The European Insurance and Occupational Pensions Authority (EIOPA) has called for closer scrutiny of private credit, alternative assets and reinsurance arrangements at private equity-backed insurers.
In a supervisory statement published on Tuesday, EIOPA set out EU-wide expectations for national supervisors overseeing private equity-related (re)insurance undertakings, both before authorisation and on an ongoing basis.
The regulator said private equity firms had shown growing interest in acquiring and managing insurers over the past decade, but their business strategies, ownership structures, asset allocations and governance arrangements could create additional supervisory challenges.
Private equity-backed insurers often increase allocations to private credit and alternative assets following an acquisition, EIOPA said.
Such assets can be complex, illiquid and difficult to value, while assets may in some cases be used to support affiliated businesses within the same private equity group, creating concentration risks and conflicts of interest.
Supervisors should assess whether such practices remain consistent with the prudent person principle and sound management, EIOPA said, also highlighting the use of leverage, cost-reduction strategies and balance-sheet optimisation.
The regulator also pointed to a “strong dependence” on reinsurance among PE-backed insurers, often involving intra-group and third-country arrangements.
EIOPA said reductions in capital requirements resulting from such arrangements were only partially offset by a higher capital charge for counterparty default risk. Supervisors should therefore pay particular attention to effective risk transfer and potential increases in counterparty, liquidity and recapture risks.
The statement also highlights a potential mismatch between private equity firms’ investment horizons and insurers’ long-term obligations to policyholders. Supervisors should ensure capital is not extracted through high shareholder distributions or other short-term measures that could undermine insurers’ long-term viability.
EIOPA chair Petra Hielkema said: “Good supervision looks first and foremost at risks, not at who an insurer’s owners are. Private equity-backed undertakings are subject to the same risk-based supervisory standards as any other insurer.
“But where new ownership structures or business models create increased complexity or additional risks, it is our responsibility to ensure those risks are properly supervised. This statement helps bring greater consistency to that approach across the EU as private equity-backed insurers become an increasingly important part of the European insurance market.”
