Private-Equity Firms Put Retirees’ Annuities in Higher Risks but Also More Cash

PE-backed insurance companies that owe billions of dollars to retirees in annuity payments are taking some additional risk with investments, new analysis shows.

To offset that risk, however, these firms on average hold more cash than traditional insurers, and they have higher capital levels, according to the report.

Seventy insurers controlled by more than two dozen different investment firms or groups altogether hold $255bn of annuity reserves, according to the report. That represents about 13% of the industry’s annuity reserves. Since the 2008 financial crisis, investment firms have scooped up dozens of insurance units and blocks of annuities. While many of the firms in Best’s analysis specialize in private-equity, some identify foremost as asset managers.

Exactly how these new management teams do business has been hard to gauge from the outside, because some data aren’t publicly reported. The Best report sheds light on what has been happening.

The new owners primarily have focused on “fixed annuities,” a product line that some traditional life insurers have been retreating from. Those pulling back are largely reacting to ultralow interest rates, which have made turning a profit difficult on some longtime, bread-and-butter life-insurance offerings.

Source: Wall Street Journal