Bitcoin in annuities? Several insurance companies are banking on it

Several major insurance companies are envisioning a big future for Bitcoin, including as a part of the annuities business.

Though often written off as one of the most conservative industries, insurance is one of the first movers seeking to incorporate the digital currency and find new uses for it. Recently, for example, MassMutual plunked down $100 million for Bitcoin in its general investment account. And it, along with New York Life, Liberty Mutual and Starr Insurance, is an investor in New York Digital Investment Group, or NYDIG.

Insurers see the potential for Bitcoin on both the asset and liabilities sides of the annuities business, said Matthew Carey, U.S. head of insurance solutions at NYDIG. Carey, who joined the firm this year, after the online annuity marketplace firm he co-founded, Blueprint Income, was sold to MassMutual by alternative asset manager Stone Ridge.

“I am an entrepreneur at heart. The thing that stands out most to me about this market is the ability for this to be incredibly transformational for insurance companies,” Carey said. “[It] is an important thing for insurers to be out ahead of something, because historically, that hasn’t always been the case … They’re showing that they can innovate in this kind of environment, where it is so critical that they do.”

NYDIG formed in 2017 as a subsidiary of Stone Ridge. The firm provides Bitcoin funds as well as services to individuals and institutions. NYDIG is reportedly the custody provider for a forthcoming Bitcoin fund that would be offered to J.P. Morgan’s wealthy clients, Coindesk reported on Monday.

In March, the company announced that New York Life Chairman and CEO Ted Mathas joined NYDIG’s board of directors.

Until 2020, “very few institutions were looking at the space,” said Kelly Brewster, chief marketing officer at NYDIG. But the pandemic, interest rates and changes in fiscal policy have changed that, and the firm has been focused for more than half a year on ways to bring Bitcoin to more industries, he said.

But how much presence Bitcoin can have in the insurance business might be limited.

“Private placement products for accredited investors makes sense, as those are typically used as a tax-mitigation structure for high-net-worth individuals,” said David Lau, founder and CEO of DPL Financial Partners, in an email.

“A minimal allocation to Bitcoin within a carrier’s general account should be reasonable given the reserves they will be required to keep, but Bitcoin investment options for retail customers would need to be severely limited as insurance products should be for safety and security, not speculation.”

The annuities business, while being an early mover, still lags where some consumers want to see it, NYDIG’s Carey said. In March, the company surveyed more than 1,000 people with incomes of at least $50,000 a year. It found that nearly half of people who have life insurance or own annuities hold some digital currency such as Bitcoin. More tellingly, the company said, 75% of people said they would want to know more about life insurance and annuities that incorporate Bitcoin. And more than a third said they’d likely switch to an insurance company that utilized Bitcoin, while another 43% said they’d at least consider such a move.

However, Bitcoin investments within variable annuities might be a niche area, as “most people don’t understand these assets,” said Tamiko Toland, director of retirement markets for Cannex, in an email.

“[T]he low-hanging fruit is going to stem from the ETF in a fund-of-funds structure. Maybe a [registered index-linked annuity],” Toland said, adding that Bitcoin within a RILA could be gimmicky. “As long as [investment] options are available, it’s possible.”

Annuity owners are interested in the tax deferral and guaranteed income attributes for exposure to the digital currency, Carey said.

The firm is looking at the consumer side in three areas, he said, including getting income or death-benefit payments at spot rates, tax deferral, such as in an investment-only variable annuity, and investing by moving money in and out of Bitcoin.

“The things we’ve announced publicly are kind of the tip of the iceberg in interest in the [insurance] industry,” he said. “There are a lot of considerations that are specific to the industry with respect to the asset class,” he said, such as accounting and reporting requirements.

In the property and casualty area, insurers’ initial interest is focused more on how they can incorporate Bitcoin into the liabilities side of the business, he said. NYDIG recently hired Transatlantic Reinsurance CEO Mike Sapnar as its global head of insurance solutions.

While NYDIG is interested in several applications for Bitcoin in the insurance world, it doesn’t see much use for accepting the digital currency as payment, as that creates a taxable event, and Bitcoin enthusiasts tend to hold the assets for the long-term, Carey said.

“By asking people to pay in Bitcoin, you might be avoiding a large swath of the market,” he said.