Billionaires very rarely depend on a single project to deliver their wealth, and for Calvin Lo, investment and ownership of several businesses is a part of his business operations.
Insurance is where he first began though, with his company R.E. Lee International, which is a life insurance broker focused on the insurance needs of ultra high-net-worth individuals, families, and businesses. Placing premiums of around US$1 billion a year, R.E. Lee International is one of the world’s largest and most successful insurance brokerage companies. But what does that mean for Lo’s bank balance?
How do these massive insurance policies work and how much money can they make?
R.E. Lee International
Like Lo himself, the company is relatively secretive about how it operates. When dealing with the client list they serve, discretion is an essential part of their service and the company, operating since 1954, is widely considered to be the best of its kind in the world.
Having said that, we can look into industry standard practices for insurance brokers and get some insights into what that means for Lo. That starts with how insurance brokers make money.
An insurance broker such as R.E. Lee International sits between the client and the insurance provider, offering a service that delivers a tailored package of insurance products to meet the individual client’s needs. For every policy that they set up, the brokers receive a fee (or what is sometimes called commission) on the annual premiums and that is how they generate revenue.
How much that fee is will vary depending on the insurance product and the provider, and of course, this is something that a company like R.E. Lee International does not make public. However, if we look at the industry as a whole, we can have some idea.
In general, for life insurance policies and associated products, a broker may earn between 50% and 90% of the premiums for the first year. After that, they will receive a much smaller commission, known as a trailing commission, which is between 3% and 10% of each annual premium that follows. If we take the middle ground on the first-year premiums, 75%, then we could estimate the annual earnings on new sales to be US$750 million or 75% of US$1 billion.
We do not know the retention levels, so working out trailing commissions is almost entirely guesswork. 3% of US$1 billion is US$30 million a year in residuals per year, which would certainly add up over time. However, because this number could be anything, we should focus on the US$750 million yearly income from those policies.
That is a huge sum of money, but it doesn’t tell the whole story, of course.
Insurance Industry Profitability
Every business has expenses and in the case of R.E Lee International, that will include the cost of consultants to work with the clients, the support staff required, and so on. Again, what percentage of revenue is costs or profit is not publicly available information, so we turn to the broader industry to understand it.
A study by the U.K. insurance regulator, the Financial Conduct Authority, shows that brokers are operating at around 23% profitability. While R.E Lee International operates a very bespoke service for influential high-net-worth individuals, their profitability may be higher than this but if we take that 23% and apply it to a US$750 million income, the company would be generating US$172.5 million a year in profits.
Consider this a conservative estimate of the profits being generated from Lo’s company, yet it will show that it is a significant component of his wealth building over time.
