Lawsky Reviews Private Equity’s ‘Troubling’ Insurance Role

New York’s financial regulator is scrutinizing what he called the “troubling role” of private equity firms as they expand into the insurance industry through acquisitions, according to a speech today.

Private-equity firms “may not be long-term players in the insurance industry and their short-term focus may result in an incentive to increase investment risk and leverage in order to boost short-term returns,” New York Department of Financial Services Superintendent Benjamin Lawsky said today in prepared remarks. “This type of business model isn’t necessarily a natural fit for the insurance business, where a failure can put policyholders at significant risk.”

Leon Black’s Apollo Global Management LLC has agreed to buy four insurers since 2008, including a $1.8 billion deal in December for Aviva Plc’s U.S. life and annuity business. A firm owned by Guggenheim Partners LLC shareholders agreed the same month to buy a variable-annuity unit from Sun Life Financial Inc. for $1.35 billion.

“DFS is moving to ramp up its activity” monitoring private-equity firms’ role, he said today, without naming companies, at the Hyman P. Minsky Conference in New York. “We hope that other regulators will soon follow suit.”

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