For generations, life insurance companies operated as the epitome of conservative investing. Their investment portfolios were dominated by long-term bonds—predictable, safe instruments that provided steady returns to match their policy obligations. This traditional approach served the industry well for decades, creating a stable foundation for companies with long-term liabilities.
However, the 2008 financial crisis fundamentally altered this landscape. As central banks worldwide slashed interest rates to stimulate economic recovery, insurers found themselves caught in a challenging predicament: their historical investment models no longer generated sufficient returns to meet their obligations.
This new reality has catalyzed a remarkable transformation across the insurance sector. Companies that once shied away from anything but the safest fixed-income securities are now actively pursuing alternative investments—private debt, infrastructure projects, real estate, and other non-traditional assets. This strategic pivot has not only reshaped insurance portfolios but has also forged new relationships between insurers, asset managers, and private equity firms as they collaborate to boost investment yields.
The Post-Crisis Dilemma
“With interest rates way down after the Great Financial Crisis, the cost of insurers’ pre-2008 liabilities were still high,” explains Ramnath Balasubramanian, global co-leader of the life insurance and retirement industry practice at McKinsey & Company. “Insurers needed to find ways to de-risk their balance sheets and deploy capital more efficiently.”
This challenge has driven a two-pronged transformation strategy across the industry. First, insurance companies have been offloading blocks of high-cost legacy obligations to reinsurers, freeing up capital that was previously tied to less profitable business lines. Second, they’ve steadily increased their allocation to alternative assets—particularly private debt instruments that offer higher yields than traditional investment-grade bonds, albeit with increased risk profiles.
This shift hasn’t happened overnight. Rather, it represents a decade-long journey of insurance companies methodically building new investment capabilities, acquiring specialized asset managers, or forming strategic partnerships to access alternative investment opportunities.
Private Equity as Catalyst for Change
Private equity firms have emerged as major catalysts for this transformation, particularly in the United States market. Since the financial crisis, firms including Apollo Global Management, Brookfield Reinsurance, and KKR have either launched new insurance operations or acquired existing insurers. Others, such as Blackstone and Carlyle Group, have taken significant minority positions in established insurance companies.
The business model these firms employ is straightforward yet effective: acquire legacy books of insurance liabilities and then reinvest the underlying assets into higher-yielding alternative investments. According to McKinsey research, private equity firms have completed more than $900 billion in transactions acquiring insurance liabilities worldwide since the financial crisis.
The impact on market share has been dramatic. Private equity-backed insurers now control approximately 13% of the U.S. insurance market—a remarkable increase from just 1% in 2012. Even more striking, these firms now account for 35% of new sales of U.S. fixed and fixed-index annuities, products that have become increasingly popular with consumers seeking retirement security.
“The search for yield was the motivation,” notes Meghan Neenan, a managing director at Fitch Ratings who rates asset managers. “The success they’ve had in terms of returns has been significant, and the migration in insurance portfolio profiles is still ongoing.”
While this strategic shift toward alternative investments provides insurers with greater portfolio diversification, it also introduces new risks that must be carefully managed. “Their investment portfolios are generally less liquid,” Neenan points out. As interest rates have risen in recent years, insurers have shown particular interest in private loans with floating interest rates, which can provide better returns in rising rate environments.
“Ultimately, it depends on what the investor is looking for,” Neenan explains. “If [an insurance company] is underfunded and needs higher returns that they can’t get solely in the public markets, they could toggle alternative assets higher to meet that return hurdle.”
Global Models for Investment Transformation
The migration toward alternative investments has now spread across global insurance markets, with companies adopting various models based on their specific circumstances and strategic objectives.
Some insurers have chosen to build out their own investment-sourcing capabilities internally, developing specialized teams focused on alternative assets. Others have formed partnerships with established asset managers to access these markets, while still others have fully outsourced their investment management to third-party specialists.
“There is a wide spectrum of models in the marketplace now,” says Balasubramanian. “The choices insurers make depend on their starting position.”
French multinational insurer AXA exemplifies one approach to this strategic challenge. In December, the group decided to exit the asset management business entirely, selling AXA Investment Managers to BNP Paribas for €5.1 billion (approximately $5.5 billion). Going forward, BNP Paribas will manage AXA’s assets, allowing the insurer to focus on its core insurance operations.
Italian insurance giant Generali has taken the opposite approach, actively expanding its asset management capabilities. The company has completed several significant acquisitions recently, including purchasing investment manager Conning from Cathay Life Insurance and acquiring a 77% stake in MGG Investment Group for $320 million. The latter acquisition is particularly notable as MGG focuses on direct lending to mid-market companies—precisely the type of alternative investment that many insurers now seek to add to their portfolios.
In January, Generali announced an even more transformative deal, agreeing to merge its asset management operations with Natixis Investment Managers, owned by Groupe BPCE. This 50/50 joint venture will manage €1.9 trillion in assets, positioning it as the ninth largest asset manager globally.
“The new entity would be ideally positioned to further expand its activities for third-party clients,” Generali stated in January, “also thanks to Generali’s commitment to contribute a total of €15 billion in so-called seed money over the first five years to launch new initiatives and investment strategies in the alternative investments sector (particularly in private markets).”
The evolution of private debt markets into specialized areas such as asset-based lending and equipment leasing is creating new investment opportunities that large asset managers are increasingly well-positioned to capture. While high-profile transactions between European insurers and asset managers represent the most visible sign of industry restructuring, smaller deals involving reinsurance of liability risks and expansion of insurance investment platforms are occurring throughout global markets.
Japan: The Next Frontier
Asia represents the next major frontier for this insurance industry transformation, with Japan standing out as particularly significant. The Japanese market holds approximately $3 trillion in life and annuity reserves in force, according to the Society of Actuaries (SOA).
To date, most activity in Japan has focused on the liability side of insurance company balance sheets, as Japanese insurers become increasingly comfortable with block reinsurance transactions. Notable recent deals include Global Atlantic’s reinsurance of nearly $4 billion in Manulife Japan whole life policies (Global Atlantic is owned by KKR), and Reinsurance Group of America’s transaction involving ¥700 billion (approximately $4.7 billion) in Japan Post Insurance annuities.
The SOA estimates that as much as $900 billion in Japanese insurance obligations could be reinsured in coming years, driven in part by new regulations taking effect this year that mandate higher capital reserves for insurers.
“I think we’re somewhere in the middle innings of this evolution,” says McKinsey’s Balasubramanian, describing the global insurance industry’s ongoing transformation. “Many insurers are still determining whether they will build, buy, or partner for new investment capabilities, and the deals are now happening in both directions.”
Regulatory Response to Increasing Risk
The industry’s shift toward alternative investments has not gone unnoticed by regulators, who face increasing challenges in assessing and monitoring the risks within insurance portfolios. As insurers expand their investment horizons, the assets backing insurance obligations have become more complex, less transparent, and more difficult to value accurately.
In February, the National Association of Insurance Commissioners (NAIC) in the United States launched a dedicated task force to establish principles for updating risk-based capital solvency formulas for the industry.
“The extended low interest rate period that followed the Great Financial Crisis created an industry trend to search for yield in investment portfolios, resulting in a major shift in the complexity of insurers’ investment strategies, resulting in more liquidity risk than historically seen,” explained Wisconsin Insurance Commissioner Nathan Houdek, a co-chair of the task force, in an NAIC statement.
Similarly, the Bank of England, which houses the Prudential Regulation Authority, warned in its Financial Stability Report last year about growing risks at private equity-owned insurance companies and in the broader industry due to the shift toward private-debt investments. “This business model, while promising benefits, has the potential to increase the fragility of parts of the global insurance sector and to pose systemic risks if vulnerabilities are not addressed,” the Bank stated.
A Symbiotic Relationship
Despite these regulatory concerns, insurers currently view the opportunities in alternative investments as worth the associated risks. Insurance companies and asset managers find themselves simultaneously competing to build superior investment platforms while also recognizing their natural complementary strengths. Insurers generate substantial cash flow from premiums, while asset managers specialize in optimizing investment returns across both public and private markets.
“The deals will continue because they’re beneficial for both parties,” says Neenan. “Insurers with long-term investment horizons get higher yields for patient investing, and alternatives managers collect fees on the assets.”
This symbiotic relationship appears set to continue shaping the insurance landscape for years to come, as companies across the industry adapt to a new investment paradigm far removed from the conservative bond portfolios that once defined the sector. The ultimate success of this transformation will depend on how well insurers balance their pursuit of higher returns with the prudent management of the new risks these alternative investments introduce.
Acknowledgment: This article was written with the help of AI, which also assisted in research, drafting, editing, and formatting this current version.
