The IMF has urged regulators to bear down on the liquidity risks presented by life insurers linked to private capital groups, warning of potential “contagion” to the wider financial sector and the real economy after a shift in ownership in the sector.
Groups including Apollo, Blackstone, Carlyle and KKR have flooded into insurance since the global financial crisis, as life insurers retreated from capital-intensive businesses in an era of rock-bottom interest rates. Almost 10 per cent — $850bn — of the US life insurance industry’s assets were owned or managed by private equity firms by the end of 2021, the IMF said.
The shift has meant a sharp rise in illiquid assets held by the insurers and a rapid expansion of offshore operations in less tightly regulated jurisdictions such as Bermuda.