Private equity-backed life insurers
A model in which private equity and asset management firms acquire or build life insurers to manage their assets, mostly in private credit; it has taken a large share of the US annuity market.
A life insurer holds hundreds of billions in assets against very long-term liabilities. For an asset manager, it is a source of permanent capital, far more stable than funds investors can withdraw. Since the 2008 crisis, several large private equity firms have acquired or built life insurers, mostly in the United States, and bought blocks of annuities from traditional insurers keen to shed them. The model rests on one idea: a manager specialized in private credit and structured assets can earn a higher yield than a classic bond portfolio, and offer more attractive annuity rates. It is often combined with reinsurance to affiliated entities in Bermuda. These insurers have won a large share of US annuity sales. Supervisors, the US National Association of Insurance Commissioners, the Financial Stability Board and the international association of supervisors, watch several risks: conflicts of interest between the insurer and its affiliated manager, which earns fees on the assets, valuation of complex and illiquid assets, concentration in private credit, and how the model would react to a wave of surrenders or a credit crisis.
Textbook case: a private equity firm buys a US life insurer holding 60 billion dollars of annuities. Within three years, it raises the private credit share of the portfolio from 10 to 35 percent, managed by its own subsidiary, and reinsures a third of the block with an affiliated Bermuda entity.
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