Insurers' private equity investment growth slowed to a crawl in 2022

Sector only recorded a single-digit rise last year

Insurers' private equity investment growth slowed to a crawl in 2022

Insurance News

By Kenneth Araullo

Private equity investments by US insurance companies experienced a modest growth of 3.3% in 2022, reaching $132.0 billion, a significant slowdown compared to the exceptional growth of the preceding year, as highlighted in a recent AM Best report.

In the credit agency’s report, titled “Growth in Insurers’ Private Equity Investments Slowed Significantly in 2022,” AM Best said that it was the life/annuity insurers, constituting three-quarters of the insurance industry’s private equity book adjusted/carrying value, which contributed most to the $4.2 billion increase.

Overall, the industry saw a growth of $7.2 billion in private equity from new investments or additional investments in existing holdings. However, the book value, net of disposals, dropped by about $3 billion, resulting in a year-end total of $4.2 billion. Growth rates for insurers were 14.8% and 37% in 2020 and 2021, respectively.

It also explained that the record-breaking performance of private equity until 2021 was due to low interest rates, making it an appealing option for insurers seeking higher yields. However, demand slowed in 2022 due to rising interest rates and concerns about a recession, causing a sharp decline in leveraged transactions, exits, and fundraising in the latter half of the year.

Leveraged buyout funds constituted the majority (59.4%) of private equity investments by the insurance industry and were notably affected by economic headwinds. Despite this, the life/annuity segment's leveraged buyout fund investments grew by 5.9% in 2022.

The report went on to highlight that venture capital activity decreased in the second half of 2022, accounting for 28.3% of insurers’ investments. Health insurers saw a decline in venture capital and leveraged buyout fund investments, and investments by property/casualty insurers remained largely stagnant.

“A continuation of the slower deal activity has continued in 2023, and deals are expected to remain scarce as long as buyer and seller expectations on valuations remain mismatched,” said Jason Hopper, AM Best industry research and analytics associate director. “However, private equity firms have high dry powder to deploy, so creative approaches to utilizing this capital can be expected.”

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