US Senate finance committee chair Ron Wyden has written to Prudential Financial, Zurich Insurance Group, Lombard International and the American Council of Life Insurers (ACLI) as part of his investigation into the increasing use of private placement life insurance (PPLI) schemes by wealthy US taxpayers.
In the letters, Wyden said he believes PPLI policies are being used “as a tax shelter for the wealthiest Americans”.
He added that the US Senate is “concerned that these insurance vehicles are being used, without a genuine insurance purpose, to invest in hedge funds and other investments while avoiding billions of dollars in federal taxes”.
PPLI is a multi-jurisdictional wealth planning tool available on a private placement basis to wealthy families and high net worth individuals. The product is based on life insurance and annuity policies that allow for tailored and internationally diversified investment strategies.
It is often also known as “private banking insurance” or “insurance wrapper”. PPLI presents a planning structure, just like trusts, companies, foundations and funds that allows an internationally diversified portfolio to be wrapped within the legal structure of a life insurance policy.
Investigation
Wyden’s letters are part of an investigation – which started with his first letter to Lombard International on 15 August 2022, followed by letters to Prudential Financial, Zurich Insurance Group and the ACLI on 21 September 2022.
He is investigating the use of PPLI policies and other loopholes exploited by the wealthiest 1% of Americans to avoid paying their fair share in taxes. Within the 21 September letters, he asked the three companies how they “may be assisting millionaires and billionaires minimise or eliminate taxes on investment income”.
Within the 21 September letter, Wyden asked around 10 questions on PPLI to the companies. The questions surrounded the scope of PPLI business and marketing of the products.
Wyden also asked the aggregate amount of business the carriers are doing in PPLI, how they calculate the value, how PPLI is marketed and the legal justification of claims, as well as other areas.
‘Fully comply’
International Adviser has contacted Prudential Financial, Zurich Insurance Group, Lombard International and the ACLI for a comment.
ACLI spokesperson Whit Corman said to IA: “We are reviewing Senator Wyden’s letter now. The fundamental purpose of life insurance is to protect families financially in the worst of times. Today, consumers have a choice of policies to meet their needs with cash-value life insurance being a key component to American families’ long-term financial security, along with home ownership and retirement savings.”
A spokesperson for Lombard International Group said the group and its member companies “fully comply with all applicable legal, regulatory and fiscal requirements in the jurisdictions where they conduct business”.
In August 2022, life assurance provider Lombard International Group agreed to sell its US and Bermuda business to alternative fixed income manager BroadRiver Asset Management and its affiliated entities.
Prudential Financial and Zurich Insurance Group did not reply in time for publication.
DoJ investigation
Wyden’s investigation follows a recent inquiry by the US department of justice about the involvement of PPLI policies in various offshore tax evasion schemes.
In May 2021, Swiss Life pleaded guilty to using PPLI policies and related investment accounts as “insurance wrappers” to help thousands of US taxpayers’ conceal their ownership of assets offshore and evade paying US taxes.
