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Income & Capital

NAMIC Service PartnersImproving Investment Performance

Yield Enhancement Structure (YES)

Olson Foprrester Fox & von Seldeneck, LLC

In furtherance of its mission to assist member companies increase their financial prosperity, NAMIC has entered into a partnership with Olson Forrester Fox and von Seldeneck (“OFF&V”) to introduce and advise member companies regarding the Yield Enhancement Structure (“YES”).

This marks the fourth occasion during which NAMIC has collaborated with principals of OFF&V. The first resulted in the creation of NAMIC’s “A” rated professional liability Insurance Company (NAMICO) with $47 million in assets, which currently provides Directors and Officers Liability Insurance for more than 720 NAMIC members.

The second resulted in the first program in which unaffiliated investors increased the surplus of selected member companies through the purchase of their Surplus Notes, also known as the “NAMIC Capital Program”. And, the third involved the FTN/KBW Pooled Surplus Note Program, in which OFF&V assisted in the creation and as advisor to NAMIC member companies. Together the NAMIC Capital Program and the Pooled Surplus Note program provided NAMIC members with more than $400 million of additional surplus.

The YES program allows participating member companies to substantially increase their income and permanent capital by improving upon, and extending the tax treatment afforded municipal securities to normally taxable investments – both fixed income and equity; including dividends, interest, and capital gains. The average 2010 after-tax return experienced by firms participating in the YES program was 7.7%, while the median return was 8.7%.

The program was created in conjunction with SGC Securities (a licensed securities broker-dealer). It reflects extensive due diligence by senior officers of selected property and casualty insurance companies, and scrutiny by a number of such officers in a focus group environment.

Attesting to its credibility, financial institutions have invested more than $100 billion in programs following a similar but less attractive structure.

Sources of Advantages

The program’s success drives from an adaptation of the principals that underlie key person life insurance.

These adaptations have shifted the focus from an insurance-based benefit to an approach by which management can use the structure to make investments reflecting its own tastes and preferences, with minimal frictional costs.

For all but the largest companies, the program allows investors the added advantage of being able to access the sophistication and resources of the most highly regarded asset managers without:

  • Encountering the roadblocks represented by high minimum investment requirements, and
  • Incurring disproportionately large fees associated with smaller portfolios.

Distinctive Features of the Program

  • Institutional pricing with access to over 47 leading money managers directing 270 strategies in all asset classes and styles- active and passive. Leading managers include Black Rock, PIMCO, Goldman Sachs, General Re New England Asset Management, Conning, and Vanguard.
  • No limitation on, transaction costs or taxes incurred as a result of decisions to reallocate among asset classes to reflect changing economic conditions and management preferences.

Offers a simple process of implementation, consisting of:

  • Due diligence by the Chief Executive (click here), Chief Financial (click here), and Chief Investment (click here) Officers.
  • The development of a proposal and financial projections reflecting the assumptions and stated preferences of the NAMIC member firm.
  • A presentation to the investment committee and if requested Board of Directors.
  • Collaboration with outside investment and professional tax and accounting advisors.

In summary, the Yes Program:

  • Materially increases after tax income and provides a vital source of additional permanent capital without incurring incremental credit risk, interest rate risk, or market risk.
  • Has been evaluated and adopted by a large number of sophisticated investors in the financial services community.
  • Does not interfere with management’s right to control key aspects of the company’s investment strategy.

Has been enhanced to meet the specific needs of property and casualty insurance companies.

Is regarded as a viable strategy by regulatory authorities and rating agencies.

Further information can be obtained from:
Larry Forrester
Ph. 317-313-3900

Doug Olson
Ph. 215-247-2000

Posted: Thursday, March 25, 2010 3:55:49 PM. Modified: Monday, July 22, 2013 10:57:43 AM.

317.875.5250 - Indianapolis  |  202.628.1558 - Washington, D.C.

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