The insurance industry is undergoing a transformative phase, with an adoption of alternative financing structures, and the private equity sector’s growing investment in the space. One of the fundamental drivers of this evolution has been the entrance of high-calibre investment talent into the insurance asset management arena.

Historically, a fair percentage of this talent pool would have almost always gravitated towards hedge funds. However, as private equity players carve out a niche in this space, they have started attracting a similar caliber of talent to manage insurance assets. At the same time, the growing presence of PE firms means significantly more attractiver comp packages than traditional insurance firms would historically pay, alongisde the opportunity to work with some of the most talented investment professionals in the industry.

Recent shifts in the industry underscore the reasons behind this talent migration. A combination of factors, such as the capability to execute larger and more interesting trades than in some HFs, as well and the evolving regulatory landscape, especially in the UK, is having an impact. Upcoming reforms to Solvency II regulation, designed to enhance the competitiveness of the UK as an insurance hub, might soon pave the way for UK insurers to also delve into riskier assets. This could result in reduced offshore reinsurance transfers, positioning the UK as an even more attractive insurance center. Given these factors, as well as the large pool of assets, it is no surprise that many candidates who might have previously eyed a Hedge Fund are now seriously considering roles in this burgeoning insurance asset management space.

Asset Growth and Changing Landscape: Recent years have seen major private equity players strategically aligning with or acquiring insurance firms, channelling vast premium amounts and providing extensive capital for investment. We are also seeing some Tier-1 Global Asset Managers and even some Hedge Funds that have been launching and/or expanding their insurance solutions capabilities in order to compete for insurance assets.

Major PE Players and Their Strategy:

  • Apollo: At the forefront of this paradigm shift is Apollo. Their stellar second-quarter results underlined the importance of their insurance division, which contributed a substantial amount of adjusted net income. This, alongside robust inflows, mainly from retail annuities and an impactful pension risk transfer deal with AT&T, has fortified Apollo’s position in the industry.
  • KKR: 2021 saw KKR acquire a majority stake in insurance company Global Atlantic, which bolstered its assets by a staggering $90bn.
  • Carlyle: Their acquisition of a chunk of reinsurer Fortitude Re from AIG boosted their assets by an impressive $50bn.
  • Blackstone: Managing investments for insurers, like Corebridge, through its dedicated insurance solutions arm, Blackstone has solidified its presence in the sector.
  • Brookfield: This Canadian powerhouse has been methodically expanding its footprint in insurance, harnessing the premiums insurers amass. Their assets, as of mid-year, encompassed $110 billion from various arms, including their insurance segment.
  • CVC: Among the heavy hitters in the private equity sector, CVC Capital Partners is a name that continues to solidify its presence in the insurance domain. A testament to their strategic push into the industry is their recent expansion of the insurance portfolio through a partnership with Dale Underwriting, as well as past acquisitions such as RiverStone Europe.

The Approach of Private Equity Firms and Insurers: Differing from conventional insurers, alternative investment managers are resorting to sophisticated financial techniques to craft private agreements. These strategies typically offer returns surpassing those of standard investment-grade corporate bonds.

One notable method involves assets like real estate portfolios or manufacturing facilities being transferred to subsidiaries or special purpose vehicles. These entities then mobilize equity or debt, infusing the parent company with liquid assets.

Nevertheless, companies, including Brookfield, are resolute in their mission to furnish value to all policyholders, reiterating the significance of adhering to regulatory standards across all operational bases.

Conclusion: The confluence of private equity and insurance is sculpting a fascinating ecosystem with amplified capital, multifaceted financing structures, and prospective loftier returns. With top talent increasingly being drawn to the space and the UK’s changing regulatory environment potentially facilitating even riskier asset investments, the future looks promising.