US insurers see income on private equity investments drop to $7.7bn

Written by Adam Cadle

03/10/2024

US insurers experienced a second straight year of declining income on their private equity investments, which dropped to $7.7bn in 2023, down from $10.2bn in 2022, AM Best has revealed.

US insurers’ private equity holdings rose 10.8% to $146.2bn, up from $132bn in 2022; this followed growth of 3.3% in 2022 and 27% in 2021. That increase in 2023 was driven by $7.4bn from new investment acquisitions or additional investments in current holdings, with the book value of current holdings increasing by around $6.8bn. Nearly all that growth was generated by L/A insurers, which account for over three quarters of the insurance industry’s private equity investments.

Demand for private equity investments has slowed in 2022 compared with 2021, due to a rise in interest rates and concerns about a potential recession, but private equity investments again rose in 2023, as insurers sought higher yields with alternative options.

Investments in private equity remain concentrated in a few large insurers, AM Best stated. Fifteen companies, almost entirely L/A carriers, account for just over 60% of private equity holdings, with allocations averaging only 5% of invested assets.

“Understanding the performance and risks of the private equity firms that investors choose to invest in requires comprehensive due diligence,” AM Best, senior industry analyst, David Lopes, said.

“Most insurers investing in private equity have larger sophisticated in-house investment management teams. Also, most insurers prefer experienced money managers with a solid history.”

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