Axcelus, John Hancock Top the Senate Finance Private Life Rankings

The wealthy U.S. clients who use private placement life insurance arrangements may have an average of only $3.1 million in assets in their PPLI policies, according to new private placement life market data posted by the Senate Finance Committee.

The committee surveyed seven well-known private placement life insurance providers in November 2022 because the chairman of the committee, Sen. Ron Wyden, D-Ore., believes ultra-high-net-worth clients are using the PPLI policies to lower their tax bills in unreasonable ways.

Wyden emphasized in a comment about the survey findings that the PPLI arrangements are legal. "The companies weren't even trying to hide the fact that their PPLI policies were tax dodges for the very top," Wyden said. "That's precisely how they were promoted."

The seven companies that responded to the Senate Finance survey reported having a total of 3,061 PPLI policies, with $9.5 billion in PPLI assets under administration, $40 billion in total death benefits, and an average of $13 million in death benefits per policy, for an average of about $4.2 of death benefits per dollar of assets.

What it means: The Senate Finance report makes interesting reading for advisors who want to help wealthy clients set up or manage their PPLI arrangements as well as for people who believe that PPLI tax rules should change.

PPLI: A PPLI arrangement is a cash-value life insurance policy designed for clients who will be putting in enough assets that using a customized asset portfolio to support the policy benefits is financially viable.

Internal Revenue Service regulations prohibit PPLI users from controlling the policy investment manager.

But PPLI policies can invest in art, land, stakes in private companies and other types of assets that normally would be off the radar of a typical life insurance company investment management team.

Wealthy families have been using PPLI for decades. Over the years, some observers have argued that the policies give wealthy families an unfair way to use life insurance to lower their tax bills rather than to protect their loved ones.

The U.S. Government Accountability Office told lawmakers in August 2020 that it could find little data on the PPLI market.

In May 2022, U.S. prosecutors announced a deal with Swiss Life Holdings in connection with $1.45 billion in assets in 1,608 PPLI policies, or about $902,000 in assets per policy.

The new Senate Finance PPLI report: The new PPLI market report draws on survey responses from Axcelus Financial, Crown Global, Investors Preferred, John Hancock, Pacific Life, Prudential and Zurich.

Axcelus previously was known as Lombard International.

At least one of the companies that responded to the survey, John Hancock, still has PPLI policies on its books but stopped selling PPLI coverage years ago.

The survey team found that:

Axcelus was the leader in terms of PPLI assets under management, with $3.3 billion in PPLI assets.
Axcelus PPLI assets under administration increased from $1.6 billion five years earlier.
John Hancock was the leader in terms of number of PPLI policies in force, with 982.
Investors Preferred PPLI policies had the highest average death benefit amount: $38.5 million.
The average assets per PPLI policy ranged from about $571,000, at John Hancock, to $9.5 million, at Investors Preferred.
In 2021, at Prudential, the average income of a PPLI user was $5.9 million and the average net worth was $102 million.

Reactions: Marc Cadin, the CEO of Finseca, a group that represents estate planners and other financial professionals, said via email that Finseca is disappointed to see a vital tool ensuring Americans' financial security is under attack.

"Life insurance is life insurance, and it's taxed appropriately and serves as a crucial component in a family's financial security," Cadin said. "With a staggering $12 trillion-dollar protection gap, Americans need more protection, not less."

The Senate Finance Committee should focus on encouraging Americans to plan for the future rather than on attacking segments of the financial services marketplace, Cadin added.

The American Council of Life Insurers is still reviewing the report.

Joyce Meyer, an ACLI executive vice president, noted that PPLI policies already comply with state and federal life insurance requirements.

Those include "stringent tests that prevent abuse and avoidance of tax laws," Meyer said. "ACLI supports compliance with and enforcement of these laws."

Axcelus Financial said the company has offered and supported variable life insurance products for the PPLI market since 1995.

"The tax characteristics of these products, including any tax deferral, do not differ from variable life insurance products held by millions of Americans," the company said. "Axcelus Financial fully complies with all applicable legal, regulatory and fiscal requirements."

Sen. Ron Wyden, D-Ore. Credit: Wyden