Best Special Report: U.S. Insurers Increase Private Equity Stakes by 15% in 2020
OLDWICK, New Jersey – (COMMERCIAL THREAD) – Private equity holdings of the U.S. insurance industry grew 14.8% in 2020, with the life / annuities industry reaching its highest value in five years at 71. $ 7 billion, according to a new AM Best report.
the Best’s special report, “Private Equity Investments Still Attractive to US Insurers,” reports that US property and casualty insurers also increased the book value / book value of their holdings by 11.3% in 2020, to reach $ 18.7 billion. Private equity investments by health insurers have declined slightly, but these insurers represent only 3% of the sector’s total assets. Overall, the total number of private equity investments in the entire U.S. insurance industry increased for a seventh consecutive year, with insurers seeing the market value of these investments total 93.3 billion dollars, an increase of 15% year-on-year. Given the high levels of unpredictability in public markets, private equity investments offer investors the opportunity to earn higher returns and diversify their portfolios.
Leveraged buyout funds remain the most common type of private equity investment by insurers, accounting for more than half of the industry’s holdings. Venture capital funds, which account for just over 25% of the industry’s exposure, increased in all three market segments, with mezzanine financing making up the rest.
Although the private equity market performed well in 2020, it has not been spared the challenges of the year due to the pandemic. “Fund managers have likely struggled to accurately assess companies due to market volatility, particularly in the second quarter when the pandemic first hit,” said Jason Hopper, associate director, research and Industry Analysis, AM Best. “The results for the second half of 2020 were more encouraging, but large investments were still influenced by the loss.”
The 20 most valued insurers in private equity investments, the majority of which are life / annuity insurers, account for around 72% of the industry’s holdings. These 20 insurers increased their exposure by 15%, or $ 10 billion, in 2020 compared to the previous year. The exposure to capital and surplus of private equity investments for these 20 insurers varies, but averages 24% of capital and surplus.
Signs encouraging continued growth in the private equity market over the long term are positive, given low interest rates, subdued inflationary environments and the prospect of higher investment returns. However, AM Best notes that financial tensions in the markets or severe corrections in public markets remain a risk.
To access the full copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=309905.
For a video discussion on this report with Hopper and Lauren Magro, Associate Analyst, Industry Research and Analysis, please visit http://www.ambest.com/v.asp?v=ambprivateequity621.
AM Best is a global credit rating agency, news publisher, and data analytics provider specializing in the insurance industry. Based in the United States, the company operates in more than 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information visit www.ambest.com.
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