Episode summary
Is Private Equity Destroying the Life Insurance Industry? | The Real Eisman Playbook Ep 64
The Real Eisman Playbook
· · Hosts: Steve Eisman · Guests: Tom Gallagher
Summary
Tom Gallagher argues that private equity’s entrance into life insurance began with Apollo’s 2012 purchase of American Equity/Athene and has since expanded to KKR, Carlyle, and Blackstone. The attraction is permanent capital and the chance to earn better returns on insurance portfolios while feeding asset-management businesses with fee-paying assets. He says the alternative managers do take more risk than traditional life insurers, but mostly through illiquidity, larger concentrated positions, and more exposure to structured credit rather than through obviously distressed credits.
Gallagher also says the industry has already spent years shedding its worst tail risks. Variable annuities, secondary guarantee universal life, and long-term care all proved badly mismatched businesses after the GFC and low-rate era, but much of that risk has now been transferred to reinsurers or alternative structures. He is more cautious about some mid-sized, quasi-alternative insurers than about the biggest platforms.
On valuations, he says many public life insurers remain cheap because investors still distrust the sector and because the market worries about private credit and legacy runoff. He agrees that companies like Lincoln, Corebridge, and Equitable could do more buybacks, but says their capital plans, distribution needs, and legacy liabilities complicate that choice. In his view, the larger issue is that traditional life companies may need either scale or a more aggressive risk posture to compete.
Key takeaways
- Tom Gallagher says Apollo, KKR, Carlyle, and Blackstone entered life insurance because it provides permanent capital and fee-generating asset flows.
- He thinks the alternative managers take more risk than traditional insurers, but mostly via illiquidity, bigger positions, and structured credit rather than obvious credit blowups.
- Gallagher says variable annuities, secondary guarantee universal life, and long-term care were the sector’s main historical tail risks, and much of that exposure has now been transferred out.
- He is more worried about some mid-sized alternative-backed insurers than about the largest platforms.
- He says public life insurers remain cheap because the market still distrusts the sector, even though buybacks would be highly accretive at current valuations.
Notable quotes
“Their view is they think they will win on the investment side. They have better investment capabilities”
“So, they do take more risk based on the work we've done. They take more risk”
“the biggest transformation that I've seen in my career for the last three to four years. You've had an enormous amount of risk transfer that's taken place”
“The biggest change that I've seen is 20 years ago there was very little recognition of tail risk”
“they've definitely they've shrunk. They've shrunk and they've been laid off to other people”
How the episode opens
Hey, Steve Eisman here. So today we're going to interview an analyst who I have known for a very very long time, decades in fact. He covers the life insurance sector.
His name is Tom Gallagher. He really knows his stuff. And the origin of this interview is that few months ago we interviewed Tom Gober who is was a life insurance examiner and is very very nervous about what's going on in the life insurance sector with respect to private equity owning life insurance companies and I wanted a second opinion and so I approached Tom who came in and is we're going to talk to him about that and about his sector as well and I'll be back afterwards with some conclusions this coming Wednesday, June 17th on Premium, we're dropping an interview with Professor Ben Zaperski of Forom Law School who teaches tors and we're going to discuss all the lawsuits against Meta and Google that accuse the companies of addiction models.
We're going to discuss with Professor Zaperski the legal theories underlying these lawsuits and what he thinks about them. Hope you tune in. Hi, this is Steve Eisman and this is another episode of the real Eisman playbook.
Few months ago, I did an interview with a former life insurance examiner, Tom Gober, who was extremely critical of the role that private equity plays in the life insurance sector. Got a lot of great feedback from that interview. But I felt given how a important this topic is and b how controversial it is, it would be a good idea to get a second opinion.
So today we have the second opinion. Someone I've known for decades and I trust, Tom Gallagher, who is the life insurance analyst at Everore. Tom, welcome.
Thanks, Steve.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- private equity in life insurance
- life insurance industry risk
- reinsurance
- low valuations
- share buybacks
Companies and tickers mentioned
- EVR
- APO
- KKR
- Evercore
- Apollo
- KKR
Watch the episode
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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