Private Equity’s Insurance Innovation Needs a Risk Check: Regulators need to look closer at private equity’s rush to reinsure pension assets in Bermuda, Kris Devasabai, March 2022
“Private equity money is flowing into insurance, bringing with it new ideas and new risks. . . . These firms are following a path blazed by Apollo, which has turned Athene, the insurance platform it established in 2009, into a profit engine for its credit business. Apollo’s big idea was to allocate a larger share of fixed income investments to higher-yielding asset-backed securities (ABS), and away from corporate bonds, which account for the bulk of traditional insurers’ assets.”
Read more. See also: Pension buyouts: rock-bottom prices mask unease over risk, and US Treasury urged to investigate private equity insurers: Senate banking committee chair says Athene and other PE-owned firms take more risk, may hold less capital
Why ‘Offshoring’ Annuity Risk is Wrong, Retirement Income Journal, Tom Gober, June 2022
“When a life insurer buys an asset from (invests in) an asset management subsidiary of its own holding company, it’s difficult for outside analysts to evaluate the value or riskiness of the asset. Its price or risk hasn’t been determined in the public marketplace, but by sister firms. In 2021, for instance, Athene Annuity and Life of Iowa, the top seller of fixed indexed annuities, held $10.36 billion in stock and IOUs from affiliated companies—sister companies in the same holding company. In my opinion as a forensic accountant and certified fraud examiner, that amount of affiliated paper should be compared with Athene’s surplus of only $1.28 billion. If just 12% of their reported affiliated paper became un-collectable in an economic downturn, Athene’s surplus—its buffer against insolvency—would vanish.”
Read More.
Annual Report on the Insurance Industry, Federal Insurance Office, U.S. Department of the Treasury, September 2021
“…[Private Equity]-owners may use investment strategies for their owned insurance entities that have heightened credit and liquidity risk profiles as compared to other market participants. As another example, PE-owned insurers tend to hold a more significant proportion of investments in alternative or non-traditional insurance assets that are associated with illiquidity and complexity premiums. Such investments, which provide a higher- yielding alternative to insurer investments in plain-vanilla bonds, are concentrated in obligations from private issuers. They also may include loans to businesses, collateralized loan obligations, asset-backed securities, and residential mortgages, all of which may exhibit enhanced sensitivity to downturns in the credit cycle or may be characterized by reduced liquidity that could diminish the insurer’s ability to meet unexpected cash demands.”
Read the full report.
What Private Equity Does Differently: Evidence from Life Insurance, Divya Kirti and Natasha Sarin, July 2020
“Private-equity-backed insurers are more profitable. But there is no evidence that this is a consequence of general partners’ investment skill. Rather, private equity firms increase the asset risk of their subsidiaries without incurring commensurate capital charges and decrease tax liabilities. Results based on high-frequency event studies and matching techniques support a causal interpretation. Indeed, private equity firms deliver these changes to their subsidiaries within days of taking over. This improves insurers’ performance, but also introduces risks that rating agencies appear to ignore.”
Read the full report.
UNITE HERE Alerts American National Insurance Agents to Dramatic Shift in Company’s Investment Strategy Since Acquisition by Brookfield Reinsurance
UNITE HERE Calls on Department of Labor to Update Guidance on Pension Risk Transfer, Highlights Recent Activity of Brookfield Reinsurance as Latest Reason
Reuters: Brookfield to buy annuities provider American Equity in $4.3 billion deal
UNITE HERE Warns Pension Plan Administrators About American National, a New Private Equity-Backed Pension Risk Transfer Market Entrant
“Senators Grill Regulators on Private Equity’s Control of Life Insurers” – Life Annuity Specialist
Senators Brown and Warren Raise Concerns about Apollo and Athene’s Pension Buyouts at Banking Committee Hearing
Senator Brown to Address Increased Risk-Taking and Offshore Reinsurance in Life Insurance Industry in Senate Banking Committee Hearing
Senate Banking Chair Brown Asks State and Federal Regulators to Study How Private Equity Companies Are Managing Workers’ Retirement Assets
National Association of Insurance Commissioners task force plans investigation of private equity-owned insurers, including issues related to pension transactions
State Treasurers call for new guidance for pension plans in response to growing role of private equity-backed insurers