Overview
- How Wall Street recast life insurers to chase fatter profits
- Annuities keep selling fast, though
- Insurers cite high-grade portfolios while watchdogs probe niche raters
- Private equity set up a network of offshore reinsurers to support US operations
- High yield structured bets reshape insurers’ balance sheets
- Insurance regulators notice
Private equity now controls almost $700bn in life insurance assets, and the firms keep steering insurers into private credit, structured deals, affiliated entities, and offshore restructurings that let them tilt further into risk. Executives see it. Economists see it. Government watchdogs definitely see it.
Federal regulators held briefings last year that spelled out the potential hazards if markets tilt hard, according to Bloomberg. Beinsure analyzed new trends and highlighted key trends.
In October, Bank for International Settlements researchers estimated that publicly traded North American life insurers would suffer a capital gap of roughly $150bn under a severe downturn.
20 years ago that figure sat closer to a third of that. The economists added a warning: because insurance flows through every corner of the financial system, a problem at one company could ricochet far faster today. Rising insurance gaps alarm wealthy clients with cyber, NatCat, and lawsuit risks.
5 Key Highlights
- Private equity groups now steer almost $700bn of life insurance assets. They funnel portfolios into private credit, structured deals, related-party investments, and offshore setups that let them stretch risk limits.
- BIS researchers said publicly traded North American life insurers would face a $150bn shortfall in a severe downturn, triple the level from twenty years earlier. The tight links across the financial system mean one firm’s problems could spread fast.
- Since 2009, firms like Apollo, KKR, and Ares transformed insurers into engines for private loans and illiquid assets. Fee-earning assets at major US alternatives shot past $3.5tn. Insurers justify the shift by pointing to higher yields and steady consumer demand for annuities.
- Some managers keep private asset values high while others record sharp markdowns, leading academics to call the practice mark-to-myth accounting. Regulators also scrutinize smaller ratings firms as big insurers still insist their portfolios remain largely investment-grade.
- Offshore reinsurance now makes up more than 60% of US reinsurance purchases. Insurers also hold larger piles of structured credit tied to high yielding market slices. When these positions lock up, redemptions get dicey. Eurovita’s 2023 crisis showed how fast things can seize.
Global markets have weathered trade tensions, but a new anxiety is creeping in – the risk of an AI bubble. Investors see tech valuations climbing so high that earnings might never meet expectations, according to S&P Global Market Intelligence.
With equity indexes increasingly dominated by a small cluster of mega-cap tech names, even a modest correction could spill into something large enough to shift economic trajectories.
Equity-related wealth effects are comparatively important for US households, and as US consumer spending accounts for not far short of 20% of global GDP, a major deterioration in the outlook would be a game- changer for economic prospects worldwide.
Part of the current nervousness comes from the numbers. In the first half of 2025, investment in information processing equipment and software made up an unusually large share of US GDP. That share climbed to levels last seen during the dot-com bubble in 2000, Beinsure noted.
How Wall Street recast life insurers to chase fatter profits
Bloomberg dive into how Wall Street recast life insurers to chase fatter profits, reshaping balance sheets and bidding on complex, hard-to-shift assets.
The industry frames itself as a fix for America’s retirement angst, a stabilizer in a world where pensions wobble and Social Security faces strain.
But to deliver the guarantees consumers want and the returns investors demand, insurers embraced a different level of risk. Private equity outfits claim they’re built to handle it. Global private equity fundraising declined in the first half, with capital raised totaling $366 bn, acccording to S&P Global and Preqin report.
If this trend continues, 2025 will see a 20% decline from the $919 bn raised in 2023. The number of funds closed is also dropping, with 704 reported in the first half compared to 2,590 in all of 2023.
Despite the lower figures, Fraser van Rensburg, founder and managing partner at Asante Capital, believes fundraising has improved compared to 2023.
Insurers reassure customers with reminders about their long record of stability, pointing to investment-grade ratings across most portfolios, Beinsure stated.
They highlight a risk-based capital ratio that dropped from its 2014 high yet still sits at 434%, more than double the level that would trigger tougher oversight.
Still, the collapse of Connecticut insurer PHL Variable Insurance stirred deep doubts about those backstops.
After almost ten years under private equity ownership, the firm revealed a $2.2 bn shortfall and slid into sharper supervision. The state froze $400 mn in payouts, stranding thousands of policyholders. A nasty look for an industry built on promises of security.
Annuities keep selling fast, though
Sales hit $434bn in 2024, nearly doubling in four years. Millions of aging Americans want predictable income more than market thrills. If an insurer collapses, people might wait years to see even a fraction of their cash.
The transformation since the 2008 crisis looks extraordinary. Banks faced tighter rules, pulled back on lending, and left plenty of room for private investors to step in, package loans, and sell them.
Insurers bought those loans to chase yield, free from bank-style restrictions. Private equity managers quickly saw a bigger opportunity: don’t just sell to insurers, own the insurers.
Apollo’s creation of Athene in 2009 set the model. Soon KKR and Ares and nearly every major alternative asset firm had an insurance arm. Demand for private and illiquid assets surged. Fee-earning assets at the biggest US firms nearly tripled to more than $3.5tn since 2019.
Private equity didn’t invent the trend
Today about one third of the industry’s $6tn sits in private credit of every imaginable flavor. Individual loans, collateralized structures, net-asset-value loans backed by private equity portfolios, the whole buffet.
Executives justify the move by pointing to yield spreads: private placements can offer around 80 basis points more than comparable public bonds. The Fed’s Chicago branch highlighted that logic in June.
Yet the critics say the numbers hide something. Managers of private assets enjoy leeway in valuing their own holdings. There’s a wide range in how firms mark identical assets. Some hold values steady. Others mark down aggressively.
A trio of academics referred to the problem as mark-to-myth accounting and said the practice raises questions about the credibility of reported performance.
Graeme Group said the data behind those assets just isn’t as clear or accessible as in public markets. That opacity grows as more assets shift into private pools.
Insurers cite high-grade portfolios while watchdogs probe niche raters
Insurers push back. They emphasize that roughly 96% of the bonds and 95% of the asset-backed securities held by private-equity-owned insurers remain investment-grade. But US regulators are watching smaller ratings companies closely.
KKR even took pains to distance its insurer, Global Atlantic, from Egan-Jones, underscoring that it relies mainly on S&P, Moody’s, and Fitch.
Meanwhile, private equity firms insist they bring sharper investment skill to an industry historically known for caution. Some insurers now hold large blocks of affiliated debt, Beinsure noted.
Security Benefit Life, owned by Eldridge, held more than a quarter of its $49bn portfolio in loans to related entities at the end of 2024. The company says those bets drive superior returns.
Private equity set up a network of offshore reinsurers to support US operations
Bermuda leads the pack, but other jurisdictions are picking up steam. Fitch analyst Jamie Tucker said some offshore regimes offer looser rules and less transparency, raising questions about real capital levels.
Offshore reinsurance accounted for more than 60% of total reinsurance bought by US insurers in 2024, about double the share in 2019.
When things unravel offshore, resolution drags. He cited Reciprocal of America, which fell apart after its Bermuda reinsurer couldn’t pay. Policyholders waited nearly three years for scraps.
BIS economists recently modeled a 2008-style crash. Public US life insurers would face a $150bn capital hole. That’s the bailout bill, essentially.
The National Association of Insurance Commissioners’ (NAIC) Life Actuarial Task Force is developing new rules to assess the accuracy of offshore reinsurance agreements. This effort responds to a growing trend of life insurers turning to reinsurers based in Bermuda and the Cayman Islands.
The task force began reviewing a proposal to examine life insurers’ asset reserves tied to reinsurance deals.
The proposal addresses concerns that domestic insurers might enter agreements that reduce asset requirements significantly, allowing capital releases that could harm policyholders. The task force expressed these concerns in a March 23 exposure of the proposed regulations.
Even Athene, with more than $30bn of regulatory capital, could weather a storm, but the system might not handle dozens of Athene-like structures getting squeezed at once.
And that’s without the kind of alleged fraud tied to 777 Partners, where the former CFO already pleaded guilty. Wander denies wrongdoing through his attorney, but the story adds fuel to worries about the broader setup.
High yield structured bets reshape insurers’ balance sheets
Insurers now hold more structured securities, much of it tied to high yielding slices of the market. Liquidity shrinks. Cash crunch risks rise.
S&P Global Market Intelligence said the industry never managed portfolios this complex before, so the historical playbook may not help.
Life insurers never obsessed over liquidity because policies tend to pay out slowly over time. Mortality rates move predictably. But annuities changed the math.
People can cash out, even with penalties. If too many households decide they want their money at once, insurers might face a wave of redemptions and not enough liquid assets. Gober called it a setup for fire sale dynamics.
That’s a bit like what crushed Eurovita in Italy in 2023. Higher rates plus unexpected withdrawals triggered a liquidity mess. Cinven, the UK private equity owner, didn’t inject the capital regulators wanted.
Withdrawal freezes followed. Eventually a rescue drew support from multiple insurers and more than twenty banks.
Defenders point out that even AIG’s 2008 implosion never endangered regular policyholders directly despite a $182bn bailout. But Gober said perception alone can start a run. If consumers smell insolvency, they’ll sprint for the exits. He compared it to a bank run and didn’t sugarcoat it.
Insurance regulators notice
The National Association of Insurance Commissioners is rethinking capital standards, credit rating practices, and oversight of offshore reinsurance.
The International Association of Insurance Supervisors flagged similar concerns, saying the shift toward private assets and offshore structures could seed financial stability risks.
Now independent voices, global analysts, and even some executives are starting to echo the warnings. People are finally listening.
FAQ
They want long duration capital that sits still for years. That capital lets them load insurers with private loans, affiliated deals, and structured credit that pay higher yields. It’s a tidy machine for boosting fee income and investment returns.
Private credit lacks transparent pricing. Managers can set valuations with wide variation. In a downturn, losses surface unevenly. Liquidity dries up faster than people expect, especially when portfolios tilt toward complex structures.
BIS researchers estimate a $150bn gap for publicly traded North American life insurers. That’s the amount regulators or buyers would need to plug to stabilize the group in a crash scenario.
Some offshore jurisdictions run lighter oversight. Capital requirements vary. When a reinsurer fails, payouts can drag for years. That delay hits policyholders and state guaranty systems hard.
State guaranty funds provide backstops, but payments take time. If too many policyholders try to cash out at once, liquidity problems appear. That’s why analysts warn about annuity-heavy portfolios that can be redeemed quickly.
After years under private equity ownership, the insurer showed a $2.2bn deficit. Connecticut froze $400mn in payouts. Thousands of customers suddenly found themselves waiting, which rattled confidence in the safety net.
They see rising gaps in coverage for cyber incidents, NatCat losses, and lawsuit exposure. At the same time, insurers take bigger balance sheet swings. When the market throws a shock, those clients know liquidity is never guaranteed.
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by Yana Keller — Lead Insurance Editor of Beinsure Media, Nataly Kramer — Lead Editor of Beinsure Media
