There are entire law firm practice groups devoted to this stuff.
From the University of Chicago's Booth School of Business' ProMarket, September 20:
In new research, Pranjal Drall and Andrew Granato argue that the move of private equity firms into life insurance has increased the probability that insurers will go insolvent. If they do, under an obscure system of insurance guaranty funds, the losses will spread out beyond the insolvent insurer’s creditors to other insurers and, ultimately, taxpayers.
Life insurance has long been considered one of the least exciting parts of finance. Policyholders, wanting to provide for their families in the event of tragedy, buy long-lasting policies that pay out money to their beneficiaries if they die early. Life insurers sell large quantities of policies, thereby pooling risk and spreading out potential financial losses. The insurers then invest the proceeds in safe, high-quality corporate bonds. The insurers earn a small spread and the beneficiaries can be confident that their life insurer will be solvent if and when it comes time to pay the bill.
As with many industries, the rise of private equity (PE) has fundamentally reworked this staid business model of life insurance. In about fifteen years, PE has grown from controlling no life insurers to controlling about 15% of the sector. In most industries, PE invests in private companies to boost profitability before selling or merging them with another company. In contrast, PE firms take control of insurers to combine the money from selling insurance policies with alternative private-credit lending, in part to finance their traditional buyout funds.
PE firms and some business commentators have hailed this strategy as a masterstroke that relies on the “permanent capital” of life insurers: policyholders who expect to pay the insurer upfront for long periods of time, even decades. These long-duration liabilities, they argue, make life insurers an ideal host for long-term, illiquid private credit, with efficiencies that allow insurers to hold these higher-yielding assets to maturity and enhance performance for policyholders and investors alike. We do not dispute that there are theoretical efficiencies in this structure. However, in our paper, we argue that its practical implementation has relied heavily on regulatory arbitrage that has the potential to shift large losses onto the public.
The current risk of the life insurance market
Risks within the life insurance market lie in the distinctive structure of insurance’s insolvency, tax, and financial-regulation law. Life insurance and annuity policyholders hold contracts that involve paying the insurer upfront, with the expectation of benefits that will materialize over the long run. To bolster policyholder confidence that the insurer will still be around to make payouts, all states implement “insurance guaranty funds” to backstop policyholders even if the insurer goes insolvent. The logic is somewhat similar to the logic of federal deposit insurance, which backstops banking depositors to maintain their confidence that they will have access to their money even if their bank goes out of business.
Each guaranty fund functions as follows. Each insurance policyholder is guaranteed to have their policy remain in force up to a specific statutory cap, generally around $250,000-$300,000. When an in-state insurer becomes insolvent, the state regulator takes over the insurer’s operations. To make up the shortfall to policyholders, the regulator bills every surviving insurer in the state, proportional to how many insurance premiums each insurer sells in the state. In essence, the insurers pool their risk and insure one another. In 44 states, in the case that an insurer goes bankrupt and other insurers must bail out its policyholders, those insurers are permitted to take a tax credit against their assessment payment, usually over the course of the next five years. For these states, the taxpayer ultimately insures the insurers.
The core issue with such a guarantee is what economists call “moral hazard.” Insurance policyholders, like bank depositors, have little incentive to monitor what their banks and insurers do with their money, as other insurers or the broad public will bail them out. From the perspective of the insurers and their investors, since they have limited liability, they have increased ability to invest funds from their policies in riskier assets, as losses fall upon other insurers and the public. To restrain this behavior, banks and insurers are both subject to heightened financial-regulation standards, such as regulatory penalties for investing in assets that are considered to carry more risk.
The degree to which banking’s financial regulatory regime successfully restrains bank risk is debatable, and certainly it did not prevent the financial implosion of the industry in 2008. In addition, the design of insurance’s backstop entails even greater flaws than those present in banking. These design flaws sharpen the incentives for insurers to take on excessive risk, with more direct liability for taxpayers.
How guaranty funds compare to deposit insurance
We argue that guaranty funds and their associated financial regulatory regime entail worse moral hazard issues than federal deposit insurance in several ways. First, unlike banks, which must pre-pay quarterly for deposit insurance, guaranty funds step in only after insolvency. This means that the insolvent insurer never makes a single contribution into the fund that rescues its policyholders.
Second, while deposit insurance fees are measured by how risky a bank is, guaranty funds apportion payments purely by how much insurance an insurer sells. Essentially, safe insurers are subsidizing risky insurers.
Third, deposit insurance only relies on public funding if the bank’s deposit fund is not enough to fully cover depositors. In the case of life insurance, taxpayers are the default reimbursement mechanism in all 44 states that permit guaranty-fund tax credits, as the insurers essentially pass on the bill through forgone corporate taxes....
....MUCH MORE
And just to make things interesting, Senator Elizabeth Warren is pushing for Federal regulation of P.E. in insurance while the National Association of Insurance Commissioners is pushing back on behalf of their members with the argument that the historic role of state regulation has been and will continue to be what works best. Here's a letter the NAIC sent to the Senator last week:
September 24, 2026
The Honorable Elizabeth Warren
Ranking Member
Senate Banking, Housing,
and Urban Affairs
Washington, DC 20510Dear Senator Warren:
Thank you for your interest in state insurance regulators’ oversight of the nexus between private investment firms and investment companies....
It's big money. Private Equity wants to goose the returns that their insurance companies are receiving by directly funding private credit.
From Insurance Business, September 25:
NAIC targets $1.2 trillion in insurer private credit with tighter solvency rules
And once again just to make things interesting, in addition to plain vanilla private credit, the PE firms seem very attracted to structured products.
