Private Equity and Insurance? You Bet Your Life... and Maybe Your Pension!

A huge accident just waiting to happen

Illustration by Daniel Medina

Remember the story we did about private equity (PE) pushing President Trump to help them get access to 401k investors?

Well, defined benefit pension plans don’t need Trump. PE is already taking them over!

Our fearless leader Matt once famously described Goldman Sachs as “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”

If Goldman is the vampire squid, then PE is its mother.

PE relentlessly jams its blood funnel into nearly every aspect of our economy and nowhere is there more blood to funnel than the life insurance, reinsurance and annuity industry. In this huge and stable ocean of money meant to meet insurance claims and annuity obligations way off into the future, PE and private credit (PC) can continuously direct capital towards their equity and credit businesses, raking in fabulous management fees while lessening the constant annoyance of limited partners asking for their money back, as well as the expense of marketing to and cajoling new limited partners for their equity and credit deals.

McKinsey & Co. describes it perfectly in a 2022 report, “Why private equity sees life and annuities as an enticing form of permanent capital.”

Assuming the pending deals close successfully, private investors will own 12 percent of life and annuity assets in the United States, totaling $620 billion, and represent more than a third of US net written premiums of indexed annuities. All five of the largest private equity (PE) firms by assets have holdings in life insurance, representing 15 to 50 percent of their total assets under management. By our count, 15 alternative asset managers have entered the market, or stated their intent to do so.”

In the words of Hedley Lamarr:

Some notable transactions:

• 2019 - Apollo takes a $2 billion stake in Athene

• 2020 - KKR takes a majority interest in Global Atlantic for $5 billion

• 2021 - Blackstone acquires Everlake from Allstate (formerly Allstate Life and Annuity) for $3 billion

• 2021 - Blackstone acquires a 9.9% stake in Corebridge and signs an asset management agreement with the firm for $2 billion

• 2022 - Apollo purchases the remaining portion of Athene for $7 billion

• 2022 - Brookfield Reinsurance acquires American National for $5 billion

• 2022 - Blackstone acquires an interest in Resolution Life for $3 billion and establishes a long-term asset management relationship

• 2024 - Brookfield acquires American Equity for $4 billion

Life insurance companies, with their hefty pools of investments set aside for active insurance policies and annuity lump sum payments (both liability payouts at future dates), are a natural target for PE firms similar to a strategy used Warren Buffett’s Berkshire Hathaway. They love the “float,” which is money held now to pay out in the somewhat distant future.

When PE gains control or acquires an interest (like Blackstone’s purchase of an interest in Resolution Life) to manage the company’s investments, they ramp up those companies’ investments in assets such as Collateralized Loan Obligations (CLOs) — and CLOs are the source of funding for the syndicated loans PE uses for leveraged buyouts.

And of course, control over the company’s investments mean direct equity investment in the PE firm’s deals. This provides a rich vein of management fees for PE firms and the power to direct more money into the most controversial investments, such as the purchase of hospitals.

The Americans for Financial Reform Education Fund did a study in 2023 that showed PE-owned insurance companies exhibited more than double the concentration of non-traditional assets than their non-PE controlled brethren. The NAIC considers CLOs and direct private equity investments as non-traditional assets.

Of course, life insurance companies maintain large portfolios of investments to meet their future insurance obligations, but abnormally low interest rates from 2008-2022 presented a challenge for them to keep doing this through low-risk investments. So, insurance companies looked for higher-yielding and riskier investments like… private equity. This is a huge reason every PE shop in the country should have in its lobby a statue of the Zero Interest Rate Trinity: Bernanke, Yellen and Powell!

Pension Risk Transfers - The Holy Grail

PE uses their portfolio of insurance, reinsurance and annuity providers to take over Defined Benefit Pension programs. More permanent capital for PE.

The insurance industry has been very active in the last six years in what are called Pension Risk Transfers (PRT). A PRT is when a company or plan sponsor shifts the risks associated with its defined benefit pension plan to an insurance company.

Generally, this is done through the purchase of group annuity contracts, also known as buy-outs or lift-outs. This transfers the responsibility for paying retiree benefits from the plan sponsor to the insurer. In the case of PE-owned firms, pensions are then insured by the PE’s own reinsurance firm, domiciled offshore for lower capital requirements.

Since 2019, PRTs in the U.S. have added up to approximately $200 billion, including nearly $52 billion in 2024 alone.

Private equity firm Apollo Global’s wholly-owned insurance and annuity provider, Athene, has emerged as a top PRT actor since Apollo gobbled it up between 2019 and 2022, scoring major deals with AT&T, Lockheed, Alcoa Corp., and Pactiv Evergreen Inc.

PRTs are a win-win for PE and the companies transferring their pension liabilities. The companies get the liability and cost of managing the pension off their books while PE gets a stable pool of capital to invest along with the management fees that go with it. But I worry we’re heading down a path that leads to the pensioner getting screwed.

Regulatory Arbitrage

During the subprime mortgage crisis, AIG essentially got to pick their own regulator and ended up with the now defunct Office of Thrift Supervision (OTS). AIG did this by purchasing a small thrift institution in 1999 and then essentially lobbying for the OTS to become AIG’s parent company regulator. The OTS then assigned one lonely examiner to watch over one of the most complex and crooked financial companies on the planet, and we know what happened there thanks to “regulatory arbitrage.”

In 2020, NBC News’ Gretchen Morgenson wrote a prescient column headlined, “As Insurance Companies Take Over Pension Plans, Are Your Payments at Risk?”

In the article, Karen Friedman, policy director at the Pension Rights Center, asked, “Is it safe to transfer money out of pension plans insured by the [government-backed] Pension Benefit Guaranty Corporation to insurance companies where the protections for consumers are scant?”

No, it isn’t safe. Maybe put another way, for pensioners, I see little potential upside and plenty of potential downside moving regulation of these retirement assets from the PBGC to the state insurance commissioners, and leaving PE to potentially find the states with “less stringent” regulation and move assets there.

Pensioners Fight Back!

Retirees in a number of pension plans have begun to sue their former employers who have done PRTs, arguing they violate the Department of Labor regulation that requires fiduciaries choosing an annuity provider to “take steps calculated to obtain the safest annuity available.”

Athene is a big topic in many of these lawsuits. In 2023, AT&T transferred $8 billion in pension liabilities — covering about 96,000 people — to Athene. Pensioners argue in a lawsuit filed last year that their money is unsafe, and that AT&T only chose Athene because it was cheaper than other annuity providers.

This was followed by a spate of similar lawsuits brought by pensioners against Lockheed Martin, GE and Alcoa, which also did PRT liftouts with Athene.

In March 2025, the Lockheed Martin case survived a motion to dismiss and will go on to the discovery phase. The court’s decision to deny the motion concluded that the plaintiffs had just “barely” but successfully alleged facts pointing to a “substantially increased risk” that Athene would fail, with resulting harm to the plaintiffs. The court emphasized the collapse of Executive Life in the early 1990s as an example of the “very real possibility” that allegedly high-risk insurance practices threaten imminent harm.

The court also focused on Athene’s private equity ownership, noting the plaintiffs’ allegations that such firms benefit from premium cash flows and investment management fees to finance their own businesses and that private equity has come to control more than 7% of the insurance industry’s assets at a time when insurers are shifting toward higher-risk illiquid assets. Other factors noted by the Lockheed court include: (1) Athene’s allegedly “exceedingly small” surplus, (2) claims that Athene’s use of a reinsurer in Bermuda allows it to appear financially stronger while using its surplus for stock buybacks and other investments, and (3) a study which found that Athene ranked lowest of the evaluated PRT insurance providers with a 14% economic loss to beneficiaries due to credit risk.

Interestingly, on the same day, the complaint against Alcoa was dismissed. The court in that case agreed with the defendants and held that the transfer did not impact the plaintiffs’ monthly benefit payments, which they continue to receive. The court noted the plaintiffs had at most alleged a “theoretical reduction in value based on a riskier annuity provider.” That theoretical harm, the court reasoned, was not concrete enough to sustain the lawsuit.

PE is in a state of nirvana with the “permanent capital” it’s gained by gobbling up the life insurance and annuity provider industry, but what does PE nirvana mean for the rest of us?

Clarification: This story has been updated to make clear that Berkshire Hathaway is not a PE firm.