Edition #6 - Private equity’s rapid growth in the insurance sector

Welcome to Edition #6 of Reinventing Insurance.

There continues to be plenty happening on almost all fronts across the industry. The weeks since Edition #5 saw plenty of news hitting around the ‘asset management-owned insurer’ theme in the Life sector, reinsurers convened around the annual Monte Carlo Rendezvous, and we had several significant investor days.

Given the pre-ponderance of related news, this week’s chart provides a further indication of the rapidly growing significance of private capital within the Life sector. In this case, the chart shows new business volumes for various annuity types sold in the US in 2016 vs. the first three quarters in 2022 (PRT = Pension Risk Transfer). Public insurers accounted for over 50% of annuity sales in 2016, but this share fell to 35% in 2022. Within those product types where competitiveness is largely determined by ability to generate a higher risk-adjusted spread on assets (fixed, fixed-indexed, payout, pension risk transfer), private insurers now account for a majority of new business volumes.

In this newsletter, my aim is to pick topical issues and news and relate them to the macro issues happening in the insurance industry. I publish biweekly and look forward to your thoughts and comments.

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Insurance market views

PE-backed players have rapidly taken share in annuity markets

It's hard to overstate the amount of activity underway around this ‘asset management-owned insurer’ theme — as incumbent insurers look to add capabilities and private asset managers continue to mobilize around adding liability origination as a funding source for their core business models. Recent public announcements include:

• On September 5, Fortress Investment Group and Nassau Financial Group announced that they had entered a strategic partnership. As part of the transaction, Nassau received a $130MM minority non-voting common equity investment from Fortress, and Nassau entered into a long-term Investment Management Agreement with Fortress “whereby Nassau’s insurance subsidiaries will have full access to Fortress’ credit investment strategies. Nassau intends to begin investing alongside Fortress credit funds targeting direct lending and Asset-backed securities (ABS) investing opportunities.” Pradip Ghosh and Kenneth Pierce , formerly of American Equity, have joined Fortress as Co-Heads of Insurance Solutions & Reinsurance.
• On September 7, Prudential Financial and Warburg Pincus announced the launch of Prismic Life Reinsurance (Prismic), a Bermuda-based life and annuity reinsurance sidecar. Prismic will initially reinsure a block of structured settlement annuity contracts from Prudential with reserves of ~$10B. Prudential aims for Prismic to be a strategic reinsurance partner with PGIM and Warburg Pincus, providing asset management services to the new entity. A group of global investors will make equity investments in Prismic alongside Prudential and Warburg Pincus giving a combined initial equity investment of $1B. Prudential and Warburg Pincus will own 20% and 15% of Prismic’s equity.
• On September 12, Athora (Apollo’s European life entity) announced that it has appointed Oliver Wyman?alum Todd Solash as Deputy CEO & President. Todd joins from Corebridge where he was President & CEO of Life & Individual Retirement.
• On September 13, Blackstone announced that it was integrating its corporate credit, asset-based finance and insurance groups into a single unit, Blackstone Credit & Insurance (BXCI), which is Blackstone’s fastest growing segment — assets under management more than doubled over last 3 years to $295B. Gilles Dellaert, Global Head of Blackstone Insurance Solutions will serve as Global Head of BXCI and lead the business’s combined operations.
• More broadly on the growing prevalence and significance of private credit, a recent report by Pitchbook showed private credit funds taking the largest share of capital raised in the first half of 2023 and this week also saw Wells Fargo and Centerbridge announce a $5B direct lending joint venture targeting middle market companies in North America.

That's it for this week.

Oliver Wyman latest releases

What it takes to Win in the Small and Medium Commercial Market — 10 opportunities for insurers: As the insurance industry is evolving, the small and medium business (SMB) market continue to represent significant growth opportunities. Customer needs and wants are beginning to shift, opening new value pools, and digital capabilities (artificial intelligence) and data are more available and prolific. Taking a dominant position in this space is a sizable opportunity (more than $5 billion) for any insurer who is willing to make the necessary investment and commitment. To win, thrive and gain market share, the following 10 considerations should be at the top of every insurance carrier’s list.

Insurance Thought Leadership's Paul Carroll recently interviewed my colleague Alex Wittenberg on progress insurers have made toward underwriting the clean energy transition. Alex is now a Partner in Oliver Wyman's Insurance & Asset Management practice leading our advice to insurers on climate-related opportunities but earlier in his career was a Partner in our Energy Practice and also Executive Director for MMC's Global Risk Center. As a result, he has unique perspectives into both challenges and opportunities for insurers, corporates, regulators, energy companies, and infrastructure providers which he discussed with Paul in this article on resilience and sustainability in the insurance industry.

Keeping up with Generative AI — Part 1 the opportunity for insurers: Generative artificial intelligence (AI) has arrived in force and has the potential to transform many ways insurers do business. Poster child of?the age of acceleration,?it has gained daily media coverage, and its possibilities have captivated headlines. Our initial edition discusses the generative AI opportunity for insurers, how significant generative AI will be for insurance organizations’ business strategies and ways-of-working, and how quickly the impact is likely to materialize.

Mick Moloney ?is a Partner at Oliver Wyman, based in New York. He is Global Head of Insurance & Asset Management and Managing Partner for Oliver Wyman Actuarial. In combination these groups include over 700 colleagues globally dedicated to providing advice to Life, P&C, and Health insurers, asset managers, and private capital sponsors across strategy, operations, technology, finance, risk, and actuarial disciplines

Mick spends his time working with leading insurers, asset managers, and advisory firms on a range of strategic and execution topics with a particular focus on growth, innovation, and efficiency in retail and institutional markets. He’s passionate about growth and reinvention in the industries he serves, with a strongly held belief that while each is facing disruption and dislocation, there are massive unmet needs which provide the prospect of a bright and vibrant future.