Press Release Private Equity Wall Street

Private Equity’s Latest Buying Spree Puts Life Insurance and Annuity Benefits at Risk

January 13, 2022

Contact: KL Conner, 202-281-4159Mail_Outline

Washington DC — Insurance assets have quickly become a major component of the assets managed by private equity firms. Without regulations, life insurance and annuity policyholders are exposed to increased risk, according to a new report by Eileen Appelbaum, released today by the Center for Economic and Policy Research (CEPR).

Beware of Private Equity Gobbling Up Life Insurance and Annuity Companies lays out the strategies behind private equity’s pursuit of insurance assets, the impact it could have on retirement savings, and the regulations needed to protect beneficiaries and restrain corrupt self-dealing and conflicts of interest by private equity firms.

“Life insurance assets are an attractive permanent source of investment capital for private equity firms,” explains Appelbaum. “Steps need to be taken to prevent billionaire private equity firm partners from enriching themselves at the expense of life insurance and annuity policyholders.”

At the end of 2020, aggregate holdings of cash and invested assets of US life insurance companies were $4.9 trillion. Private equity firms controlled 9.6 percent of these assets—a total of $471 billion. Of the slightly more than 400 US life insurance companies, 50 are owned or controlled by more than 24 private equity firms.

The Federal Reserve has expressed concern that investments in difficult to sell debt and equity holdings may mean that insurers will lack cash to pay a surge of claims in an economic crisis.

Regulating private equity investments is challenging because little reliable public information exists about how these firms invest insurance assets, making it difficult to gauge risk and the effect on returns to beneficiaries, says Appelbaum.

At the very least, Appelbaum suggests these regulations:

  • Ban the practice of private equity firms investing insurance assets they control in their own debt and buyout funds.
  • Cap fees paid for investment in alternatives such as buyout or debt funds, so that fees paid to private equity firms do not eat up higher earnings on these risky assets.
  • Set national standards for reserves against more risky investments for any company managing life insurance and retirement benefits in the US, regardless of where the company is headquartered, to thwart moves to jurisdictions with lax reserve requirements.

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