Fed Cuts and Lower Yields May Pull More Private Capital into Insurance

In this insurance sector analysis, we discuss the event of the week, the macro trend, and EPS implications. 

Event of the Week

Allianz announced a deal with Oaktree Capital Management that continues the flow of private capital into the insurance market. The announcement of the Oaktree transaction follows a similar transaction announced last year between AIG and Blackstone, and a more recent purchase of an entire life insurance entity by a private equity firm, which we highlighted in our recent report: Insurance This Week: Private Equity Purchase and Lack of Fresh Macro Data.

Macro Trend

The chart below shows the Fed Funds target rate since 2024, as well as the consensus view looking into 2028. Both the downward direction historically and the expectation for a continuation of lower rates going forward seems apparent. The implication for investors is that yields on portfolios of traditional fixed income investments, such as corporate and government bonds, have fallen and are not expected to rise. As a result, there is likely to be increased interest in non-traditional structures that offer higher yields.

Linking Macro Trends to Potential EPS Impact

Our Macro Tracker table lists key economic data relevant to insurance company earnings. The right-hand column ties macro trends to the potential impact on company earnings.

Details: Macro Trend and Event of the Week

The recent Fed cut, and a drop in benchmark Treasury yields that should follow, puts more pressure on fund managers seeking higher yields in a macro environment that includes falling interest rates. Events featured in Insurance Weekly may be indicative of future equity investments seeking higher yields.

To achieve this goal, investments may be directed to asset classes outside of traditional government and corporate bonds. For investors seeking such investments, insurance companies offer structures from CAT bonds to reinsurance transactions, as well as opportunities for outright purchases of operating entities. In addition, many insurance companies own private equity managers that are operating under the holding company.

This week’s event highlights an investment planned by Oaktree, a distressed credit markets investor. The transaction will deploy equity into the reinsurance market through its new Lloyd’s Syndicate. Specifically, Oaktree plans to use the Lloyd’s syndicate (to be named Syndicate 1890) to invest “hundreds of millions of dollars” to reinsure commercial risk policies sold by Allianz.

Using FactSet functionality, this report delves into Allianz’ reinsurance data, which is part of the US Statutory product integrated into the FactSet workstation with an AM Best subscription. The data for the Allianz subsidiary shown below— Allianz Global Risks US Insurance Company— is one of many Allianz subsidiaries and is one of the largest.

The entity can be located using FactSet’s groups and subsidiaries functionality shown below from the Workstation: Company/Security - Groups and Subsidiaries - FactSet.

The Schedule F data for this subsidiary shows an increase in reinsurance volume over the past several years, and it lists the names of Lloyd's syndicates and other counterparties associated with prior Allianz transactions. Oaktree’s transactions— to be reinsured through its new Lloyd’s syndicate— will be reported in Allianz’s subsequent Schedule F filings.

To easily view the reinsurance data in Schedule F, a new FactSet template is available (Multi Year Statutory Investment Schedule F - Reinsurance for Property & .Casualty.xlsx) that surfaces multiple years of Schedule F data for an entity. Shown below are multiple years of data from Allianz Global Risks US Insurance Company’s most recent Schedule F.

The selected data below, which is a portion of the total data available, shows a slight increase in ceded reinsurance volume for the Allianz entity over the past several years. Also shown are a portion of the reinsurers associated with each transaction.

If the pace of investments into reinsurance transactions continues, fueled by the combination of falling interest rates and investors seeking higher yields, then access to Schedule F data can provide an important source for tracking changes in an entity’s ceding volume as well as counterparty exposure.

This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.