How Private Equity Turned Life Insurance Into a Taxpayer Backstop | Pranjal Drall & Andrew Granato

Summary

Andrew Granato and Pranjal Drall discuss their paper on how private equity ownership of life insurers has grown massively and how insurer failures are backstopped by state guarantee funds that shift costs to taxpayers. They argue PE-linked insurers reallocate assets into opaque private credit, use ratings arbitrage and Bermuda shadow reinsurance, and increasingly rely on runnable funding structures. The conversation examines systemic risk, regulatory gaps, and the recent Guggenheim/Delaware Life/Clear Spring affiliate-transaction scandal. The main market implication is that private equity-linked insurance and private credit exposure should be monitored as a developing tail risk.

• PE ownership of life insurers grew from about $23 billion in 2009 to about $700 billion by 2024.
• State guarantee funds assess surviving insurers on premium volume, and 44 states allow tax credits, shifting costs to taxpayers.
• PE-linked insurers reallocate into private credit, affiliated loans and structured products with ratings opacity.
• Private letter ratings and Egan-Jones ratings create ratings-shopping incentives.
• Bermuda shadow reinsurance can hide leverage and disclosure, with reports of 30-to-1 or 50-to-1 leverage.
• FABNs and surrender rights create potential life-insurer run risk, with Apollo/Athene as the largest FABN issuer.
• Guggenheim/Delaware Life/Clear Spring scandal showed reported affiliated assets jumping from 3% to 42%.