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A Senate hearing room

Life Health > Annuities > Variable Annuities

Private Equity Firms Face Life Insurer Safety Questions at Senate Hearing

By Allison Bell

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What You Need to Know

  • Sherrod Brown, the committee chair, asked state and federal regulators for information about private equity-owned life insurers in March.
  • He said workers worry when pension plan sponsors transfer pension risk to life insurers.
  • Sen. Elizabeth Warren asked for support for S. 3022, her private equity regulation bill.

Republican senators backed private firm owners of life insurers Thursday at a committee hearing on current issues in insurance.

Democrats who addressed the topic questioned whether regulators are doing a good job of monitoring and controlling investment risk at private equity-owned life insurers that take over responsibility for defined benefit pension plans through pension risk transfer deals.

Maryland Insurance Commissioner Kathleen Birrane said that state insurance regulators have the information and tools they need to oversee private equity-owned life insurers, and that, for the most part, those insurers seem to be similar to other insurers.

Steven Seitz, director of the Federal Insurance Office — a Treasury Department arm that keeps tabs on U.S. life insurers — gave careful answers to questions about the private equity-owned insurers.

Sen. Elizabeth Warren, D-Mass., asked Seitz whether pensions are as secure when private equity-owned insurers take charge of the plans from the original sponsors.

“We share your view on the importance of this issue,” Seitz said. “We are working closely with the NAIC and their regulatory considerations as they look at their framework and how to best addresses changes in the PE sector.”

The hearing took place in Washington and was streamed live on the web.

What It Means

Attendance at Thursday’s hearing appeared to be light, and most of the senators’ questions appeared to focus on property and casualty insurance lines.

But work on federal legislation and regulations related to private equity owners of life insurers could continue to simmer behind the scenes.

Any products of that work could lead to the government watching the providers of your clients’ life insurance policies, annuities and pension plans more carefully, but they could also reduce the supply of insured retirement income products and increase the costs.

The Brown Letters

Sen. Sherrod Brown, D-Ohio, the committee chairman, sent letters asking about private equity firm ownership of life insurers to the Federal Insurance Office and the National Association of Insurance Commissioners in March.

Brown said he was especially interested in pension risk transfers, or the use of group annuities from life insurers to support a defined benefit pension plan’s pension obligations.

NAIC replied with a letter telling him that it’s capable of keeping tabs on private equity firm insurance company buyers and does not need federal help with that.

The Hearing

At the hearing, Brown mentioned a large employer’s use of a pension risk transfer to pass pension obligations on to an insurer, and the fact that the group annuity would not be insured by the federal Pension Benefit Guaranty Corp. or subject to federal Employee Retirement Income Security Act rules.

“Many workers are very, exceptionally nervous about that,” Brown said.

Warren said that private equity firms, or companies that invest in private stock and bonds, have bought up hospitals, newspapers, homes and retail chains, and now have set their sights on Americans’ retirement savings.

”Today, private equity firms control more than 10% of all life and annuity assets in the United States, despite having zero presence just over a decade ago,” Warren said.

She argued that the companies try to profit by taking more investment risk than ordinary insurance company owners do.

“The pensions are more vulnerable to being wiped out by a market downturn, which endangers the insurance company’s solvency,” Warren said.

She asked members for support for S. 3022, the Stop Wall Street Looting Act bill, which would impose new private equity firm rules, such as limits on dividends from newly acquired companies to the new owners, and extra protections for the workers affected when private equity firms go bankrupt.

Seitz told Warren that when pension plans move into the hands of life insurers, “they’re covered by the individual state guaranty funds, and it’s an area of focus for our office to make sure that the state regulatory mechanisms are being designed appropriately to reflect these new transactions.”

Warren said Seitz had not given her a clear answer about whether group annuities provided by private equity-owned life insurers are more or less secure than the original employer-provided pension plans.

Sen. Bill Hagerty, R-Tenn., asked Birrane whether state insurance regulators regulate private equity-owned insurers differently than they regulate other insurers, then agreed with Birrane when Birrane said private equity firms are regulated somewhat more tightly than other life insurers, and that states have good tools in place for overseeing the private equity firms that own life insurers.

Sen. Jerry Moran, R-Kan., asked Seitz about suggestions that private equity firms might buy insurers and then turn around and sell the insurers too quickly, to generate fast profits.

Seitz said he had not heard reports of those kinds of transactions affecting insurers.

Moran, who represents the home state of Security Benefit, concluded his time slot during the hearing by saying that private equity firms had helped both life insurance companies and life insurance company employees in his state.

The Senate Banking Committee held a hearing Thursday on insurance in Washington. (Photo: Senate Banking Committee)

Allison Bell

Think_Allison

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