Document Type
Article
Publication Date
2-14-2020
Abstract
This paper studies how private equity buyouts create value in the insurance industry, where decentralized regulation creates opportunities for aggressive tax and capital management. Using novel data on 57 large private equity deals in the insurance industry, we show that buyouts create value by decreasing insurers' tax liabilities; and by reaching-for-yield: PE firms tilt their subsidiaries' bond portfolios toward junk bonds while avoiding corresponding capital charges. Previous work on affiliated or "shadow" reinsurance and capital management misses the important role that private equity buyouts play as recent drivers of these phenomenon. The trend we document is of growing importance in the private equity industry, with insurance accounting for close to a tenth of all PE deals from 2010-2014.
Keywords
insurance, private equity, reaching-for-yield, financial crisis
Repository Citation
Kirti, Divya and Sarin, Natasha, "Private Equity Value Creation in Finance: Evidence from Life Insurance" (2020). All Faculty Scholarship. 2154.
https://scholarship.law.upenn.edu/faculty_scholarship/2154
Included in
Banking and Finance Law Commons, Corporate Finance Commons, Finance Commons, Finance and Financial Management Commons, Insurance Commons, Insurance Law Commons, Law and Economics Commons