Blackstone BX -1.18%
Group Inc. has entered into a comprehensive agreement with American International Group Inc. to manage a portion of the assets underlying AIG’s life insurance policies and annuities, a major step forward for the private equity firm in with a view to becoming a major player in the insurance sector.
Blackstone will enter into a long-term deal to manage an initial $ 50 billion in assets, with the amount rising to nearly $ 100 billion over the next six years, the companies said on Wednesday. The AIG unit has around $ 200 billion in assets.
The private equity firm is also reportedly paying $ 2.2 billion for a 9.9% stake in AIG’s life insurance and pension unit, and Blackstone chairman Jonathan Gray is expected to join his board of directors.
AIG, a global insurance conglomerate, is preparing to split the unit into a separate company, leaving the parent company to focus on property and casualty insurance. AIG announced its divestiture plan in October and continues to work on a first public offering of the unit.
Blackstone’s unlisted real estate investment trust, known as BREIT, has also struck a deal to buy $ 5.1 billion in affordable US housing assets that AIG has held on its books for decades. but which are not considered essential to its operations.
Insurance has been a priority for buyout companies in recent years, offering a constant flow of cash to invest and reliable, if not spectacular, returns.
The deal would catapult Blackstone’s insurance business to around $ 150 billion in assets under management by the end of 2021 after factoring in a deal earlier this year by entities managed by Blackstone to purchase a unit of ‘Allstate Life Insurance Corp.
Global management of Apollo Inc.,
long a leader in insurance strategy, managed a total of approximately $ 250 billion in assets on behalf of its subsidiaries Athene Holding Ltd.
and Athora Holding Ltd. at the end of the first trimester. Apollo announced a deal in March to buy the part of Athene he didn’t already own.
KKR & Co. has entered into an agreement to purchase insurance company Global Atlantic Financial Group Ltd. in February, giving it roughly $ 90 billion in insurance assets to manage.
Unlike Apollo and KKR, Blackstone is not interested in owning a controlling stake in any insurance company. In the deal with Allstate, which is done primarily through Blackstone funds, Blackstone will own a little less than 10% stake in the insurer on its own balance sheet.
The push by private equity giants into the life insurance industry is part of an effort to manage more so-called permanent capital that does not need to be constantly replenished. In an era of low interest rates, corporations have grasped the need for life insurers to generate returns that exceed what publicly traded corporate and government bonds can offer. Companies have developed credit platforms that offer an ever-expanding range of products, including private loans, asset-backed securities and aviation finance specifically designed for insurance companies.
Life insurers, meanwhile, are looking to pull out or reduce their exposure to product lines whose profitability is weighed down by ultra-low interest rates. Insurers depend on the interest income of large bond portfolios for a substantial portion of their profits. They invest the premium dollars paid by their clients until they are needed to pay the claims, usually in publicly traded bonds.
By partnering with Blackstone, AIG does not anticipate any change in the overall allocation of its portfolio. The assets that Blackstone will manage are already invested in less liquid categories.
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