NAIC: Private Equity-Owned Life Insurers Have More Structured Securities

U.S. life insurers owned by private equity firms put about as much of their assets in bonds as other life insurers do, but asset-backed securities and other structured securities make up more of the PE-owned insurers’ bond holdings.

PE-owned life insurers held about $102 billion in structured securities at the end of 2022, up 13.5% from a year ago, and those securities accounted for 29% of the insurers’ $353 billion in bonds, according to a new report from the National Association of Insurance Commissioners’ Capital Markets Bureau.

Other U.S. life insurers ended 2022 with $346 billion in structured securities, with those securities amounting to 11% of their $3.3 trillion in bonds, according to a comparison with an earlier bureau report on all insurers’ investments.

Investments in corporate bonds accounted for 50% of the bond holdings at the PE-owned life insurers and 64% of the bond holdings at other life insurers.

What It Means

PE-owned U.S. life insurers may be less likely to invest in the bonds issued by big companies and more likely to invest in securities backed by the pools of student loans, auto loans, credit card debt, equipment loans and other types of debt that go into structured securities.

PE-backed life insurers are less likely to help big companies get bigger and more likely to help people buy homes, go to college and get credit cards.

The Background

Private equity firms are investment firms that use cash from institutions and wealthy individuals to make investments in deals that are not available to ordinary retail investors.

More Details

Overall, the bureau analysts noted, PE-owned life insurers have investments that look similar to the investments of other life insurers.

Assets classified as bonds accounted for 66% of PE-owned life insurers’ cash and invested assets at the end of 2022, compared with 61% at other life insurers.

Although PE-owned insurers have more investments in asset-backed securities, “they were the fastest-growing bond type for all U.S. insurers at year-end 2022,” bureau analysts said.

Some observers, including some state insurance regulators and Sen. Elizabeth Warren, D-Mass., have wondered whether PE-owned life insurers take more risks than other life insurers.

But about 96% of PE-owned bonds have high NAIC credit quality grades, and the high grades could help mitigate concerns about the PE-owned life insurers’ investment strategies, according to the analysts.