2022 0603 - Retirement Income Journal - NAIC Reassures Congress on Private Equity-Led Insurers, By Kerry Pechter

  • In the 14 years since the Great Financial Crisis, there’s been a surge of capital from powerful investment companies like Blackstone, Apollo, and KKR into the annuity business—all eager to manage the tens of billions of dollars in Americans’ savings that life/annuity companies hold.
  • News of those concerns recently reached the Senate Banking, Housing and Urban Affairs Committee, which Brown chairs.
    • In March, he sent letters to the NAIC and the Federal Insurance Office asking to be briefed on the matter. The NAIC’s response arrived on May 31, the deadline requested by Brown.
  • “State insurance regulators are fully capable of assessing and managing the risks of these insurers, and there is nothing PE firms add to the playing field that changes this fact.
    • It should provide you and the public comfort to know the state insurance regulatory system has already been working on many of the concerns that you and others have highlighted, and we possess the tools and resources to address these issues,” the letter said.
    • NAIC CEO Michael F. Consedine, president Dean L. Cameron of Idaho and three NAIC officials signed the letter.
      • It focuses on life/annuity company solvency as the core issue.
  • The risky assets include collateralized loan obligations (CLOs), which resemble the collateralized debt obligations (CDOs) at the center of the 2008 financial crisis.
  • But the NAIC sees no cause for alarm.
    • “However, while the relative size of this asset class for the sector has been growing, it represents only 2.6% of total cash and invested assets at year-end 2020, and most of the investments held by the industry are of a higher quality.
    • The NAIC has performed multi-scenario stress tests on industry CLO portfolios and closely monitors their performance.”
  • But some followers of these matters were rankled by what they perceived as the letter’s “nothing to see here” tone.
    • “The response is certainly no surprise,” said Tom Gober, a Virginia-based forensic accountant who has documented the tens of billions of dollars of annuity liabilities that a handful of PE-led annuity issuers have reinsured offshore, often with affiliated reinsurers.
      • “The NAIC’s leaders apparently huddled around and threw a bunch of points at Brown that, in a vacuum, sound fine.
        • But when you are familiar with the details, the letter is mainly fluff, and grossly inadequate.