Who knew annuities were so popular? In recent months, financial giants ranging from Guggenheim Partners to Warren Buffet’s Berkshire Hathaway have either acquired or reinsured annuity blocks of business. Not bad for an industry that still struggles mightily in a low interest rate environment. So what gives? Why are these investors, mostly private equity (PE) outfits, interested in annuities, particularly fixed annuities?
A recent report by Moody’s Investors Service, “A New Entrant in the U.S. Life Insurance Market: Alternative Investment Managers,” delineated some reasons. But first let’s list some recent transactions:
“Are they really committed to a long-term business? They very well could be,” Thomes says. “They could be around for a long time and do very well in the annuity space. But that’s the question a lot of people have to answer, what is their long term strategy? I can’t answer that. The companies that are coming in and buying and getting into the space will have to answer that question.”
Robinson, meanwhile, says it’s hard to say whether an individual company has a long- or short-term investment strategy. Generally, it’s true that private equity firms seek to harvest cash for their investors and then depart, yet each company has a different approach, Robinson says.