"Over the past decade the liquidity of insurer’s’ assets declined and liquidity of their liabilities increased, potentially making it more difficult for them to meet a sudden rise in withdrawals and other claims."
Private equity companies have been buying up life insurance companies over the past decade and changing the way they do business. Global management consultants McKinsey and Company called tapping into the steady cash flow from life insurance and annuity premiums a “once in a generation opportunity” for investors who are willing to take higher risk to generate higher returns. Blackstone Inc., a leading global investment firm, and The Carlyle Group, private equity specialists, are getting into the game. The Federal Insurance Office at the U.S. Treasury reported that private equity controlled 11 percent of the life insurance industry’s cash and assets by the end of 2020, or more than $471 billion, up from almost nothing 10 years ago.
Not only are private equity firms buying insurance companies, they also are taking over corporate pension plans and converting them into annuities. The aluminum company Alcoa Corp. and defense contractor Lockheed Martin Corp., for example, last year sent their workers’ pension funds with assets totaling $5.9 billion to Athene Holding, Apollo’s insurance arm. But unlike company-run pension funds backed by federal ERISA guarantees, or bank deposits which are insured up to $250,000, there is no federal backstop for annuity contracts that replace pension plans. If an insurance company fails, retirees would stand in line with other creditors to pick up any scraps.