Growth in US insurers’ private equity investments slowed significantly in 2022

Written by Adam Cadle

03/10/2023

US insurance companies’ private equity investments slowed in 2022, rising just 3.3% in 2022 to $132bn, following a year of exceptional growth in 2021, according to a new AM Best report.

AM Best stated that life/annuity insurers, which account for three-quarters of the insurance industry’s private equity book adjusted/carrying value, were responsible for much of the $4.2bn in growth. The entire industry saw $7.2bn of private equity growth come from new investment acquisitions or additional investments in current holdings, but book value (net of disposals) fell by approximately $3bn for the year-end total of $4.2bn. Insurers posted growth rates of 14.8% and 37% in 2020 and 2021, respectively.

“Low interest rates until 2021 resulted in record-breaking performance for private equity, providing an attractive option for insurers seeking higher yields. Demand slowed in 2022 though as rising interest rates and concerns about a recession led to a sharp decline in leveraged transactions, exits and fund-raising during the second half of the year,” said Helen Andersen, industry analyst, industry research and analytics, AM Best.

Leveraged buyout funds (59.4%) accounted for most private equity investments by the insurance industry, and they suffered the most owing to economic headwinds. Still, the life/annuity segment’s leveraged buyout fund investments grew by 5.9% in 2022. According to the report, the banking industry became more reluctant to lend to large leveraged transactions in midsummer 2022 and smaller transactions requiring less debt became more common. Venture capital activity also declined in the second half of 2022, which accounts for another 28.3% of insurers’ investments. Venture capital and leveraged buyout fund investments by health insurers decreased and were largely stagnant for property/casualty insurers.

“A continuation of the slower deal activity has continued in 2023, and deals are expected to remain scarce as long as buyer and seller expectations on valuations remain mismatched,” said Jason Hopper, associate director, industry research and analytics, AM Best. “However, private equity firms have high dry powder to deploy, so creative approaches to utilising this capital can be expected.”

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