What Happens When You Combine Private Equity and Insurance?

Matthew G. Saroff
3 min readMar 1, 2023

Rather unsurprisingly, you get dodgy high-risk financial shenanigans.

As I have stated before, “There is no human activity that private equity cannot ruin.”

PE backed insurance companies are now in trouble for because the complex financial instruments that they have invested in are creating systemic risk across the entire insurance sphere:

US insurance regulators on Monday will meet to consider boosting capital charges on complex corporate loan instruments that some in the industry warn are creating excessive risk.

The issue pits insurers backed by large private equity firms such as Blackstone, Apollo Global and KKR — which are increasingly investing in the loans — against traditional life insurers such as MetLife and Prudential Financial, which warn of growing risks. Monday’s gathering is hosted by the National Association of Insurance Commissioners, a trade group whose standards are relied upon by state insurance commissioners.

The private equity-backed insurers are resisting a proposed 50 per cent increase in the capital charges held against the riskiest slices of corporate loan packages that are purchased with annuity premiums. Those increases are supported by many of the largest life insurers in the US, which warn that their aggressive rivals are overloading customer portfolios with excessive risk. Higher capital requirements can help absorb potential investment losses but also depress investment returns.


The debate centres on the $3tn annuities market — financial products that life insurers sell to millions of US savers looking to build income streams for retirement.

It should be noted that the annuities market is a petri dish for fraud, because of the interval between collecting the money and when the fraud becomes apparent is so long.

It’s no surprise that PE would want a piece of that.


The insurance businesses inside private equity firms tend to invest in more complex securities in order to earn greater “spread” profits between investment returns and obligations owed to policyholders. The private equity firms have insisted that their portfolio choices do not increase risk of losses but rather seek excess returns through buying illiquid or complex instruments.

The working group of the NAIC is set to discuss the capital charges associated with collateralised loan obligations, or CLOs, that bundle multiple corporate loans and sell in tranches that range in rating from AAA down to high yield and equity.

The current risk-based capital regime, the NAIC noted, allows for an “arbitrage” opportunity for the holder of a CLO loan. A B-rated corporate loan owned by an insurer has to set aside equity of 9.5 per cent. However, a CLO created from a package of B-rated loans with six tranches would have a blended capital charge of just 2.9 per cent.


A letter signed by several large traditional insurers including Equitable, MetLife, New York Life and Prudential, said “structured securities are important financial products, but they also have unique ‘cliff risks’ not present in most financial assets”, referring to the possibility of a sudden catastrophic outcome.

The group supports a recommendation to raise the capital charge for the riskiest equity tranche from 30 per cent to 45 per cent.

In a letter signed by insurers backed by the likes of Apollo, billionaire Todd Boehly’s Eldridge Industries, KKR and Blackstone, this group said the current capital charges were appropriate.

The most important thing to understand about private equity is that they operate under the assumption that they will be gone before their risky schemes explode.

This has been their basic business model since they were created.

Any “Innovation” proposed by them is likely to be to the detriment of the industry and the general public.