NY insurance regulator calls out PE

Private equity firms’ strong interest in the insurance business has caught the attention of New York’s Department of Financial Services (DFS), which believes the industry is too focused on short-term returns to meet the long-term needs of retirees. 

“Private equity firms typically manage their investments with a much shorter time-horizon, for example 3 to 5 years, then we typically require for prudent insurance company management,” New York Department of Financial Services (DFS) superintendent Benjamin Lawsky said during a speech on Thursday in New York City. 

“This type of business model isn’t necessarily a natural fit for the insurance business, where a failure can put policyholders at significant risk.”

In a credit report circulated earlier this year, Moody’s said the life insurance market has been drawing increased interest from private equity firms as “the protracted low interest rate environment, regulatory constraints and earnings pressures have led insurers to explore selling underperforming segments.” 

The DFS, which regulates both banks and insurance companies in New York, is “ramping up” its focus on private equity firms that acquire insurers, according to Lawsky – who says regulations covering private equity investments into banks should match similar investments into insurers.

“Private equity firms rarely acquire control of banks, not because they’re prohibited from doing so, but because the regulatory requirements associated with such acquisitions, are more stringent than a private equity firm might like,” said Lawsky. “These regulation requirements are designed in part to encourage a long-term outlook, and put ‘skin in the game’.”

Lawsky, who said private equity-controlled insurers now account for 30 percent of the indexed annuity market, said he hopes to stir a national debate on the issue. 

The DFS was not able to return a request for comment by press time.