Why do insurance companies buy pension funds from companies? How do they make money taking the pension plan?
Thursday, December 31st, 2009 at
1:13 pm
Why do insurance companies buy pension funds from companies? How do they make money taking the pension plan off the company’s hand?
Does the company offering the pension plan pay anything to the insurance company to take the liability off their hands?
Filed under: Retirement Planning
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Maybe the insurance company insures the pension plan, and when it looses money, they collect on it and right off the lose to the tax people.
Insurance companies invest the money. They pull profits off the gain. Insurance companies have been around a long time, and they invest carefully. At least the good ones do. The bad ones don’t last fifteen minutes.
Pension plans, on the other hand, can be operated by politicos who really have no experience dealing with risk and investing for the long term. Insurance companies are masters at the game of risk.
Remember, in finance, as well as life, there are no guarantees.
But insurance companies pay attention to detail; they are the blackjack card-counters of long term investments. Not really high returns, but they’re more certain.
Hi, your friendly insurance guy here again.
Insurance companies buy pension funds for several reasons. The most common is that the insurance company is also a broker/dealer for investments and wants to manage the funds so they can take a small percentage as an asset management fee.
Also, as one of the most conservative industries in the world, an insurance company running a pension fund is unlikely to manage it poorly or with unreasonable risk.