As PE firms expand their presence in the insurance business and insurers hold more PE assets, risk concerns are rising and regulators are taking note.
Traditionally, the life insurance and annuity business was renowned for being rather boring and earning slender profits. But after the 2008-2009 financial crisis, when the Federal Reserve initiated a near-zero interest rate policy, many insurers found their annuity payouts adding up to more than they earned on their investment-grade fixed-income portfolios.
Private equity spotted an opportunity in the interest rate mismatch. While PE firms require capital to stay invested over a very long horizon, they often outperform traditional, low-risk fixed income portfolios. As many insurers were under water on their annuity and life insurance businesses, they were keen to get those assets off their books.
At first, they simply partnered with PE firms to invest their assets. But larger firms realized they could do better by competing in the insurance and annuity market themselves and began buying or setting up insurance companies of their own.
A key development came when in 2009 Apollo Global Management founded its own insurance company, Athene, which eventually became the third largest issuer of annuities in the US. In 2021, Apollo bought the portion of Athene it did not control. Some $75 billion in insurance M&A deals have followed; Allstate sold its life insurance business to entities controlled by Blackstone for $2.8 billion in 2021 and Brookfield Reinsurance bought American National a year later for $5.1 billion.
Today, private equity is a major force in the global insurance industry, with varying levels of activity across Europe, Asia, and South America in addition to its inroads in the North American market. Europe represents the most active region, with 437 PE-backed transactions last year. Asia, with Japan as its centerpiece, is also seeing an increase in PE activity, with deal values up 11% in 2024. Insurance penetration in South America remains low, with PE firms just beginning to take notice, according to McKinsey’s Global Insurance Report 2025.
“We have seen a seismic shift in the way companies obtain leverage,” says Mark Friedman, US Insurance Deals leader at consultants PwC, who works with the private equity industry. “We’re now seeing a large shift toward private credit, and I think there is a fair amount of headway to go.”
Private Equity’s Portfolio Presence
The change in insurance companies’ investment strategies has likewise been dramatic.
Close to three-quarters of insurers surveyed recently by Mercer and Oliver Wyman now own private assets. And a survey of 410 insurance companies last October by BlackRock found that 91% planned to increase their allocations to private markets over the next two years.
“It will be interesting to see how distribution partnerships between private capital firms and insurers play out,” says Danill Shapiro, a director of Cerulli Associates’ Product Development practice. “On one hand, insurers may be offering distribution capabilities to firms that otherwise may not have them. But on the other hand, there may at times be poor alignment between the client base of the insurer and the high-end product private capital firms offer.”
Competitive pressure has forced insurance companies to seek higher returns or risk losing business to competitors that offer better annuity payouts, says Friedman: “They had three options: they could offer an [annuity] credit rate in excess of what they’re earning, they could stop selling the product, or they could diversify and access higher yielding assets.”
Private equity funds often invest capital for long-term investors such as university endowments, sovereign wealth funds, and state pension plans. But in recent months, as Yale University and other PE investors have announced plans to sell some of their holdings on the secondary market to raise funds, insurance companies as new sources of capital have been especially welcome.
“What’s happened in the market has driven PE sponsors to look to insurance capital as a potential source,” says Alex Argyris, a partner at law firm Cleary Gottlieb, which advises clients on private equity. “As a result, I don’t think we’re at a saturation point yet.”
While most private-asset investors are limited partners expecting a payout within a few years, insurance liabilities represent a source of “forever capital” because premiums for products like annuities always replenish the amounts being paid out.
Another selling point of private equity is that firms have developed a talent pool of highly skilled and highly paid experts in alternative assets, expertise that many insurance companies lack because of their focus on fixed income investments.
A side effect of the meld between insurance and private equity is that insurers and PE firms are moving an increasing amount of their life insurance and annuity assets offshore, especially to Bermuda and the Cayman Islands. Regulators in these locales use traditional GAAP accounting practices rather than the more stringent US standard, reducing the capital insurers need to hold in reserve. In addition, these jurisdictions offer a lower tax rate and impose less stringent rules for investing in private assets than do U.S. regulators.
The attraction of offshore venues is clearly growing. S&P Global Intelligence reported in May that insurance companies and private equity sponsors moved $130 billion in life insurance and annuity assets to offshore entities in 2024, bringing the total to $1.1 trillion.
Investment Controversies
Alongside the benefits of private assets, however, are risks associated with lack of transparency in many of these investments. The risks were highlighted when insurance regulators in Utah and South Carolina demanded in 2024 that five insurance companies reduce their investment exposure to a Miami-based PE firm, 777 Partners, that had exceeded the regulatory maximum for a single entity. The Bermuda Monetary Authority later cancelled the insurance license of the company’s reinsurer.
A study by the International Monetary Fund released in December 2023 highlighted concerns that PE-influenced life insurers have fewer liquid assets than the aggregate of all insurers. These companies “are more vulnerable to a potential adverse scenario of increases in corporate defaults and credit downgrades should the economy slow down because of higher interest rates,” the study found. “Such a scenario could force insurers to liquidate investments when faced with increasing regulatory capital charges.”
Noting that there has never been a loss in a PE-backed portfolio of insurance assets, PwC’s Friedman argues that PE firms are able to make more granular assessments of the risks of the underlying assets than is common in conventional fixed-income portfolios.
Another controversy surrounds how the assets are evaluated by ratings agencies.
During the 2008-2009 financial crisis, it emerged that ratings agencies had given triple-A ratings to mortgage loans that were securitized into bonds when the underlying mortgages were rated much lower. Similarly, ratings of private credit and private equity insurance asset portfolios are based on those of the fund provider rather than the underlying individual assets, which could include more risky assets.
A study by the National Association of Insurance Commissioners (NAIC) in June 2024 found evidence of ratings inflation of insurance assets by smaller ratings agencies. The NAIC has responded by setting up a task force to consider ways to assess capital requirements for so-called risk-based capital.
The group “will be tasked with developing guiding principles for updating the RBC formulas,” a NAIC statement announced, “to address current investment trends with a focus on more RBC precision in the area of asset risk and to ensure that insurance capital requirements maintain their current strength and continue to appropriately balance solvency with the availability of products to meet consumer needs.”
Some members of Congress have also expressed concern increases in private assets held by insurance companies.
“Pensions’ investments in private equity have been dubbed a ‘Wall Street time bomb,’” said Sen. Elizabeth Warren, a Massachusetts Democrat, in a June 25, 2025 letter to Edmund F. Murphy III, the CEO of Empower Retirement, which she said had been urging retirement contribution plans to invest in private equity and private credit. “Even institutional investors admit their uncertainty as to whether private equity’s very thin outperformance is worth the risk of opaque and illiquid investments whose actual value is often impossible to determine—investments that could crater when the money is most needed.”
