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Current & Recent Research at Penn Law

Author: Sarin, Natasha
Citation: Private Equity Ownership, Risk-Taking, and Performance in the Life and Annuities Industry (with Divya Kirti).
Date Published: Forthcoming
Date Posted: 08/31/2018
Subjects: Commercial Law
Law and Business
Law and Economics
Law and Regulatory Systems
Keywords: Regulated Industries
Risk
Administrative Law
Commercial Law
Economics
Government Regulation
Insurance Law
Law and Society
State and Local Government Law
Abstract:
There has been a wave of private equity investments in life and annuities insurance firms since the Great Recession. State insurance regulators have raised concerns that private equity investors face incentives to boost a firm’s near-term returns at the expense of greater risk to long-term performance. In this paper, we argue that private equity investors increase the risk profile and returns of life and annuities insurance firms. We assess changes in a firm’s investment behavior and capital management after a private equity investment takes place. We conclude that PE-backed insurers substitute away from corporate bonds in favor of investments in asset-backed securities. This substitution coincides with a change in the NAIC regulatory regime that decreased the capital charge assessed on these holdings, allowing firms to take on extra priced asset risk without incurring corresponding regulatory capital charges.