Are US Life Insurers the New Shadow Banks?

Abstract

We show that the largest U.S. life insurers entered corporate loan markets as banks refocused on commercial banking from 2009, against a backdrop of unconventional monetary policies and tighter bank regulations. Through complex on- and off-balance sheet arrangements, these insurers, many of whom are controlled by private equity firms, are acquiring and deploying vast amounts of insurance liabilities to fill the void left by banks. Using the COVID-19 pandemic, we show that life insurers have become more vulnerable to an aggregate shock to the corporate sector and disproportionately benefited from the Fed response to the pandemic.

Keywords: shadow banking, insurance companies, annuities, private debt, private equity, leveraged loans, collateralized loan obligations

JEL Classification: G23, G12, G18