AM Best, a credit rating agency specialising in the insurance industry, has released new findings on the rapid expansion of affiliated investments across US life/annuity (L/A) companies.
AM Best states in its latest Best’s Special Report, “PE/AM-Backed Companies Are Driving Growth in Affiliated Investments,” that these holdings have grown at an average pace of 13% annually over six years.
According to AM Best, the trend is tied to the increasing presence of private equity and asset-management firms acquiring insurers or obtaining ownership stakes in their operating entities.
AM Best clarifies that the underlying analysis includes only labeled affiliated holdings. Related positions and transactions, if added, would have driven amounts higher. Affiliated investments, spanning Schedule BA assets, common stock, bonds, and short-term loans, accounted for 76% of capital and surplus in 2024 for companies reporting such exposures, up from 45% in 2018. AM Best notes that this expansion amplifies the potential financial impact to insurers should a parent or affiliate encounter stress.
“There are some concerns pertaining to affiliated investments that revolve around concentration risk, valuation, transparency and liquidity,” said Jason Hopper, Associate Sirector, AM Best.
AM Best emphasises that affiliated bonds receive an added 25% risk charge, in addition to baseline bond requirements. Historically, publicly traded and mutual insurers held most affiliated assets, yet AM Best confirms that PE/AM-backed insurers became the dominant holders by the end of 2024. AM Best attributes this rise to the operating model of PE/AM-backed groups, which depend on parent-affiliated asset managers to oversee, originate, and structure the investment vehicles used within these portfolios.
“A higher ratio of affiliated investments to total invested assets and capital & surplus can signal concentration, counterparty, transparency, and regulatory risks,” said Kaitlin Piasecki, industry research analyst, AM Best. “Higher ratios may also suggest that a company’s operations are more intertwined with its parent and affiliated investment management firms, which originate, structure, and manage these assets.”
AM Best reports that PE/AM-backed insurers expanded affiliated positions significantly beginning in 2022, with firms such as Global Atlantic and Athene contributing heavily due to their scale.
The agency notes that these companies increased allocations to structured non-MBS assets, with Global Atlantic also enlarging its affiliated mortgage loan exposure and Athene adding to its affiliated Schedule BA holdings. Across the industry, PE/AM-backed, mutual, and publicly traded insurers collectively hold the large majority of affiliated investments.
AM Best details that 98% of affiliated bonds in 2024 were private placements, up from 77% in 2014. Half carried private letter ratings, and AM Best identifies that 90% of PLR-rated affiliated bonds were held by PE/AM-backed insurers. Because PLRs are not publicly released, AM Best cites concerns related to visibility into collateral, valuation techniques, and credit quality.
Schedule BA assets tell a similar story. AM Best explains that mutual and publicly traded companies hold most of the industry’s affiliated Schedule BA exposures, often concentrated in joint ventures tied to real assets. PE/AM-backed insurers, while more diversified in this category, show higher use of collateral loans and residual tranches, which AM Best notes may present higher loss potential.
AM Best’s review of companies with the highest ratios of affiliated investments to capital and surplus indicates that nearly all top-ranking insurers operate under PE/AM ownership or partnerships. According to AM Best, these insurers are more exposed to parent-level financial issues due to the structural integration of investment operations.
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