Investor groups that include private equity funds and other sources of “alternative capital” already control insurers that are responsible for about 5% of U.S. life insurance policy and annuity contract liabilities, according to Deep Banerjee.
If current trends continue, those investor groups could increase their share of the U.S. life market to about 10% in the next few years, Banerjee said today, in New York, at an insurance conference organized by S&P Global.
The S&P conference is important because S&P views of insurers affect how much the insurers pay for financing and how much they can charge for insurance.
“Alternative capital has flooded into the insurance sector,” Banerjee said during an introductory panel.
Banerjee, who is an S&P Global director, and conference speakers from outside S&P said, during the introductory session and other sessions, that they believe U.S. life insurers have done a good job of navigating through a low interest rate environment, maintaining high levels of capital, and controlling investment risk.
But S&P analysts and outside bond market analysts said they believe many of the big, publicly traded life insurers are trying to move away from selling low-margin, low-growth life insurance products, and toward either offering retirement services or pension risk transfer arrangements.
In a typical pension risk transfer arrangement, a life insurers sells a large group annuity to an employer that wants to shed a defined benefit pension plan.
A well-attended conference session on the pension risk transfer market featured senior executives from MetLife Inc., Principal Financial Group Inc. and Athene Holding Ltd.
Banerjee said he sees life insurers using deals with the alternative capital providers to move away from old product lines and into the pension risk transfer market.
One reason the volume of deals with alternative capital groups seems likely to increase is that the alternative capital groups seem to be considering a wider range of deal proposals, Banerjee said.
“Their risk tolerance seems to have changed,” Banerjee said.
The Pension Risk Transfer Opportunity