n its Best’s Special Report, “Private Equity and Investment Managers Continue to Enter Life/Annuity Market,” AM Best states that outside capital was active in entering the life/annuity segment in 2022, which helped private equity (PE)-owned insurers increase their share of admitted assets. This was driven by strong annuity premium growth at select companies such as Athene and Global Atlantic. However, the report notes that high profile acquisitions in the segment also contributed to the increase and that the deal momentum has continued into 2023.

According to the report, the traditional strategy of private equity firms targeting tactical opportunities has for the most part been abandoned. The more recent model incorporates variations of majority ownership of the insurance partner and oversight of the group’s investment portfolio. “This approach is not exclusive to private equity firms, as investment managers are also actively participating now,” said Jason Hopper, associate director, AM Best. “The consistent cash flows and assets that insurance companies provide appeal to asset managers with longer-term goals.”

The operating environment has also changed since 2009, when Apollo created Athene, which grew into an entity that others tried to replicate. Interest rates had remained low for more than a decade, but that has changed since March 2022 and the pricing environment and credit cycle are quite different now.

The report underscores that acquiring and partnering with life-annuity insurers is a long-term play. The ownership structure does not dramatically alter the risk profile as much as the insurance company’s strategic plan and activities. Cash flow and manageable premium growth remain critical, as well as proper asset-liability management and enterprise risk management.

“Capital providers who are impatient and lack a long-term focus will be unable to achieve their business goals,” said Ed Kohlberg, director, AM Best. “New market participants will need to understand the long-term nature of the segment and be prepared to provide the appropriate customer and capital support for the underlying business.”

To date, PE firms have demonstrated their willingness and ability to support the insurer’s growth strategy. Roughly 70% of the PE insurers rated by AM Best have a Long-Term Issuer Credit Rating of “a-” (Excellent) or higher; only two companies have a similar rating of “bbb-” (Good) or lower. Also, the balance sheet strength of a majority of PE-owned insurers rated by AM Best is in the two highest categories; none have balance sheet strength assessed as weak or very weak.

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=338330.

To view a video with AM Best Associate Director Jason Hopper and Industry Research Analyst Kaitlin Piasecki, please visit http://www.ambest.com/v.asp?v=ambprivateequity1223&AltSrc=182.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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