A National Association of Insurance Commissioners' group is studying the growing influence of private equity firms over the insurance industry and its products.
Regulators approved a list of "regulatory considerations" Tuesday for the Macroprudential Working Group. Many items on the list deal with the unknowns surrounding private equity control of insurers.
"Owners of insurers, regardless of type and structure, may be focused on short-term results, which may not be in alignment with the long-term nature of liabilities in life products," reads one item. "For example, investment management fees, when not fair and reasonable, paid to an affiliate of the owner of an insurer may effectively act as a form of unauthorized dividend in addition to reducing the insurer’s overall investment returns."
The Macroprudential Working Group is chaired by Justin Schrader, chief financial examiner for the Nebraska Department of Insurance. Several other NAIC groups and task forces are also working on private equity and related issues, he said, and initial meetings will be held to coordinate efforts before the MWG gets to its own work.
"We will consider the risks, existing measures to address the risks, if they are sufficient for now or further measures should be considered and, if the latter, which group is appropriate to perform the work," Schrader said.
PE Influence Growing
According to the latest NAIC Capital Markets Special Report, private-equity firms owned 117 insurers at the end of 2020. PE firms accounted for $487 billion in BACV [book-adjusted carrying value] of total cash and invested assets, compared to about $344 billion at year-end 2019.
The BACV of total cash and invested assets for PE-owned insurers was 6.5% of the U.S. insurance industry’s $7.5 trillion at year-end 2020.
While PE firms control a relatively small number of insurers, it is a growing trend. Private equity firms see insurance company deals as an innovative way to increase return and assets under management.
Last year, major private equity players Blackstone, KKR, and Apollo all announced mergers or acquisition plans to bolster their insurance portfolios. Private investors acquired or reinsured more than $200 billion total in 2021, according to a McKinsey report.
InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.