insights Wealth creation: Mitigating geopolitical risk to preserve wealth

Geopolitics is a study of factors such as geography, economics, and demography and their influence on the foreign policy of a country. Geopolitical risk is the effect of a country’s foreign policy influencing or affecting another country’s domestic and social policy. Factors such as a change in government, foreign policy makers, legislative bodies or military control, can affect the economy and stability of investment returns.

It is imperative to study the co-relation between these geopolitical risks, in order to mitigate their impact on economies. For example, countries like Indonesia, Kenya and most recently Tanzania, have introduced a tax amnesty program to encourage the repatriation of offshore wealth back to the home country. Such fiscal policies have significant financial impact to neighbouring countries and regions’ economies, which may ultimately affect the investment returns of one’s wealth portfolio.

In essence, these risks have become key drivers of uncertainty in the current economic landscape. As such, how should one mitigate such risks in their overall wealth portfolio?

A commonly adopted mitigation tool to protect and preserve one’s wealth is the placement of an offshore high net worth (HNW) life insurance policy.

Here’s a case-in-point of how a HNW life insurance policy has helped a Kenyan resident who allocated his wealth onshore and offshore, preserve his wealth and protect his family’s future:

Age: 45 year old male

Residency: Kenya

Family: Wife and two sons

Occupation: Businessman earning an annual income of $2M

Estate distribution without insurance: $50M divided as follows:

• $40M onshore
• $10M offshore

Estate distribution with insurance: $80M divided as follows:

• $40M onshore
• $40M offshore

The Kenyan government’s recent introduction of tax amnesty which incentivises the voluntary declaration and repatriation of residents’ offshore assets and income, has somewhat disrupted the overall wealth planning goals of some of its residents.

In light of the above, adding a HNW life insurance policy to this Kenyan resident’s offshore portfolio can prove to be a means to expand his offshore assets. With complications arising from the transfer of further assets offshore, $40M of life insurance cover was procured to protect his family’s future, resulting in:

• A life insurance cover of $40M procured, with a premium1 of $10M
• Premium was partially financed by this Kenyan resident’s private bank as he pledged the policy as a collateral to the Bank
• An immediate liquidity for his family should he pass on
• His offshore estate is now in line with his onshore wealth. This has brought his total estate from $50M to $80M, with $40M onshore and $40M offshore

• Geopolitical risks can be mitigated to some extent and Life Insurance is one such way that can help preserve wealth.
• Life insurance helps ensure a more stable future estate value, regardless of uncertainties.
• Life insurance creates an additional offshore asset with available offshore funds.

1. Premiums are subject to underwriting on the life of the assured.

The information or concepts illustrated in this presentation is for reference only. This presentation must not be construed as solicitation, marketing or sale of any insurance products. Nothing contained in this presentation should be construed as financial advice concerning investment decisions or tax or legal advice in respect of insurance products issued in any jurisdiction and by any insurers. In no event will the presenters, authors and contributors to this presentation (including the organisation represented by them) assume responsibility or liability for any consequences arising from any events including decision made or action taken in reliance on the information or concepts provided in this presentation.