Private Equity May Now Own Your Life Insurance Policy

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by Tyler Durden
Sunday, Sep 26, 2021 - 07:30 PM

Ownership of many life insurance policies are changing hands from the traditional insurers who once ran the industry to private equity and asset management companies. 

While insurers look to offload the risks associated with policies, names like Blackstone are moving into the industry, according to a new write up by the Wall Street Journal. The shift has been caused by rates falling, which has "led traditional insurers, which invest policyholders’ premiums and the capital backing up their obligations primarily in plain-vanilla bonds, to retreat from products most hurt by low rates".

In other words, insurers are looking to get out of the policies and annuities that become a drag on profitability thanks to the Fed rigging the bond market. 

Investments from the "new guard" replacing the old one can be modestly riskier than plain vanilla bonds insurers are used to, including incorporating some non-traditional investments, like ownership of the Los Angeles Dodgers baseball team.

More than 24 investment firms now own or control 50 U.S. life insurance companies, the WSJ noted, overseeing $600 billion in assets. 

142 year old Principal Financial Group Inc. is discontinuing sales of individual life products and some annuities. Hartford Financial Services Group Inc. and Voya Financial Inc. have exited entirely insurance and annuity sales to individuals completely, the report says. MetLife has spun off its U.S. retail operations and AIG is selling a 9.9% stake in its life-insurance and retirement-services unit to Blackstone. 

Out are the names like Prudential; in are the names like Apollo and KKR. 

James Belardi, chairman and chief executive of Athene Holding, an insurer Apollo helped launch in 2009, told the WSJ: “The restructuring in the insurance industry isn’t showing any sign of slowing down.”

State insurance departments, meanwhile, are tasked with trying to figure out which buyers are too inexperienced to run insurance companies through difficult times. All of these regulators use a “risk-based capital” system to try and parse out whether or not insurers have adequate capital to be in business, the report says. 

And policyholders have been alarmed by the constant shift of ownership for their policies. 76 year old Charles Stafford said: “It is kind of like a hot-potato game, passing it from one person to the next.”

75 year old Bert Hermelink was transferred from Voya to a new company called Resolution Life. “I am irritated,” he said. “I’m not sure what Resolution is" he said before admitting "I'm stuck, I can't go anywhere". 

Colorado Insurance Commissioner Michael Conway had previously found that Resolution had "considerable industry experience" and allowed the Voya deal to proceed. 

"The process worked here: We made sure we were listening to everybody who wanted to be heard," Conway said about the deal.

We're not sure Hermelink would agree. 

You can read the Wall Street Journal's full write up on the industry shift here