Private equity firms are buying up insurers — and the policies they hold — at a feverish pace.
Some groups, namely financial advisors, fear the trend may be bad for consumers who own annuity and life insurance contracts.
Critics are concerned the buyers will wring profits from customers — via higher costs — to boost returns for their investors. Consumers may have owned such insurance for years and depend on a certain price for their financial plans.
They may have bought a policy based on an insurer’s financial strength or credit rating. New buyers may not have the same rating, which signifies its ability to pay future benefits, advisors cautioned.
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“There’s nothing good in this for the policyholder,” Larry Rybka, chairman and CEO of Akron, Ohio-based Valmark Financial Group, said of the private equity trend.
But others don’t see a five-alarm-fire scenario.
Many of the bigger buyers are well-capitalized firms and not all deals are inherently bad, according to some analysts. Policyholders may benefit from potentially higher investment returns in an environment of low interest rates.
“I don’t know if I’d say [they’re] unfounded,” Dafina Dunmore, lead analyst for alternative investment managers at Fitch Ratings, said of the fears. “I’d say they’re overplayed.”
‘Watch closely’
The pace of acquisitions has accelerated since 2014, according to Refinitiv, which tracks financial data.
There were 191 private-equity-backed insurance deals last year in the U.S., beating the prior record of 154 set in 2019.
Buyers paid $12.1 billion so far in 2021 for the deals — eclipsing the $9.7 billion record set in full-year 2018, according to Refinitiv.
“By definition, [private equity’s] mandate is not the policyholders,” said Gregory Olsen, a certified financial planner and partner at Lenox Advisors. “It’s to make as much money for their investors [as possible].”
Annuity and life insurance policies carry various annual fees for consumers. Those fees can be raised up to a certain cap guaranteed by the contract.
