Private equity is pouring money into insurance

Move over dental clinics and veterinary offices, insurance companies have become the true apple of private equity’s (PE) eye.

What happened: Canadian asset management behemoth Brookfield is planning to start an insurance company in the jolly old U.K. It’s the latest move the company has made to get deeper into the insurance game. 

  • Over the past few years, the company has also spun off its reinsurance arm and purchased American National Insurance for US$5.1 billion.

Big picture: Since 2020, PE firms have flocked to the insurance industry like geese to breadcrumbs. Insurance is attractive because it offers firms a permanent flow of capital in the form of premiums, doing away with the need to constantly raise funds.    

Why it matters: The trend has financial watchdogs and lawmakers worried that PE firms have brought more risk to the industry by messing around and putting premiums in uncertain capital markets rather than traditional, more stable assets like bonds. 

Bottom line: A December International Monetary Fund report urged insurance industry authorities to look into the effects of PE on the industry and determine if potential troubles with insurers backed by PE would stoke instability in the broader economy.—QH