Private equity (“PE”) firms have been increasingly active in the US insurance industry, attracted by the opportunity to access long-term capital and manage large pools of assets. However, this trend has also raised concerns among US state insurance regulators, who are tasked with, among other things, protecting the interests of policyholders and ensuring the financial stability of insurers. In recent years, US state insurance regulators have adopted new regulatory guidance and undertaken new regulatory initiatives to address the perceived risks posed by PE investors in insurance, especially in relation to the PE investors’ investment strategies and group structures for ownership of insurance businesses.
PE Investments in Insurance
According to the National Association of Insurance Commissioners (“NAIC”)1, “[s]ince the financial crisis of 2008, PE firms have become some of the most active participants in insurance sector merger and acquisition (M&A) activity.”2 Although PE investors look for opportunities broadly across the insurance industry, they often seek to acquire insurers that have long-term liabilities, such as annuities and life insurance, and that generate stable cash flows from premiums. These features allow PE firms to deploy the insurers’ assets in funds and investments managed by the PE firm and its affiliates, especially assets that offer higher returns than traditional fixed income investments.
