{"text":[[{"start":6,"text":"Hundreds of billions of dollars of assets originated by private capital groups have piled up in a sleepier corner of the financial system: life insurance and annuity companies, which guarantee retirement savings for millions of people."}],[{"start":19.15,"text":"This trend developed after the 2008 financial crisis, as lending was squeezed out of the banking system into private equity companies. Blackstone, the world’s largest alternative asset manager, has struck a series of asset management deals with insurers, while rivals KKR and Apollo Global Management have acquired insurers outright and invested policyholders’ premiums into loans that they originate."}],[{"start":43.4,"text":"As Wall Street’s most aggressive investors have come to control hundreds of billions of dollars of retirement savings, regulators, policyholders and even some industry executives have warned that the sector is pushing into riskier and more opaque assets."}],[{"start":59.05,"text":"Many are concerned that this trend could put policyholders at risk, and that the failure of a large life insurer could have broader consequences for the economy. "}],[{"start":68.2,"text":"Colm Kelleher, UBS chair, in November warned that the insurance sector was at the centre of “looming systemic risk” building up in less-regulated corners of the financial system."}],[{"start":79.2,"text":"The trade started small, with groups such as Apollo investing money from insurers like Athene into higher-yielding loans, compared with more traditional portfolios of government and corporate bonds, and pocketing the spread over a guaranteed return. This put them at a competitive advantage, allowing them to offer better annuity rates, prompting public and mutual life insurers to adopt many of the same strategies."}],[{"start":102.80000000000001,"text":"With more insurers chasing after private credit loans, risk managers have become more concerned about the complexity and illiquidity of private credit investments they hold, as well as the challenges of ensuring that these products are correctly valued."}],[{"start":116.80000000000001,"text":"Many are taking a harder look at the private assets that are showing up in their investment portfolios, and bulking up their internal risk management systems."}],[{"start":125.45000000000002,"text":"“The way insurers underwrite a transaction has matured a lot,” says Joseph Pursley, head of insurance, Americas, for asset manager Nuveen. The industry has moved away from “a full discretionary mandate, where we source the transaction, give it to them, and they get it, whether they like it or not.”"}],[{"start":143.95000000000002,"text":"Instead, Pursley says, insurers were increasingly saying, “we’re going to look at the deal and decide if we take it.”"}],[{"start":151.10000000000002,"text":"Nuveen has recently fielded an influx of questions from insurance clients about their exposure to software and data centre loans, as those asset classes have boomed, he adds."}],[{"start":null,"text":"
"}],[{"start":161.50000000000003,"text":"Many of the instruments that have already ended up on insurers’ balance sheets are structured as complex securities backed by slices of debt ranging from aircraft leases and equipment finance to student loans."}],[{"start":174.75000000000003,"text":"As insurers have rushed for access to higher-yielding private credit, critics have argued that some had insufficiently scrutinised the investments underlying complex products such as collateralised loan obligations and rated note feeders, investment vehicles that turn stakes in private equity or credit funds into bonds with top ratings."}],[{"start":197.05000000000004,"text":"US life insurers have led the way in the push into private markets. Their holdings of assets flagged by Moody’s as riskier had grown to $685bn by the end of 2024, the rating group said, or about 18 per cent of the industry’s $3.8tn in fixed-income holdings."}],[{"start":215.95000000000005,"text":"European, UK and Japanese insurers have been slower to adopt the trend. Private credit as a whole — including senior direct lending — accounted for just about 10 per cent of the general account, the main pool of assets, of many European insurers, according to an analysis by JPMorgan."}],[{"start":233.35000000000005,"text":"But the trend is expected to accelerate, partly spurred by North American asset managers’ push into overseas markets. Brookfield and Apollo-backed insurer Athora both announced large acquisitions last year in the UK, and Japanese life insurers have increasingly tapped into US private credit through partnerships with groups such as Blackstone."}],[{"start":255.05000000000004,"text":"In response to criticism, life insurance and annuity companies point out that they are ideal destinations for the more illiquid loans favoured by private credit providers, since promises to policyholders stretch decades into the future. Additionally, many of their products are difficult to redeem on short notice, making these institutions less “runnable” than banks."}],[{"start":277.65000000000003,"text":"But as private capital groups have loaded up insurers with these loans, regulators and policyholders have become increasingly worried that the assets backing Americans’ nest eggs could be riskier than their strong ratings suggest."}],[{"start":291.3,"text":"The Bank for International Settlements has warned that insurers could be at risk of “fire sales” during periods of financial turmoil, and has said that there could be “ratings shopping” between providers of credit ratings for insurance investments. This matters because ratings determine the regulatory capital insurers have to back their promises to policyholders."}],[{"start":311.8,"text":"Others are worried about the growing number of parent company loans that are ending up in private equity owned or affiliated insurers."}],[{"start":320.5,"text":"Apollo merged with life insurer Athene in 2022, and has been the largest seller of annuities for three years running. Many of its own loans have ended up in Athene, prompting questions over whether risk is being sufficiently scrutinised and assets are being fairly priced."}],[{"start":336.8,"text":"18 per cent of investments held by Athene’s US Life Group came from affiliates, according to rating agency AM Best. Global Atlantic, the insurer acquired by KKR in 2021, had about 22 per cent of its assets marked as affiliated."}],[{"start":353.2,"text":"Athene argues that this trend is a selling point, rather than a cause for concern, since it has “alignment” with its parent Apollo."}],[{"start":361.25,"text":"But growing scrutiny over the broader trend of investment into complex private assets has left many insurers taking a harder look at the alternative investments on their books."}],[{"start":371.45,"text":"When vetting complex structured investment products, Gareth Mee, head of institutional retirement at insurer Legal & General, told the FT: “You need to be able to understand and look through to the underlying” investment.”"}],[{"start":392.65,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1776671700_9977.mp3"}