A recent research paper by the IMF, led by Kristalina Georgieva, underlined disquiet among authorities. Its researchers warned that private equity’s preference for exotic financial structures made its presence in insurance a possible regulatory concern. It said there was a risk of “contagion” to the real economy.
For Britons, the risks are more complex. UK life insurance is markedly different to the EU and US.
A closer analogy to overseas life insurance policies would be the final salary pension scheme.
Pension funds that deal with these policies have recently been bundling them up and selling them to insurers in so-called bulk purchase annuities (BPA) deals.
Most BPAs are done by the likes of Legal & General, Aviva, Phoenix, Canada Life, Scottish Widows, Just Group and M&G. However, private equity influence remains.
Two major players, Pension Insurance Corporation (PIC) and Rothesay Life, have or have had partial private equity ownership.
US private equity could also be waiting on the fringes to swoop into the market. What makes it attractive is the massive expected growth of the sector.
There were £50bn BPA deals clinched last year, according to RBC Capital. However, the rate of transactions is forecast to grow to up to £70bn per year by 2027.
That means owning a company in a position to buy up these books could be a very lucrative business.
PIC was reportedly the subject of takeover interest from KKR, Carlyle and Apollo last year, while Just Group has also been the subject of takeover speculation.
The growth of BPAs, and the possible influence of private equity, have put UK regulators on edge.
“It is of massive regulatory interest because once you get involved in this business you are responsible for paying all the pensioners,” says Crean.
“Regulators are very keen to know that the people who buy these pension obligations are financially sound.”
The Prudential Regulation Authority, a division of the Bank of England, recently launched an investigation into how private equity influences the UK life insurance market through the reinsurance sector, where insurers themselves seek insurance.
A consultation is examining the risk posed by offshore reinsurers, where buyout barons have a major say.
Most reinsurers are based in Bermuda, which despite having regulatory equivalence with the UK offers less transparency.
Many of the BPA insurers’ risks are passed to these private equity-owned Bermudan reinsurers, meaning any dangers in Bermuda could in theory flow back to London.
Authorities are still crawling over the Eurovita controversy. Cinven declined to comment. A source close to the company insisted it had strong relationships with regulators.
The private equity firm recently raised its largest fund ever, suggesting the debacle has not put off investors.
Still, players in the industry may think twice before eyeing another insurance deal.
A spokesman for the British Private Equity & Venture Capital Association said: “Private equity firms are long-term investors, with a view to creating value for all stakeholders involved.
“These firms are highly regulated in the UK by the FCA and subject to various frameworks.”