This blog looks at analysis of TSCS which explains the implications of UK insurers being sold to American financiers. But more important is the recent loss of Standard Life’s independence and the likely sale of L&G to an American predator.

Gordon Aitken’s analysis is far in advance to anything you will find in the mainstream press.  It, like TSCW, asks about who will “eat the pension”. What do you think?

I know this seems far fetched but there are other analysts who see the threats to  pensions and member’s security of being eaten by insurers who are just fronts for Bermuda reinsurance.

This from Equity Managers TSCS

Accountability can be found in this document

When a private equity fund raises money, the money has a clock on it. Ten years, maybe twelve, then the fund must return capital to its investors. That clock is a constraint. It forces discipline, and discipline costs return.

Life insurance liabilities have no clock. When a 62-year-old retired teacher buys a fixed annuity, that money sits on the balance sheet for the rest of her life and often longer. It cannot be recalled at the discretion of an investor. It cannot be redeemed because of a bad quarter. McKinsey, in the report that launched a thousand acquisitions, called it “an enticing form of permanent capital.”

Notice what it doesn’t say. It does not say “permanently safe.” It does not say “permanently the policyholder’s.” It says permanent capital, and the capital it is describing is the teacher’s. Her money is the permanent thing. The safety she was sold is not.

This piece is about the distance between those two facts. It builds on the open letter Nick Nemeth (politician) published to Speaker Johnson in March, which translated a single insurer’s 9,612-page regulatory filing into one number most people had never seen.

We are going to do something narrower and, we think, more alarming. You do not need a leaked document or an investigative source to see the structure. The companies have written it down themselves, in filings any member of the public can pull, and we will read it back to you in their own words.

We name names. Athene. Apollo. Blackstone

What follows is a long and very cogent examination of what is going on within these reinsurance arrangements. In the old days life insurance funds used to be very boring and conservative but then things changed.

Around 2009, a different kind of owner discovered the life insurance balance sheet. It had a different idea.

The idea was this. The conservative bond portfolio that a traditional insurer holds looks lazy. It earns a modest, safe yield. But what if you replaced the conservative portfolio with higher-yielding assets? Private credit. Collateralized loan obligations. Structured products. Asset-backed finance. The liabilities stay the same, the cost of funding stays the same, but the asset side now earns several hundred basis points more. That incremental spread, multiplied across a balance sheet of hundreds of billions of dollars, is an enormous and durable stream of profit.

What follows is an explanation of how this translation from insurance to asset management happened and it concludes with this explanation – following an intensive examination…

The life insurance industry spent a century building the most valuable asset a promise-making institution can hold, which is the boring, unimpeachable trust of the people it serves. Over the last fifteen years, a set of brilliant, aggressive, and entirely legal financial engineers worked out how to convert that trust into spread and fees, and they did it in plain sight, in public filings, in a language precise enough to be accurate and dense enough to be unread.

Back to the UK and UK life insurers

Let’s look at the options for L&G.

Gordon Aitken explains that unless L&G’s management defends its current status as a standalone insurer it will find itself increasingly owned and ultimately swallowed by an American financiers either posing as insurers or private equity financiers. Blackstone is already in with L&G enabling it to front a lot of buy in/out business last year.

It could go down the Standard Life route and run a sub entity for the heavy duty BPA business. It could be sold off in bits or taken over as one entity.

The American options – which predominate – have questions about them. These American options depend on members of UK pension schemes, swapping an employer’s covenant for the covenant of American firms explored in great depth by TSCS