b'INSURANCE REGULATORY|US/NAICRenewed NAIC Scrutiny of Private Equity Investments in InsurersBackground between insurance companies and their PE owners may be underreported to state Nearly a decade ago, the NAIC focusedinsurance regulators. In a September 30, 2021 significant attention on whether acquisitionspresentation to the NAIC Financial Stability (E) of insurance companies by private equityTask Force (the FS TF), Eric Kolchinsky, (PE) acquirers should receive specialDirector of the Capital Markets Bureau and the scrutiny. These efforts culminated in 2015,SSG, asserted that PE-owned insurers present with the incorporation of new guidance intonovel regulatory risks:the NAICs Financial Analysis Handbook, which is used by state insurance department1.PE-owned insurers focus far more on investing examiners in reviewing Form A applicationsin ABS than do traditionally owned insurers.seeking approval for the acquisition of2.PE firms seek to extract value from PE-owned insurers. Although the original stimulus forinsurers via asset management fees rather than the NAIC to develop the guidance was adividends and salaries, and they use affiliate concern about acquisitions of insurers by PEtransactions to do so: firms and hedge funds, the guidelines were made applicable to all Form A applications,A PE firm may set up an SPV (a first degree regardless of the identity of the acquirer. affiliate), managed by an affiliate of the PE firm, that issues CLOs or other structured Capital Markets Bureau Calls forproducts in which the PE-owned insurer Renewed Scrutiny of PE Acquisitions invests. Mr. Kolchinsky asserted that it is common for insurers to report such Since 2015, the volume of PE investment in USarrangements as unaffiliated investments.insurance operations has increased, with PEA PE-owned insurer may invest in CLOs or acquirers showing a particular interest inCFOs that hold debt and equity of second acquiring life insurance groups. According todegree affiliates of the insurer (i.e., other the NAIC Capital Markets Bureau, at least 177portfolio companies of the PE firm that US insurance companies are currently controlledcontrols the insurer). Mr. Kolchinsky referred by PE firms. The Capital Markets Bureau is nowto one example where 70% of CLOs held by an expressing its concerns to the NAIC that theseinsurer had some exposure to its PE owners acquisitions may pose financial stability issuesportfolio companies.for the insurance industry, and that transactions 72|Global Insurance Industry Year in Review 2021'