We would love to hear from you. Click on the ‘Contact Us’ link to the right and choose your favorite way to reach-out!


media/speaking contact

Jamie Johnson

business contact

Victoria Peterson

Contact Us


Close [x]

Industry News


  • Industry Articles (17,444)
  • Industry Conferences (3)
  • Industry Job Openings (3)
  • Moore on the Market (189)
  • Negative Media (139)
  • Positive Media (73)
  • Sheryl's Articles (648)
  • Wink's Articles (257)
  • Wink's Inside Story (230)
  • Wink's Press Releases (97)
  • Blog Archives

  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • October 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • November 2010
  • October 2010
  • September 2010
  • August 2010
  • July 2010
  • June 2010
  • May 2010
  • April 2010
  • March 2010
  • February 2010
  • January 2010
  • December 2009
  • November 2009
  • October 2009
  • August 2009
  • June 2009
  • May 2009
  • April 2009
  • March 2009
  • November 2008
  • May 2008
  • February 2008
  • August 2006
  • Scrutiny Of Private Equity Could Expand

    July 12, 2013 by Linda Koco

    The comment period closed yesterday on an eyebrow-raising memo about private equity deals with annuity and life insurance companies—an issue of growing concern for producers who represent insurers with ties to private equity and/or who compete with such insurers.

    The 1,600-word document has been circulating for the past several weeks among state regulators who serve on the Financial Condition (E) Committee of National Association of Insurance Commissioners (NAIC). It was the handiwork of the Financial Analysis (E) Working Group, a subgroup of the E-Committee.

    Among other things, the memo calls for creation of a new NAIC working group to develop procedures that regulators can use when reviewing deals and monitoring post-acquisition activities. If that happens, it would put a bigger spotlight on private equity deals involving insurance.

    The lengthy memo also proposes numerous best practices for state insurance regulators to follow when reviewing and monitoring private equity deals with insurance entities, plus “new or enhanced regulatory authority for regulators” in certain areas.

    Special purpose working group

    NAIC’s E-Committee already has scheduled a public conference for July 17, at which time regulators will consider establishing the new working group, according to NAIC.

    Larry Hamilton, a partner at Mayer Brown who has been following the developments closely, thinks the regulators will go ahead and vote to move forward on that proposal.

    “The chair of the working group and the chair of the E-Committee are both strong leaders who view this as an important issue,” Hamilton explained. He was referring to Steve Johnson, deputy insurance commissioner in Pennsylvania, and Joseph Torti III, deputy director and superintendent of banking and insurance in Rhode Island, respectively.

    In addition, many regulators believe “that financial engineering may be putting policyholders at risk,” Hamilton said. That concern will help motivate a go-forward decision, he predicted.

    Even if regulators do form a new working group around this issue, “the proposed changes won’t happen quickly,” he predicted. That’s because some of the proposals are extensive, requiring assessment of impact on insurance regulations overseen by different units of NAIC.

    Still, he added, some states already may be doing some of these things. And others might use the memo as an informal checklist or best-practices list to consult when reviewing any private equity/insurance deals or issues that come their way.

    The memo

    In its memo, the E-Working Group members lay out their primary concern plus five “possible best practices” and three “possible new procedures.”

    The primary issue is the “increased interest in the insurance industry by private equity interest and hedge fund managers,” they wrote, noting that this appears to be directed at life insurers, especially those engaged in annuities.

    This interest is not limited to the acquisition of control of life insurers, the regulators continued. “In some cases, the firms utilize a reinsurance agreement in order to increase their control over such business and related assets. Control over annuities, either through acquisition or through a reinsurance agreement, provides the firms the opportunity to manage the assets of the insurer.”

    The regulators acknowledged that the current low interest rate environment creates risk for life insurers, to the point that some carriers may want to limit the risk by reinsuring the business or by selling such operations.

    In those cases, it is “critical” that investor interests be aligned with the interests of annuitants and beneficiaries, they wrote, pointing specifically to the need for firms to take “a long-term view when investing these individuals’ funds to meet the future policy benefits.”

    The problem? Some regulators believe that such prudence is “inconsistent with the business model of private equity firms and therefore creates inherent risks.”

    Some of those points, particularly the concern about inconsistency in business models between private equity firms and insurance companies, resonated with concerns raised in April by Benjamin M. Lawsky , superintendent of the New York State Department of Financial Services (DFS). That department is investigating the same topic, with an eye toward developing new regulations on private equity/insurance liaisons.

    Last month, Sun Life Financial announced that its December agreement to sell its U.S. annuities business  to private equity firm Delaware Life Holdings, has been delayed, pending outcome of New York’s review of private investor groups as owners of annuity businesses.

    As Mayer Brown’s Hamilton sees it, New York is fast-tracking the issues. But any regulations that result from that effort will be focused on New York, he said. By comparison, NAIC is taking a more deliberative approach and looking at the issue from the perspective of regulatory needs in all states.

    Could the fact that inquiry is underway have a chilling effect on deals going forward? “It’s too early to tell,” Hamilton said, reiterating that “we’re a long way from [seeing] any restrictions put in place.”


    The suggestions in the memo are more extensive than a simple tweak here and there, and some may involve changes to existing NAIC documents.

    For example, the proposed best practices call for: changes in Control Form A (used in acquisitions, mergers, etc.);  annual targeted examinations to ensure use of prudent investment strategy; targeted examination procedures on non-affiliated insurers where the direct writer has ceded a material portion of its annuity risk to the private equity-controlled insurer; coordination with international regulators or others when a non U.S. insurer is involved , etc., and continued monitoring of macro-level events through the NAIC Capital Markets Bureau.

    Several of the proposals have specific subsections, calling for specific regulatory activities.

    As for proposed new procedures, they include:

    ·         Changing the Credit for Reinsurance Model Law to provide regulators with additional authority to require approval of transactions with non-affiliates

    ·         Changing state investment laws to provide regulators with additional authority in limiting risks

    ·         Changing the risk-based capital formula to capture any risk not otherwise already addressed

    As for the proposal to create a new NAIC working group, the memo said its purpose would be to develop best practices and possible changes in policy positions that “regulators can use when considering ways to mitigate or monitor these inherent risks [in private equity/insurance business structures], most of which are currently not codified to address this specific risk.”

    Hedge funds and private equity?

    Insurance people do not typically mention the term hedge funds in the same breath as private equity firms. Insurance scrutiny tends to focus on private equity firms buying into annuity companies, since most of the recent buyers have been private equity-related firms with a yen for annuities.

    For that reason, the mention of both terms in the working group memo may be puzzling.

    A possible explanation is that private equity firms and hedge funds share a similar business model, to the point that many people use the terms synonymously. The regulators may have addressed that issue by including both terms.

    Both types of businesses have pools of money that they invest with the intention of making significant gains and selling in the foreseeable future.

    In addition, neither of those business categories is subject to regulation under the Investment Company Act, Hamilton said. “That is because their investments are limited to high net worth or institutional investors.”

    The businesses do have certain differences, however. For instance, private equity tends to invest in or buy companies that they help manage (or do manage)—their so-called “portfolio companies.” These firms tend to sell their acquisitions within three to seven years or so. Hedge funds tend to (though not always) seek out liquid investments—such as stock in public companies and other securities—that they can hold or sell quickly. As a result, hedge funds do not typically have a hand in managing their holdings, though some do occasionally try to influence outcomes.

    There is a lot more to this, and the differences cited here are not universal. But for everyday purposes, many people view private equity and hedge funds as more alike than different.

    Linda Koco, MBA, is a contributing editor to AnnuityNews, specializing in life insurance, annuities and income planning. Linda can be reached at linda.koco@innfeedback.com.

    Originally Posted at AnnuityNews.com on July 10, 2013 by Linda Koco.

    Categories: Industry Articles