ELI5: Insurance Capital for PE Firms
No matter how much I read about Apollo / Athene, KKR / Global Atlantic, Blackstone / AIG partnership, Brookfield / AEL / American National, etc...I'm still not able to grasp why buying insurance entities is good for business / value. Can someone walk me through it step by step / explain it like I'm 5? Thanks!
A) BRK is the king of this strategy. Why has it created them so much value? (Float right, but worth looking into further)
B) Current banking crisis. Same duration concepts are at play. To anyone reading this, if you haven’t followed duration well get your hands on the CFA level 1 fixed income book.
C) volatility. Has made Citadel a lot of money. Has created a hard rate environment in insurance. Ideally we are able to predict at scale using probability theory (Act Sci) - doesnt always work. Why scale and covariant risks are friends
Insurance companies specifically life insurance companies make money (premiums) over long term policies and don't have to pay claims as frequently as a P&C. They generate most of their revenue by investing these premiums and have discretion over how to deploy money. By buying Athene or any life insurance company, private equity companies can ask Athene to invest in either their funds or portfolio companies directly which will be a cheaper source of capital from the GP (PE SPomsor) perspective than going to typical institutional LP, who will negotiate on deal / mgmt fees / Carry (either in reality or potentially)
Are you currently a generalist at a PE firm or recruiting for these roles ?
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