Additionally, capital may be used to broaden product lines. This is important in an increasingly competitive environment that, among other things, now includes Internet distribution of life insurance at low costs and very attractive rates for buyers. It could offer the variable product through its distribution channels with the equity portion of the product managed by a third party. Returns from distributing these new products most certainly will be above the company's cost of capital, but they may be low relative to the profitability of other financial service products. The answer is managing the assets.
Investment management is a higher return business than life insurance or distribution.
Thus, an important use of capital for a life company should be to target the acquisition of an asset manager. By vertically integrating product development, distribution, and management of assets, the company can achieve favorable operating and financial leverage. Of course, this is well understood by life insurance managements, who for years have done this on the fixed-income side. However, with the growing popularity of variable annuities, the need to handle equity asset management has increased. The Players So far only a handful of the one hundred or so mutual life insurers in the U.S. have demutualized.