This distance stems from differing needs and constraints. On one hand, a structured, regulated insurance industry focused on protecting investors to meet the needs of retail clients. On the other, a landscape shaped by institutional investors, where illiquidity and complexity are accepted as part of the process. The need to standardize management processes is not an absolute necessity.
And yet, driven by market shifts, this boundary is becoming increasingly porous.
The needs of high-net-worth clients as a common ground
The true convergence of these two worlds is taking place with the rise of wealth management insurance among affluent and sophisticated clients whose needs sometimes more closely resemble those of institutional investors.
Unlike retail investors, high-net-worth clients require diversification across available asset classes; they also expect returns uncorrelated with traditional markets; they possess significant investable capital; and, above all, they have the ability to leverage the time factor, as their wealth allows them to live with a portion of their assets tied up in exchange for better performance. These various needs and expectations are met by the range of alternative funds.
Luxembourg life insurance policies were the ideal vehicle for bringing together insurance and alternative funds. Among other things, Luxembourg’s regulatory framework clearly distinguishes between investors based on their net worth and provides the wealthiest investors with access to a broader range of investable assets. Regulatory mechanisms such as Internal Dedicated Fund (IDF) or Specialised Insurance Fund (SIF), in which the policyholder selects the assets, provide the flexibility needed to implement alternative strategies. The very recent Circular 26/01 from the Commissariat Aux Assurances (CAA) clarifies the rules governing the holding of illiquid assets.
In various European markets, and particularly in France, legislation has encouraged the creation of private equity vehicles (FCPI, FPCR, etc.) and their inclusion in unit-linked insurance contracts, thereby enabling insurance portfolios to be exposed to strategies historically reserved for institutional investors.
Another example: European Long-Term Investment Funds (ELTIFs) are specifically designed to channel private savings into illiquid assets such as infrastructure or SMEs. Their recent reform, moreover, aims to facilitate their integration into insurance portfolios.
In this context, wealth insurance is no longer limited to serving as a legal, civil, and tax framework. It has become a tool for holding complex assets with a long-term perspective and a focus on succession planning.
An equation complicated by regulation
But this convergence remains largely incomplete, and the main obstacle is regulatory. Life insurance is built around the imperative of protecting investors: relative liquidity of assets, increased transparency, a strengthened duty to advise, and regulated benefit payment timelines. These requirements, essential for retail investors, are in direct conflict with the nature of alternative assets.
Let’s take a concrete example: a private equity fund operates with lock-up periods of up to 8 to 10 years, progressive capital calls, and quarterly valuations. Conversely, a life insurance policy assumes a certain availability of capital in the event of surrender or death and regular visibility into the invested value.
To address this tension, the market is innovating; the ELTIFs mentioned earlier and Evergreen funds are practical solutions. Professional associations are sharing best practices, and ACA (Association des Compagnies d’Assurances et de Réassurances) working groups are opening up to custodian banks, among others. Insurers are standardizing their practices, which are becoming increasingly uniform: (limits on exposure to illiquid assets, drafting of side letters incorporating insurers’ liquidity constraints).
But these solutions, while interesting, remain imperfect. Above all, they reflect a reality: convergence will not happen without profound adaptation on both sides.
Challenges: industrialization? Democratization?
To fully capitalize on the opportunities offered by insurance and potentially democratize its distribution, the alternative funds industry will need to integrate the distribution constraints of regulated products, taking into account transparency in compensation, the industrialization of subscription and AML processes, as well as improved communication regarding the valuations of funds and their underlying assets. One might even envision the creation of an OTC (Over The Counter) market to trade fund shares and generate liquidity.
These developments are driving a broader transformation: the gradual opening of alternative assets to a wider client base.