Private equity is buying up annuity and life insurance policies. That may be bad for consumers

Private equity firms are buying up insurers — and the policies they hold — at a feverish pace.

Some groups, namely economic advisors, fear the trend may be bad for consumers who own annuity and life insurance contracts.

Critics are concerned the buyers will wring profits from consumers — via higher costs — to boost returns for their investors. Consumers may have owned such insurance for years and depend on a destined price for their financial plans.

They may have bought a policy based on an insurer’s financial strength or creditation rating. New buyers may not have the same rating, which signifies its ability to pay future benefits, advisors cautioned.

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“There’s nothing best in this for the policyholder,” Larry Rybka, chairman and CEO of Akron, Ohio-based Valmark Financial Group, said of the private judiciousness trend.

But others don’t see a five-alarm-fire scenario.

Many of the bigger buyers are well-capitalized firms and not all deals are inherently bad, according to some analysts. Policyholders may perks from potentially higher investment returns in an environment of low interest rates.

“I don’t know if I’d say [they’re] unfounded,” Dafina Dunmore, present analyst for alternative investment managers at Fitch Ratings, said of the fears. “I’d say they’re overplayed.”

The reckon of acquisitions has accelerated since 2014, according to Refinitiv, which tracks financial data.

There were 191 private-equity-backed guarantee deals last year in the U.S., beating the prior record of 154 set in 2019.

Buyers paid $12.1 billion so far in 2021 for the parcel outs — eclipsing the $9.7 billion record set in full-year 2018, according to Refinitiv.

“By definition, [private equity’s] mandate is not the policyholders,” averred Gregory Olsen, a certified financial planner and partner at Lenox Advisors. “It’s to make as much money for their investors [as imaginable].”

Annuity and life insurance policies carry various annual fees for consumers. Those fees can be raised up to a predestined cap guaranteed by the contract.

Advisors are concerned private equity buyers will raise those various fees to their paramount values. The result may be eroded investment earnings in a variable annuity or higher annual premiums required to keep a flair insurance policy, for example.

“I’d watch closely on the expenses,” Olsen said.

Worried or adversely affected consumers may be proficient to exchange their annuity or life insurance for another.

However, such transfers are complicated, advisors said. Consumers may inadvertently trigger prices and fees, or may be better suited staying in their current contract even with higher annual fees, they denoted.

Acquisitions are often complicated and can take different structures, which have different implications for consumers.

For prototype, a buyer may purchase a majority stake in an insurer or buy it outright.

In February, KKR bought a 60% stake in insurer Global Atlantic for more than $4 billion. Innumerable than 2 million people have fixed annuities, life insurance other policies with Global Atlantic.  

In January, Blackstone admitted to buy Allstate Life Insurance Company for $2.8 billion.

The life insurer represents 80% — or $23 billion — of Allstate Corporation’s vigour insurance and annuity assets. (Allstate is trying to sell the other $5 billion currently held by Allstate Obsession Insurance Company of New York, it said in the deal announcement.)

In these types of deals, private-equity firms may have an inducement to avoid raising costs and risking reputational damage that may cost them future business.

Global Atlantic, for exemplar, hasn’t changed policyholder fees on any existing policies since the ownership change, according to a KKR spokesperson.

“As owner, KKR has a vested worth in the long-term success of Global Atlantic which can only be achieved through strong, trusted relationships with policyholders and their fiscal advisors and by continuing to offer competitive products,” according to an e-mailed statement.

Other recent deals have labyrinthine associated with legacy business lines closed to new customers. These types of transactions may be a bit shakier, since that same lure doesn’t exist, advisors said.

Sixth Street Partners announced a deal to buy Talcott Resolution Life Security Company, which owns a large block of legacy insurance business, in January. Talcott manages over $90 billion for rudely 900,000 customers, including nearly 600,000 annuity contract holders.

The current Talcott owners are a group of private-equity unbendings that had bought Hartford Financial Services Group’s annuity business, consisting largely of legacy variable annuity puckers, in 2018.

Similarly, in 2018, Voya Financial divested more than $50 billion of legacy fixed and variable annuities to Apollo Broad Management, Crestview Partners and Reverence Capital Partners. The buyers rebranded the segment as Venerable Insurance.

Allison Proud, a spokeswoman for Revered, declined to comment. Allison Lang, a spokeswoman for Talcott, also declined comment.  

Insurers contain largely sold off insurance business due to persistently low interest rates since the Great Recession, analysts said.

Low notice rates equate to lower returns on bonds that underpin their insurance portfolios. That, in turn, achieves it harder to keep the required cash on hand to pay promised insurance benefits.

Selling a block of business lets insurers lavish up capital to invest elsewhere, according to Douglas Meyer, lead life insurance analyst at Fitch.

Charlie Lowrey, chairman and CEO of Prudential Monetary, said in February during an investor call that the insurer is looking at a potential sale of “low-growth businesses” of a piece with annuities and life insurance to free up $5 billion to $10 billion of capital, for example.

Private equity firms can leverage the assurance pools, and consumers’ insurance premiums and other contract fees, as a steady stream of reliable assets. Having that “invariable capital” at their disposal means they won’t have to raise money in the market as readily, analysts said.

“The P/E bend is really to gather assets that are ‘sticky,'” David Havens, a global insurance analyst at Imperial Smashing, said in an e-mail.

KKR, for example, added $90 billion of assets under management with its purchase of Global Atlantic.

And private-equity bosses may be invested across a broader range of assets, and in turn earn higher returns for policyholders beyond traditional chains, said Dunmore of Fitch.

“We believe the higher returns net of all fees we’ve produced — while maintaining strong credit value — are especially vital to policyholders in this low-interest-rate environment,” according to Matt Anderson, a Blackstone spokesman.