An ‘Insurance Renaissance’ Is Fueling Private Credit Surge, Says AllianceBernstein

An “insurance renaissance” is quietly reshaping a traditionally sleepy industry as a surge in annuities sales fuels demand for investment products with shorter duration and less liquidity, according to AllianceBernstein, an $806 billion asset manager owned by insurer Equitable.

Last year Nashville-based AB tapped Geoff Cornell as chief investment officer of its insurance unit, which the firm sees as central to its growth efforts. An influx of annuities in recent years shows signs of slowing, but many of the changes these flows have brought to the industry are here to stay, Cornell says. He and deputy chief investment officer Gary Zhu recently spoke to Bloomberg News in a series of interviews. They have been edited for length and clarity.

Q. How are insurance companies investing differently today compared with 10 years ago?

A. (Cornell): A handful of factors converged in the last few years that have changed the incentives for insurance companies. First, rising interest rates and a greater share of retirees have driven a huge increase in sales of annuities. And since annuities are relatively short products compared to traditional life insurance policies, this creates a need for insurers to park money in shorter assets. That’s important because there’s a much wider range of assets that are short compared with assets that are long, and they include private credit such as private placements, asset-based lending, middle market direct loans and other areas. These assets also tend to yield more than longer ones.

Q. Overall, how would you characterize the impact of these changes for the insurance industry?

A. (Zhu): The combination of rising sales of annuities, demographic changes and the growth of private credit is creating an insurance renaissance. Traditionally, investing assets on behalf of insurance companies was a relatively straightforward matter of matching assets and liabilities. Now, not only are insurers looking to invest in higher-yielding private asset assets, it also makes sense for them to invest more in equity or equity-like structures. For example we recently invested in a “sidecar” by Reinsurance Group of America, Inc. Essentially, we’re hitting more sides of the balance sheet. There is a lot of innovation going on.