Final month the NAIC Capital Markets Bureau issued a Special Report discovering that regardless of a rise within the variety of personal fairness (“PE”) owned U.S. insurers, funding quantity held by PE-owned insurers declined as of year-end 2021. The NAIC Particular Report is well timed coming off a Senate Banking Committee listening to earlier within the month by which some members expressed concern on the speedy enlargement of PE corporations into the insurance coverage area, notably by means of M&A exercise. Some members have expressed concern that PE corporations are much less risk-averse than conventional insurance coverage corporations.
The Particular Report states that the variety of PE-owned U.S. insurers elevated roughly 13% from yr finish 2020 to yr finish 2021. Nonetheless, in combination PE-owned insurers make up solely 3% of the whole variety of U.S. insurance coverage authorized entities. When it comes to money and invested property, PE-owned insurer’s holdings are 6% of whole trade money and invested property, double their 3% illustration throughout the trade. As to holdings by funding class, as is the case with the remainder of the trade, company bonds predominate and 95% of these bonds carry NAIC 1 and NAIC 2 designations, indicating highest credit score high quality. The place the PE-owned insurers materially differ, is their holding of asset-backed and different structured securities, the place proportionally they maintain nearly triple the trade common. This relative propensity towards structured property contributes to the volatility and liquidity dangers raised by some policymakers.
Whereas some PE-owned insurers might exhibit greater danger tolerances, as mentioned within the Senate Banking Committee hearings above, they continue to be topic to the identical oversight and regulation as different insurance coverage corporations. For years the NAIC has been elevating questions as to how PE-owned insurers might differ from different insurers, intently monitoring their liquidity and solvency, and the NAIC will little doubt proceed to take action.
For a abstract of Senate Banking Committee inquiries as to PE-owned insurers, see Senate Banking Committee Chair Urges FIO And the NAIC To Monitor Private Equity and Affiliated Offshore Reinsurance in the Life Insurance Industry – Insurance & Reinsurance (insurereinsure.com) and NAIC Assessing Private Equity Involvement in Insurance Industry – Insurance & Reinsurance (insurereinsure.com).