Private Equity Firms Continue to Eat U.S. Life Insurers


Private equity firms, on the other hand, value the predictable and stable returns they can achieve by investing in life insurance and annuity issuers, analysts write.


U.S. life insurers as a whole ended 2020 with $ 4.9 trillion in cash and invested assets, up 7.2% from the end-2019 total.

Life insurers controlled by private equity firms accounted for 9.6% of assets of US life insurers in 2020, up from 7.4% of assets of US life insurers the year before.

Like other US life insurers, life insurers controlled by private equity firms tend to invest heavily in bonds, bond-like arrangements, cash and cash equivalents.

Analysts from the Capital Markets Bureau found that bonds, cash and cash equivalents made up 80% of the assets of U.S. life insurance companies of private equity firms in 2020, up from 79% a year earlier.

Here is what happened to the holdings of life insurers held by private equity firms on the main types of assets between the end of 2019 and the end of 2020:

  • Obligations : $ 351 billion (up 40%)
  • Mortgages : $ 45 billion (up 24.5%)
  • Cash and short-term investments: $ 26 billion (up 52%)
  • Private equity, private debt, limited partnerships and other “alternative investments”: $ 22 billion (up 30%)
  • Ordinary actions: $ 11 billion (up 28%)

One notable difference between life insurers controlled by private equity firms and other life insurers is that the former have more asset-backed securities in their bond portfolios, analysts from the Capital Markets Bureau report. But, in 2020, these companies have turned more to the use of regular corporate bonds.

Life insurers controlled by private equity firms increased their holdings of common corporate bonds by 50%, to $ 174 billion, while allowing holdings of asset-backed securities to rise only 30%, to 90%. billions of dollars.

The share of life insurers controlled by private equity firms held in asset-backed securities fell to 25% from 27%. The share of assets held in municipal bonds, which help states and cities build roads, airports and rail sewers, fell from 5.7% to 6.6%.

The difference between private equity owners

Insurance regulators are still wondering what, if anything, means the rise of private equity firms as owners of life insurance companies.

Owners of private equity firms believe they can get better returns on their investment than other life insurers. One concern, write analysts at the Capital Markets Bureau, is that private equity firms could achieve these higher returns by turning to riskier assets.

Nonetheless, regardless of the owner of a US life insurer, “investing activity must comply with applicable state insurance laws,” the analysts write.

(Image: Adobe Stock)

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