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September 28, 2022 at 12:24 PM
What You Need to Know
- Elizabeth Warren, D-Mass., and some other senators have questioned whether increasing private equity ownership of life insurers is a good thing.
- U.S. life insurers that are owned by private equity firms hold more alternative assets than other life insurers, which some analysts worry could make them more vulnerable to risk and volatility.
- The largest share of private equity-owned life insurers' bond holdings are in high-grade corporate bonds, just as they are at other life insurers.
U.S. life insurers that are owned by private equity firms hold more alternative assets than other life insurers, but, overall, their bonds have high ratings, according to analysts at the National Association of Insurance Commissioners.
Analysts Jennifer Johnson and Jean-Baptiste Carelus found that private equity-owned life and annuity issuers’ total investment holdings fell 4.5% between Dec. 31, 2020, and Dec. 31, 2021, to $450.1 billion.
Bonds accounted for $312 billion — or 69% of the investment holdings — but that amount was down 11% from a year earlier.
The value of the private equity-owned life insurers’ mortgage holdings increased 31% to $59 billion.
Alternative asset holdings, which insurers list on a form called Schedule BA, increased 22% to $27 billion.
For more details about what happened to insurers’ assets in 2021, see the table below.
What It Means
The portfolios of some closely watched institutional investors tilted more towards mortgages and alternative assets last year and away from ordinary bonds.
One question might be how shifts in life insurers’ portfolios affect a client’s true asset-allocation picture, once the nature of the assets inside life insurance policies and annuity contracts are taken into account.
Private Equity-Owned Firms
Traditionally, financial services companies have applied the term “private equity firm” to companies that focus on buying and holding other, privately held companies’ stock.
The NAIC — a group for state insurance regulators — is still developing a definition of “private equity owned.”
The analysts note that they came up with a private, proprietary list of private equity-owned life insurers by looking at information in insurers’ “investment schedules,” or regulatory filings, and by talking to state insurance regulators and using other sources.
Because of the complexity involved with counting private equity-owned life insurers, “the number of US. insurers that are PE-owned continues to evolve,” Johnson and Carelus write.
