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Private placement variable annuity (PPVA) and private placement variable universal life (PPVUL) policies have been marketed in the United States since the mid to-late 1990s. These policies use the same tax rules as RVA and RVUL policies and the same access to a series of registered investment vehicles. However, PPVA and PPVUL policies also enable qualified purchasers5 to access non-registered investment vehicles (referred to as "insurance-dedicated funds" (IDFs)),6 which are managed by top-tier hedge fund, private equity and real estate managers.
The PPVA and PPVUL markets took a sharp upward turn in 2015. There are no reliable industry statistics, but from 2003 to 2014, our firm implemented an average of approximately 15 to 20 new PPVA and PPVUL policies per year. In 2015-2016, we implemented approximately 160 new PPVA and PPVUL policies.
This growth is directly attributable to the expiration of the Bush tax cuts at the beginning of 2013, which increased the taxes payable on investment income for qualified purchasers, many of whom filed their 2013 income tax returns in October 2014. (See "Investment Income," p. 5.)
The growth has...