• "Celebrating 28 Years of Excellence!"

One of the key components of managing insurance assets is the ability to implement a crossover strategy. A crossover strategy is a tax-efficient approach which "crosses over" from taxable securities to tax-exempt securities, with an allocation intended to maximize after-tax income. Even non tax paying companies can benefit from tax-exempt municipal bonds as the pre-tax yield of high quality municipals can often offer more income than comparable taxable bonds.

There are two steps in implementing an effective crossover strategy. The first step is identifying the crossover opportunity in the capital markets. Prime's Investment Committee determines if a crossover opportunity is available in the markets, and if so, at which point(s) along the yield curve. Identifying the opportunity includes comparing the current after-tax yields of municipal bonds to taxable bonds, as well as evaluating the municipal yields on both a retrospective and prospective basis.

The second step is assessing a client's ability to support a crossover strategy. For a taxable entity, the ability to utilize tax-exempt municipals is generally correlating to amount of underwriting income a company produces. Our Investment Strategist group, which includes four credentialed actuaries, performs financial modeling to quantify and stress-test the client's expected tax position. This analysis also takes alternative minimum tax (AMT) into consideration, in order to determine the crossover strategy which will optimize the client’s after tax income and future total return.