Increasing capital flowing from private equity into the insurance industry, particularly in the context of pension de-risking, was a hot topic at the recent ERISA Advisory Council meeting in Washington DC.
Life Annuity Specialist captured some of the opposing viewpoints: Those in favor of private equity’s participation in de-risking argued that private equity assets supporting de-risked pensions are safer than corporate bonds with equivalent ratings held by insurance companies. They also argued that the insurance industry needs the capital currently being provided by private equity, and that retiree benefits are actually safer under the stewardship of insurers rather than defined benefit plan sponsors.
However, dangers were also highlighted to the ERISA Advisory Council. These included very low surpluses (assets minus liabilities) held by private equity-owned insurers, as well as private equity’s creation of opaque networks of shell companies which may make recovery in the event of non-payment extremely difficult.
Private equity’s interest in the insurance industry is a trend that is not slowing. Recently, Bain Capital raised $1 billion for a private equity fund for insurance investments. Read more about that here.