- Key insight: Warren wants the trade group for state insurance commissions to explain how they are addressing risks to life insurance policyholders' future payouts.
- What's at stake: Los Angeles Dodgers owner Mark Walter and his firm, TWG Global, reportedly misclassified $21 billion in loans, hiding high concentrations of self-affiliated deals.
- Forward look: "Congress needs to understand the current regulatory gaps federal policymakers must address to better mitigate the risks private credit poses to the insurance markets and policyholders." —Sen. Elizabeth Warren
Sen. Elizabeth Warren is demanding answers from state insurance regulations about the risks of private equity firms owning insurance companies and using policyholder premiums to invest in private credit.
Warren, D-Mass., the ranking member of the Senate Banking Committee, sent a letter last week to the National Association of Insurance Commissioners, or NAIC, asking for information about what actions state regulators are taking to ensure policyholders' future claims are protected.
Her request for information comes on the heels of federal investigations into billionaire Mark Walter, the owner of the Los Angeles Dodgers, and his firm, TWG Global. The Department of Justice and Securities and Exchange Commission are investigating Walter's insurance empire over allegations that he misclassified $21 billion in loans, hiding self-dealing with affiliated entities, according to the Wall Street Journal.
Walter's private investment firm originally reported that just 3% of assets were affiliated with his firm's two insurers – Delaware Life Insurance and Clear Spring Life and Annuity – but that amount was later changed to 42%, prompting the federal probes, Warren wrote.
The issue is that state insurance laws explicitly require life insurers to maintain reserves estimated to cover all unpaid losses and claims. New York insurance law, for example, mandates that insurers maintain reserves in an amount sufficient to provide for the payment of all losses and claims for which the insurer may be liable.
Thomas Gober, a forensic accountant and fraud Investigator at Thomas Gober Forensic Accounting Services, has been sounding the alarm about insurers using affiliated reinsurance agreements to transfer risks to related entities within their own corporate group. By ceding these risks to an affiliate, the primary insurer reduces its own exposure while often retaining the business's economic benefits.
"What we need to be asking is why state regulators continue allowing affiliated reinsurance offshore," Gober said.
Warren asked NAIC to answer more than a dozen questions about private equity firms' ownership of life insurers, a change that has been going on for roughly two decades.
Specifically, she questioned whether the NAIC is conducting any assessment or analysis "to ensure that other insurance companies are not engaged in similar conduct as those owned by Walter."
She asked if NAIC has conducted an analysis of pension fund holders' exposure to private credit risk, and if NAIC or its members have conducted an analysis of state guaranty funds' exposure to credit risks.
"Regulators must ensure that insurers do not jeopardize their ability to pay out legitimate claims by taking excessive risks investing the premiums paid by their customers," Warren said in a press release. "Congress needs to understand the current regulatory gaps federal policymakers must address to better mitigate the risks private credit poses to the insurance markets and policyholders."
The NAIC must respond by Sept. 24. A NAIC spokeswoman said they have received the letter and "look forward to the opportunity to share how state insurance regulators actively oversee insurer exposure to private credit and other market developments to protect policyholders."
At the heart of the crackdown is a massive shift in how insurance firms invest customer premiums. Over the past decade, life insurers' exposure to private credit has grown from $386 billion in 2014 to $849 billion in 2024.
Unlike traditional stocks or government bonds, private credit deals often consist of illiquid, hard-to-value loans that cannot be easily offloaded if market conditions turn sour. If an insurer locks policyholder cash into shaky investments that default, policyholders risk losing the future payouts they spent years paying for in insurance premiums.
Mayra Rodriguez Valladares, managing principal of MRV Associates, a consulting firm, said a core issue is private equity firms reinsuring with their own affiliates.
"If they're reinsuring within their own legal entities, then there are many things to look at including whether the entity is completely segregated from the rest of the company, so that if there's a problem, will that spill over to the reinsurance?" Valladares said. "You want to make sure that no matter what, that insurance company and reinsurer are always liquid to meet their obligations."
