Leveraging Hesse Digital:
A Strategic Partnership Opportunity
for Wealth Managers
Wealth Managers seeking to preserve wealth and diversify their portfolios should consider Hesse Digital as a strategic partner. Our company offers unique opportunities that align with long-term financial goals, providing exposure to innovative technologies and digital insurance markets while maintaining a focus on attractive risk-adjusted returns. This investment avenue can enhance portfolio resilience and position family offices for future growth in the evolving digital landscape.
Wealth managers may partner with Hesse Digital to facilitate investments in insurance capacity. This collaboration enables high-net-worth individuals, family offices, and institutional investors to participate in the insurance market by acquiring preferred shares in Hesse Digital. Here’s how these partnerships typically function:
1. Access to Hesse Digital
Role of Hesse Digital: Hesse Digital manages the capital contributed by investors, utilizing it to enhance underwriting capacity. The company ensures regulatory compliance and oversees all operational aspects of the investment.
Wealth Managers’ Contribution: Wealth managers assist clients in identifying suitable investment opportunities within Hesse Digital, aligning these investments with their clients’ risk tolerance, financial goals, and investment horizons. This guidance helps match clients to the appropriate Hesse Digital investment.
2. Capital Aggregation and Risk Pooling
Wealth Manager Coordination: Wealth managers can aggregate capital from multiple clients to make substantial investments in Hesse Digital’s insurance capacity. This pooled investment approach diversifies risk exposure and provides clients with an accessible entry point into the insurance market through Hesse Digital.
3. Specialized Investment Products
Creating Tailored Investment Vehicles: Wealth managers and Hesse Digital often collaborate to structure customized investment products, such as dedicated funds or Special Purpose Vehicles (SPVs), that facilitate investment in Hesse Digital’s insurance capacity. These vehicles can be designed to address specific regulatory, tax, and risk management requirements, making it simpler for wealth managers to incorporate these investments into diversified client portfolios.
Access to High-Yield Investment: By investing in Hesse Digital’s insurance capacity, wealth managers’ clients gain access to a unique asset class with the potential for high returns, driven by underwriting profits from P&C insurance. This enhances the range of investment options available to wealth managers, offering clients a compelling alternative to traditional asset classes.
4. Leveraging the Insurance Float
Wealth managers partnering with Hesse Digital gain the advantage of leveraging Hesse Digital’s float—capital held from premiums before claims are paid—alongside their assets under management (AUM). This float provides a stable, low-cost source of capital that can be strategically invested, allowing wealth managers to enhance the deployment of client assets into diversified, income-generating investments within Hesse Digital. By tapping into this additional capital stream, wealth managers can bolster their clients’ portfolios with investments that offer steady returns and align with long-term growth objectives.
By partnering with wealth managers, Hesse Digital can expand its investor base, while wealth managers benefit from exclusive investment opportunities within the insurance sector. This partnership leverages the strengths of both parties, creating a pathway for wealth managers’ clients to invest in insurance capacity with diversified risk exposure and the potential for attractive returns.
Uncorrelated Returns:
Low or no correlation with traditional asset classes, providing a hedge in diverse market environments.
Attractive Return Profile:
Targeted annualized returns between 20% up to 35% from underwriting and investments.
Dual Asset Utilization:
Investors benefit from both underwriting returns and the investment of the float in the bond and equity markets.
High Barriers to Entry:
Insurance underwriting requires significant expertise and regulatory compliance, creating a competitive moat.
No Direct Competition:
Hesse Digital operates in niche markets with little direct competition, providing a unique investment opportunity.
Hesse Digital’s advanced data analytics and sophisticated technology provide robust risk management capabilities. This enables precise risk selection and proactive management, reducing exposure to adverse outcomes.
Given current favorable market conditions, Hesse Digital is well-positioned to grow its business by expanding its portfolio of high-quality risks. This provides an excellent opportunity for investors to participate in the growth of a top-tier insurance undertaking.
In addition to underwriting profits, Hesse Digital invests its premiums and reserves in high-quality bond portfolios, generating attractive investment returns in the current market. For investors, this represents a dual income stream, with returns from both the underwriting business and investment activities.
Investing in specialized insurance structures can offer several tax advantages depending on the investor’s status, location, and structure of the investment. It’s important to note that tax advantages can vary significantly depending on the investor’s country of residence, legal structure, and changes in tax regulations. Below are some possible tax benefits:
1. Tax Deferral on Profits
Insurance business accounting allows for the deferral of taxable profits. Insurers may build reserves for claims payments, which means profits are not taxed until the liabilities are closed. This can offer a tax timing advantage compared to more traditional investment vehicles where profits are typically taxed annually.
2. Capital Gains Treatment
In certain jurisdictions, profits can be treated as capital gains rather than income. Capital gains often benefit from lower tax rates compared to income tax, providing a more favorable tax outcome for long-term investors.
3. Tax Relief on Losses
Losses from underwriting activities can be offset against other income, reducing overall taxable income. Corporate structures may also be able to offset losses against future profits.
4. Inheritance Tax Planning
Insurance structures can be part of broader inheritance tax planning. Assets tied up in the insurance are often treated favorably in inheritance tax assessments, particularly if the investor is a corporate or the investment is held within a trust structure.
5. Access to Offshore Investment Structures
Investors may use offshore structures such as corporate entities in tax-efficient jurisdictions. Offshore corporates can benefit from reduced corporate tax rates or even avoid certain taxes that may apply to individual members based in high-tax jurisdictions.
6. Pension and Retirement Investment
Investing in insurance through certain pension funds or retirement accounts can offer additional tax deferral or tax-exempt growth, depending on the structure of the pension or retirement scheme.
Investors and their wealth managers can take advantage of a unique benefit in the insurance industry known as the double use of assets. This refers to the ability to use qualifying investments—such as stocks, bonds, real estate, or infrastructure investments—not only to generate returns from the original investment but also to support insurance underwriting activities. By using these assets to underwrite insurance, investors can earn additional profits through underwriting gains and the insurance float.
1. Double Return Potential
Investors benefit from returns on both their existing investment portfolios and from the profits derived from insurance underwriting. This structure allows assets to serve dual purposes, enhancing the overall yield on the investment. For example, an investor’s stock portfolio could continue to generate returns while also supporting the underwriting of Hesse Digital’s insurance products, thereby adding a second revenue stream through underwriting profits and insurance float management.
2. Underwriting Profits and Capital Gains
Insurance underwriting offers the potential for profit not only from underwriting activities themselves but also through capital appreciation. Investors may experience capital gains when selling insurance capacity to other insurers or new investors. This dual profit stream makes insurance investments highly attractive, especially in markets with a strong demand for insurance capacity.
3. Valuation of Insurance Business Books
The value of an insurance portfolio is often measured by the price-to-book (P/B) ratio, a key valuation metric for public insurance companies. In 2023, the weighted average price for Lloyd’s syndicate capacity at auction was 43.2p per £1 of capacity, equating to a P/B ratio of approximately 1.86x. This valuation is in line with industry benchmarks such as Chubb Insurance (P/B 1.82x) and Berkshire Hathaway (P/B 1.62x), underscoring the profitability and value of insurance business books.
By leveraging this dual use of assets, investors in the insurance industry can significantly enhance their return on investment through underwriting profits, capital gains, and asset appreciation, making it a compelling strategy for portfolio diversification and long-term growth.
Large private equity firms like Apollo Global Management, Blackstone, Brookfield Asset Management, Sixth Street, and KKR are focusing more on the insurance industry as part of their broader investment strategies. This trend is driven by several strategic reasons that allow firms to leverage the stable and long-term capital generated by insurance companies.
1. Access to Permanent Capital (Insurance Float)
The “insurance float,” which represents premiums collected but not yet paid out as claims, provides private equity firms with a pool of long-term capital. By investing in insurance companies, these firms gain access to this capital at a lower cost than traditional debt or equity financing. This allows them to invest in higher-yielding, long-term opportunities that support their broader growth strategies .
2. Fee Generation and Asset Management Growth
Acquiring or partnering with insurance companies significantly boosts a private equity firm’s assets under management (AUM). This increase generates higher management fees and diversifies their income streams. Apollo’s acquisition of Athene, a major player in annuities, is a prime example of this approach. Blackstone has similarly leveraged its insurance investments to raise billions of dollars .
3. Regulatory Arbitrage
Private equity firms use their expertise in capital optimization to maximize returns within the regulatory frameworks that govern insurance companies. These firms also take advantage of offshore vehicles and structured reinsurance deals to enhance capital efficiency, allowing them to manage risk while increasing returns .
4. Exit Opportunities and Value Creation
Private equity firms aim to improve the operational efficiency and profitability of insurance companies they invest in. After enhancing these businesses, they may exit through an initial public offering (IPO) or by selling the business to strategic buyers, often realizing significant returns from these transactions .
By integrating the insurance sector into their broader strategies, private equity firms benefit from stable capital sources, portfolio diversification, and long-term value creation. This strategic alignment with insurance assets offers firms a competitive edge in today’s investment landscape.
The Best Market Conditions in a Generation:
The global insurance market is currently experiencing a “hard market” cycle, driven by several factors:
• Catastrophic Events:
The higher frequency of natural disasters in 2017 and 2018, followed by the COVID-19 pandemic, has reduced the availability of capital in the insurance market, pushing prices higher across most insurance lines.
• Recent Market Disruptions:
With Hurricane Ian in 2023 further straining the market, insurance pricing has risen significantly, making it an attractive time to deploy capital into the sector.
• Super-Cycle Opportunity:
The current phase of the insurance industry, characterized by rising rates and tighter underwriting conditions, offers highly favorable conditions for investors seeking strong returns from underwriting.