Senate Banking Chair warns about private equity ownership of insurance companies

Sen. Sherrod Brown says PE has a track record of 'undermining pension and retirement programs.' The American Investment Council praises PE stewardship of insurance firms.

Senate Banking Committee Chairman Sherrod Brown, D-Ohio, is worried about the growing presence of private equity funds in the insurance industry and the potential risk it creates for retirement savers.

Private equity firms have been acquiring insurance companies at a rapid pace in the last few years, according to the Federal Insurance Office. Insurers owned by private equity firms are among the largest providers of annuities and other retirement investments, a situation that drew a warning from Brown.

“I am writing to express my concern that insurance investment products workers depend on for their retirement are being transferred to these risky companies that have a track record of undermining pension and retirement programs,” Brown wrote in a letter Wednesday to officials at the FIO and the National Association of Insurance Commissioners.

In a report last fall, the FIO said the cash and invested assets of private-equity-owner life insurers totaled more than $471 billion at the end of 2020, comprising 11% of the cash and assets in the life insurance sector. In his letter, Brown cited a McKinsey & Co. study that said when pending PE-insurance deals close, private funds will hold $620 billion of life and annuity assets.

Private equity funds take on more risk than traditional insurers when investing assets and don’t face the same financial and investor protection requirements, Brown said.

“Consequently, many workers who chose to invest their retirement savings in conservative and long-lived insurance firms now find themselves paying premiums to much riskier firms with less experience in the insurance business,” he said.

Brown echoed some of the misgivings that have been raised about the use of private equity investments in retirement plans.

In his letter, Brown asked the FIO to work with the NAIC to collect additional data from insurers and issue a report to Congress by May 31. Among the areas Brown wants the report to address are the risks aggressive PE investing strategies create for insurance customers and whether state insurance regulators are capable of assessing and managing risks related to PE ownership of insurers.

An NAIC spokesperson said the organization has received Brown’s letter and is reviewing it.

The American Council of Life Insurers said state regulations ensure customers are protected no matter who owns insurance firms.

“All life insurance companies, regardless of corporate ownership structure, are subject to the same stringent rules enforced by state regulators and designed to ensure companies are able to fulfill their long-term promises to consumers,” ACLI spokesperson Whit Cornman said in a statement. “Consumer protection remains the cornerstone of the robust state insurance regulatory system. We are reviewing the Chairman’s questions and look forward to being a resource to FIO, the NAIC and the Chairman’s office on this issue.”

Private equity firms also have been gobbling up retail investment advisers over the last few years. A spokesperson for Brown did not respond to an inquiry about whether he’s also concerned about that trend.

The American Investment Council, which represents the private equity industry, defended its stewardship of insurance firms.

“Private equity and private credit have a successful history of providing capital to and managing the assets of, the U.S. insurance industry and have played a critical role in supporting that industry and insurance policyholders,” Jason Mulvihill, AIC chief operating officer and general counsel, wrote in a Jan. 18 comment letter to NAIC. “Private equity has consistently outperformed traditional asset classes—such as publicly traded stocks and public mutual funds—for the past 40 plus years, including for insurance companies that make up approximately 12% of the invested capital in private equity funds.”

Brown and Sen. Elizabeth Warren, D-Mass. and a member of the Banking Committee, are among the Democratic lawmakers who introduced legislation last fall to reform the private equity sector.