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Title: Analysis: Chasing yield, U.S. private equity firms nudge up risk on insurers

Jun 01, 2021 06:12AM ET

By: AnalysisWatch

Private fairness corporations have spent nearly $forty billion shopping for U.S. coverage agencies in latest years, promising to earn better returns at the mountains of cash that insurers set apart to pay policyholders years or a long time from now.

The corporations are transferring a number of the cash out of conventional low-yield investments consisting of authorities bonds into riskier, harder-to-promote property consisting of non-public loans and fairness.

The shift has stuck the attention of regulators and raised issues approximately a coins crunch if asset managers needed to liquidate huge portfolios in a rush to satisfy coverage claims.

But PE corporations are nudging up threat on a huge pool of cash. They now personal 7.4% of all U.S. existence and annuity property, or $376 billion, double the tally in 2015, credit score organization AM Best stated. Pending offers may want to add $250 billion this year, pushing PE possession to 12%.

The better-yielding investments do now no longer always boom the threat of default however generally tend to lose extra cash in the event that they do default, in comparison with plain-vanilla portfolios, stated a senior established finance professional who works carefully with nation coverage regulators.


LIQUIDITY, STRUCTURING RISK

Strategies range widely. Carlyle Group (NASDAQ:CG) Inc. stated it has positioned the approximately $five billion of coverage cash it manages into buyout funds, credit score and opportunity investments. The cash is a part of Fortitude Group's $43.7 billion portfolio. Carlyle offered a majority stake in Fortitude from American International Group Inc. (NYSE: AIG) remaining year.



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