Private equity giant Apollo Global Management has been making headlines recently for its innovative way of profiting from the retirement savings of everyday Americans. In 2009, the firm created and merged with the insurer Athene, which allowed it to acquire portfolios of annuities.
Annuities are insurance policies that provide guaranteed income streams for retirees, and Apollo wasted no time in using the premiums collected from these policies to expand its lending businesses, including mortgages and aircraft financing. This strategy has proven incredibly successful, as Athene now represents half of Apollo’s business and has become the largest issuer of annuity policies in the United States.
Last year, Athene managed an astonishing $236 billion of annuity policies and other securities. What makes this approach even more fascinating is that it has inspired copycats within the private equity industry. Firms such as Carlyle, KKR, and Blackstone have followed in Apollo’s footsteps by purchasing stakes in insurers or their books of business.
According to data from AM Best, as of the second quarter of 2023, private equity firms now own nearly 9 percent, or $774 billion, of the U.S. life insurance industry’s assets. This is a significant increase from just 1 percent in 2012, highlighting the growing influence of these financial powerhouses.
While this strategy has proven profitable for Apollo and its peers, some critics have raised concerns about the potential risks associated with this approach. They argue that private equity firms, which typically operate with higher leverage than traditional insurers, could face challenges in managing the unexpected risks that can arise in the insurance business.
Additionally, there are concerns about the impact on policyholders. Some worry that private equity firms may prioritize short-term gains over the long-term stability of annuity policies, potentially leaving retirees financially vulnerable.
However, proponents of this trend argue that private equity’s entry into the insurance industry can inject much-needed innovation and efficiency. They believe that these firms’ financial expertise and resources can drive growth and improve the products and services offered to policyholders.
As private equity’s presence in the insurance sector continues to expand, it will undoubtedly be met with both praise and scrutiny. The true impact of this trend on everyday Americans and the insurance industry as a whole remains to be seen. Nevertheless, it is clear that Apollo’s groundbreaking strategy has opened the door for other firms to follow suit, shaping the future of retirement savings and the insurance industry.
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