offering to high-end wealth management clients for their wealth-planning and structuring needs
→ Custodian banking and execution services
→ Rapid account opening
→ Execution on all types of assets, from traditional to non-traditional (NTA=PE)
→ Tax refund services
→ Reporting services for life insurers and their regulators