Synthetic GICs emerge as another tool for stable portfolio

• Published in: Pension management 1993-02, Vol.29 (2), p.34
• Main Authors: Morrow, J Thomas, Chong-Wulff, Karen
• Format: Magazinearticle
• Language: English
• Subjects: Accounting; Advantages; Alternative; Asset allocation; Book value; Characteristics; Default; Defined benefit plans; Diversification; Due diligence; Executives; GICs; Guaranteed Investment Contracts; Insurance companies; Insurance industry; Interest rates; Investment advisors; Life insurance; Pension plan funding; Portfolio management; R&D; Research & development
• ISSN: 1078-9766

Synthetic guaranteed investment contracts (GIC) are a family of investments with characteristics that are similar to, but not necessarily the same as, those associated with traditional GICs, which are issued by life insurance companies. Synthetic GICs provide a number of features, including: 1. enhanced safety through diversification away from the domestic life insurance industry, 2. perfected security interest in, or out-right ownership of, the underlying assets by the contractholders, 3. enhanced yields, and 4. flexibility of contract features. The market's demand for synthetics was virtually assured by the continued rapid rise of the 401(k) market, with its appetite for safe, stable assets. Synthetic GICs are placed in 4 broad categories, including: 1. Other GICs (OGIC), 2. Life Insurance Company Separate Account GICs (SAGIC), 3. Financial Intermediary Synthetic GICs (FIGIC), and 4. Investment Manager Synthetic GICs (IMGIC).