NAIC: Top 5 asset classes among private life insurers
Analysts based their new review of privately held life insurers on the annual returns that life insurers file with state insurance regulators.
Analysts provided data on private equity-owned life insurers for some indicators and data on all insurers for other indicators.
Some private equity firms have been buying and holding life insurers for decades, but the volume of private equity-focused deals has increased over the past 10 years, in part due to life insurers’ thirst for escape the pressure of low interest rates, and in part because other types of investors see transaction support as a way to improve their own returns.
Private equity firms say they can use their teams to secure more capital and higher returns for life insurers.
One concern is that “investments could shift into higher-returning, higher-risk and less liquid assets that are potentially more volatile,” the analysts write. “The NAIC Capital Markets Bureau will continue to monitor investment trends of U.S. insurers held by PE and report as it deems appropriate.”
Alternative assets and increased risk
A sign that privately held life insurers are taking on a little more risk is that their holdings of Schedule BA and others, or alternative assets, increased by $4.9 billion in the year. ending December 31, 2021.
But the largest portion of life insurers’ bond holdings held by private equity are high-quality corporate bonds, just like other life insurers, and Schedule BA assets were only 6 % actives. The share of assets listed on Schedule BA is about the same as a year ago, analysts said.
Similarly, privately held life insurers place a higher percentage of their bond portfolios in asset-backed securities than other insurers, but NAIC analysts say the average issuer credit ratings of private debt, private equity and other securities in these bond portfolios are high.
Close scrutiny from Capitol Hill
NAIC data on privately held life insurers may draw additional attention to Capitol Hill. Sen. Elizabeth Warren, D-Mass., and some other senators have questioned whether the increase in private ownership of life insurers is a good thing.
Sen. Sherrod Brown, D-Ohio, asked during a Senate hearing on banking, housing and urban affairs earlier this month whether workers could be at increased risk if their government-sponsored pensions transferred to private life insurers through pension risk transfer agreements.
Warren introduced a bill, S. 3022, the Stop Wall Street Looting Act, that could chill the private equity market. Brown is one of the co-sponsors of S. 3022. The other sponsors are Sens. Tammy Baldwin, D-Wis., Jeff Merkley, D-Ore., and Bernie Sanders, a Vermont independent who chats with Democrats.
Top 5 asset classes among private life insurers
|Asset class||Value as of December 31, 2021 (in billions)||Change compared to December 31, 2020, total|
|Cash and short-term investments||$25||-3.8%|
|Source: “Insurer U.S. Private Equity (PE) Investments Decline at Year-End 2021; The number of US insurers owned by PE is increasing. (National Association of Insurance Commissioners Capital Markets Office)|