November was certainly ‘conference season’ in Singapore – with the Singapore International Reinsurance Conference (SIRC) kick-starting the month – only to be followed swiftly by the Global Insurance Forum (GIF), organised by the International Insurance Society.
The two events could not have been more different, however, and while SIRC caused every participant to reassess everything they thought they knew about Nat CAT – the GIF will have caused many insurance players to rethink their assumptions about how private equity fits into the insurance sector.
For purists, private equity is really only relevant when private capital buys equity in unlisted entities. Since most insurers are listed in at least one jurisdiction, the concept of private equity involvement is largely irrelevant from the perspective of the share register. When it might become relevant is where the asset managers of large insurers invest in private equity for lucrative returns.
However, part of this interest has no doubt been occasioned by the IMF raising the alarm over ‘contagion’ from private capital in life insurance – principally in the US.
The IMF indicated that it believed that around 10% ($850bn) of the US life insurance industry’s assets were owned or managed by private equity firms by the end of 2021.
The main culprits appear to include a number of the big name private equity firms headquartered in the US, including Apollo, Blackstone, Carlyle and KKR.
According to the Financial Times, about 45% of the assets of private equity-linked US insurance companies is allocated to illiquid strategies including structured credit, mortgage loans and mortgage-backed securities, compared with 27% for other US insurers, according to the IMF.
The newspaper went on to say that regulators have become increasingly concerned about the risk that the value of an insurer’s illiquid investments drop sharply just as higher interest rates encourage life insurance policyholders to withdraw their money.
While there have already been private equity manoeuvres in insurance in Asia, the feeling is that we may not yet have seen the real start of the influx.
In 2022, KKR acquired a 9.99% ($23m) stake in India-based insurance firm Shriram General Insurance. Since setting up its Mumbai office in 2009, KKR has made more than 20 investments in India with more than a dozen active portfolio companies today.
Some of KKR’s investments in the sector have included SBI Life Insurance, a joint venture between the State Bank of India and BNP Paribas Cardif - and Max Life, one of India’s largest private life insurance players, through Max Financial Services.
In 2021, JC Partners agreed to take over a 92.7% stake in KDB Life for $184m. Also in the Korean market, Korean Re teamed up with Carlyle Group in a strategic co-insurance partnership.
Insurance and private equity do not make natural bedfellows. Insurance is fundamentally risk averse in its investment outlook because the underwriting side of the business is nothing but risk.
Private equity, on the other hand, is little else but risk – speculative, mercurial and transitory. Doubtless insurance regulators in APAC will be watching developments closely.
Barbarians at the gate, indeed.
Asia Insurance Review