Private equity sponsors are playing an increasingly important role as managers of insurance company assets, which has implications for both the insurance M&A market and the private equity fund investment space.

The reason for this development can be traced to the insurance company business model, in which premiums are received from policyholders and invested for a period of time, before eventually paying out much of the premium amount in claims and expenses. In the case of an insurer that pays out roughly the same amount in claims and expenses as it receives in premium revenue, the premium revenue represents, on an aggregated basis, a zero coupon loan for the average duration between the receipt of the premium and the payout of claims. For life and annuity insurers especially, the average time period between the receipt of premiums and the payouts of claims can be many years, meaning that an insurer’s profitability will be driven in large measure by its success investing the premiums it collects.

To read more, click here.