Buyout barons' insurance pots are due a shakeup

KKR & Co

09/10/2026 18:03

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Jonathan  Guilford
NEW YORK, Oct 12 (Reuters Breakingviews) - Private-equity swashbucklers have enjoyed some very good years in the once-boring insurance industry. Buyout barons aping the likes of Apollo Global Management APO.N and KKR KKR.N rushed to set up or buy insurers, building a war chest worth roughly $696 billion which they plunged into oddball credit investments. The golden era may be ending, though. As competition shrinks returns, some newcomers will be forced out.
Using insurance premiums as a kitty to finance investment bets is not exactly new. Warren Buffett built his Berkshire Hathaway empire around this trick decades ago. What defined the more recent wave, though, was tapping life insurers to fuel non-bank lending. When now-Apollo boss Marc Rowan helped set up Athene in 2009, it was one of a handful of institutions owned by buyout shops, most of which focused on buying closed books of business from an industry laid low by the financial crisis and rock-bottom interest rates. By 2024, academics at the Wharton School counted 139 private equity-owned insurers in the United States.
Much of that boom came after 2020, near a nadir for the industry’s key metric: investment spread. Simply put, this is the difference between the payout an insurer promises its policyholders in return for their cash and the yield it reaps on the assets it buys with the proceeds. In the wake of the financial crisis, traditional life insurers got caught on the wrong side of this equation. Policies written during flush times promised heady payouts, but assets that paid a sufficient yield were scarce as interest rates careened lower. According to New England Asset Management research, only 49% of US life insurance companies generated positive spread in 2019. 
Enter the buyout barons, which channeled the proceeds of products like annuities into novel and higher-yielding investments such as esoteric asset-backed securitizations. Private equity-owned insurers plunge about 40% of each new investment dollar into structured securities, per the Wharton researchers, compared with under 20% for independent firms. 
The onslaught has caused plenty of angst about excessive risk-taking. The National Association of Insurance Commissioners, the body that oversees standards for local US watchdogs, has warned about the risks of “circular ownership” as insurers owned by buyout firms pour cash into investments managed by the same institutions, the Financial Times reported. Democratic Senators Elizabeth Warren and Sherrod Brown have raised red flags in Congress.
Yet more aggressive tactics have brought financial rewards. By 2024, private equity-owned groups earned an average net spread of roughly 1.6%, versus less than 1% for traditional annuity peddlers, NEAM reckons. The smallest annuity-focused newcomers saw the biggest gains. Back in 2019, spread increased with the size of the insurer. By 2024, the picture had reversed.
As the industry chased new customers, rates on 3-year fixed annuities soared from around 1% in 2021 to 5% by the end of 2023, judging by data from pricing and analytics platform Cannex. But yields on US government bonds were also rapidly rising, while corporate borrowers and issuers of sliced-and-diced asset-backed loans paid a hefty amount on top of benchmark rates. This allowed insurers to keep earning a decent investment spread. Sales of US annuities shot up from $219 billion in 2020 to $464 billion in 2025, while Rowan’s Athene became the biggest seller. Meanwhile, the top 10 buyout-owned shops accounted for half of US life insurers’ investments in affiliated companies, as barons tied their operations together.
This virtuous cycle is now sputtering. Industry data-cruncher Beacon Annuity Solutions notes that traditional fixed annuities saw sales growth flatline after 2023. So far in 2026, the median peddler outside the industry’s top 20 has seen sales of these products collapse by 25%. Even the five largest players are down 10%. Yet the rush of competition kept payout rates high, even after the US Federal Reserve started lowering interest rates at the end of 2024 and yields on US government bonds eased for a while.
The result was that insurers faced a squeeze. While payouts stayed expensive, the yield on corporate and asset-backed loans tracked official interest rates. At the same time, the premium those borrowers were paying for credit also narrowed. Among asset-backed securities tracked by Bank of America, the spread over benchmarks earned by data center obligations has declined from 236 basis points three years ago to 174 basis points now . Sliced-up, two-year bundles of credit-card debt tightened to 29 basis points, from 57 previously.
Apollo’s reported net investment spread for its so-called Retirement Services complex fell from a peak of 1.9% in 2023 to 1.6% in 2025. Traditional, diversified insurer MetLife’s investment spread excluding variable income slipped from about 1.4% to just under 1%. This pressures returns for life insurance companies’ owners. The pre-tax operating return on average equity for the US industry peaked in 2023 at nearly 13%, judging by statutory filing data collected by S&P Global Market Intelligence. So far this year, it is just over 8%.
Some big asset managers are licking their lips. Multiple industry executives expect this rougher ride to force a shake-out that will in turn cool competition. Modern giants like Athene enjoy much more efficient operations and the ability to drum up money from institutions in a way that smaller rivals can’t. Others could be forced to cease writing new policies. The shrinking premium for annuity rates over yields on Treasury bonds may indicate that this process is already happening - though that’s partly due to a recent sharp run-up in government benchmark rates that may scramble the calculus.
Other players may be forced to merge. If asset yields remain tight, and regulators are increasingly skeptical of workarounds that let insurers effectively increase their leverage, then the only remaining option is to squeeze operating costs by teaming up with a rival. Blackstone-backed Corebridge Financial and Equitable Holdings announced a $22 billion tie-up earlier this year by touting $500 million in expense savings and technology modernization. It might not be the most exciting pitch, but then again, the end of a gold rush tends to be much less thrilling than the start.
     
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(Editing by Peter Thal Larsen; Production by Maya Nandhini)
((For previous columns by the author, Reuters customers can click on GUILFORD/ Jonathan.Guilford@thomsonreuters.com))