The evolving nature of private equity investment in the insurance sector

Private equity (PE) investments in the insurance sector are a critical part of the market but have recently come under increased regulatory scrutiny. In this post we highlight certain key trends based on recent transactions we have been involved in.

1. Heightened regulatory scrutiny – high-profile cases in Europe involving PE owners, including in Italy where Eurovita was placed under special administration by the Italian regulator, and a global regulatory focus on monitoring the concentration of PE ownership of insurers have resulted in regulators asking more questions when it comes to transactions involving PE owned entities. This is likely to need to be factored into the deal terms on conditionality and walk-away rights.
2. Longer timelines – given the heightened scrutiny, regulators will need to be 'taken on the journey' in relation to the transaction in order to properly understand the investment objectives, including the anticipated investment timeframe. We think it is prudent to expect and offer additional engagement as part of the process. Again, this should be factored into any milestones reflected in the transaction documents.
3. Start off on the right foot – ensure a clear disclosure of investment strategies and risk profiles to regulators and policyholders together with strong corporate governance structures to mitigate potential conflicts of interest, to the extent possible. For the purposes of the change of control process under the Acquisitions Directive and the equivalent process in the UK, regulators will need information on the PE investors' controller structure, and on the terms and amount of debt financing for the deal. It is important to get the narrative right, including any impacts on policyholder security, benefit expectations and service standards, and planning this in advance is critical.
4. Consortium structures – the recent acquisition of Viridium by a consortium led by Allianz which partnered with BlackRock, T&D Holdings and existing shareholders Hannover and Generali illustrates how consortium structures, combining financial investors with strategic long-term investors, may be a means to addressing regulatory pressures. Such partnerships may become a more common investment strategy, particularly in the life insurance sector, showcasing a balanced approach that aligns the investment strength of PE firms with the industry expertise and enduring commitment of strategic investors.
5. PE investment will remain a key part of the insurance sector – PE investment has become an integral part of the insurance sector, with funds becoming more familiar with insurance businesses and regulators more familiar with PE funds as owners. Regulators recognize the benefits that PE investment brings to the sector, including in terms of new capital. We do not see this trend changing; instead, the way investments are made will evolve to ensure that stakeholder interests are aligned on the investor, regulatory, and policyholder side.

DLA Piper has a proven track record of advising on complex transactions within the insurance sector across all major jurisdiction, including the UK, Germany and Ireland. We were recently involved as advisor to one of the under bidders on the Viridium sale. Our insurance transactions team advises on M&A including change of control processes, insurance portfolio transfers, reinsurance transactions, schemes of arrangement, pension de-risking solutions, investment management partnerships and all related regulatory issues.