FOR IMMEDIATE RELEASE

Jan. 2, 2024

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Carter Dougherty: carter@ourfinancialsecurity.org

Private Equity Insurance Push Threatens Policyholders, Financial Stability

The private equity push into the life insurance business demands a robust state and federal policy response to curb the emerging risks created when a notoriously predatory industry seeks control of the vast quantities of money generated by premium-paying policyholders, according to a new report (linked here) from Americans for Financial Reform Education Fund.

“Private equity owners on Wall Street are forcing far more risk onto life insurance companies than they have assumed in the past, with potentially perilous implications for policyholders, investors, and financial stability,” said Andrew Park, senior policy analyst at Americans for Financial Reform. “There are policy fixes, but state and federal authorities will have to face down resistance from a very powerful Wall Street actor that profits immensely from owning insurers.”

The report, Risky Business: Private Equity’s Life Insurance Gambit, comes as federal regulators announced plans to look into the financial stability and systemic risk implications of having private equity firms play a growing role in this industry. Private equity firms use the insurance portfolios effectively as a piggy bank to fund their businesses but these higher-risk investments can put policyholders and the economy at risk.

In the report, AFREF outlines how private equity firms control $774 billion in insurance company assets and use the money to fuel the firms’ leveraged buyouts, fund private credit transactions, and generate billions in asset management fees.

The report documents how private equity firms are shifting  the money accumulated by insurers – premiums paid by millions of life insurance and annuity retirement policyholders – into considerably riskier assets. Insurers have always generated profits by investing premiums, but private equity firms are gambling in ways that traditional insurers have not, such as much higher stakes in riskier assets like collateralized loan obligations. Already, several insurers backed by the private equity firm Eli Global, failed after allegedly fraudulently diverting funds to fuel the private equity firm’s other investments to the point where it was unable to cover its policy obligations.

“The rise in private equity-owned insurers can pose real risks to policyholders and even the broader economy, as private equity firms shift staid insurance portfolios into riskier investments,” said Patrick Woodall, senior fellow at Americans for Financial Reform. “If private equity-owned insurers’ losses mount, they could be unable to meet their obligations and policyholders could lose portions of their life savings or face years of delays getting claims paid if their insurer collapses.”

The report recommends steps toward curbing risks around private equity-owned insurance companies including:

• Enhanced attention from the Financial Stability Oversight Council, the federal body of regulators charged with monitoring risks outside the traditional banking system, including the designation of insurers as Systemically Important Financial Institutions (SIFIs).
• Greater oversight of the state officials, who are the primary regulators for insurance companies such as tougher rules around valuing risky assets bought by private equity-owned insurers
• Improved federal oversight of leveraged loans and the fast-growing market for private credit

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