Exploring Growth in U.S. Life and Annuity Insurance Investments

AM Best has unveiled a report showcasing the significant growth in affiliated investments within the U.S. life and annuity insurance sector. From 2018 to 2024, these investments surged to over $373 billion, exhibiting a robust 17% increase from the previous year. This consistent expansion, averaging a 13% annual growth rate, is largely fueled by private equity and asset management entities acquiring stakes in insurance companies.

Affiliated Investments and Associated Risks

The report highlights the composition of affiliated investments, including Schedule BA assets, common stock, bonds, and short-term loans, which constituted 76% of capital and surplus for reporting insurers in 2024, up from 45% in 2018. This growth raises concerns regarding risk management, as potential financial difficulties faced by parent or affiliated entities could impact insurers. AM Best points to concentration risk, lack of valuation transparency, and liquidity issues, with affiliated bonds incurring an additional 25% risk charge beyond standard baseline regulatory compliance requirements.

Private Equity Influence and Investment Trends

Historically dominated by publicly traded and mutual insurers, the landscape has shifted towards insurers backed by private equity and asset management firms, relying heavily on affiliated asset managers for portfolio structuring. Since 2022, entities like Global Atlantic and Athene have notably increased their allocations in structured non-MBS assets and mortgage loans as part of broader industry trends. By 2024, 98% of affiliated bonds were private placements, raising concerns over private letter ratings due to limited public data on collateral, valuation, and credit quality.

Ownership Structures and Financial Vulnerability

Regarding Schedule BA assets, mutual and publicly traded insurers predominantly hold these through joint ventures in real assets, whilst PE/AM-backed insurers favor collateral loans and residual tranches, posing potential loss risks. The report identifies that insurers with high affiliated investment to capital and surplus ratios tend to operate under private equity or asset management ownership. These structures heighten susceptibility to financial challenges at the parent company level due to tightly integrated investment operations.