The evolution of capital efficient structures

While the events of the most recent year have introduced significant uncertainty in capital markets, we expect insurance companies to continue increasing their allocations to private markets. For certain insurers, these investments are executed through various forms of vehicles with favorable cost-adjusted yields (capital efficient vehicles). Insurers favor these vehicles for many reasons, including the potential to reduce administrative costs, efficiently engage with specialist managers, seek material downside risk protection through structural protections, and benefit from lower capital charges. 

At Mercer, we have monitored the development of these structures over many years and seek to provide more clarity to clients on the various implications of these vehicles. With increased scrutiny and expected regulatory changes on the horizon, it is important to better understand this topic and the various tradeoffs. This paper is intended to cover several key considerations:

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