Hunter Hopcroft
speaker
537 appearances
1 recordings
1 series
first heard Mar 2025
last heard Mar 2025
Hunter Hopcroft’s voice in public audio — every appearance, attributed to the second.
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Appearances
And complex would be things that are very actuarily difficult to underwrite.
Things like crop insurance or even some property and casualty.
Simple liabilities are more actually certain, something like an annuity where you're promising a stream of payments in the future or even life insurance, where they have a pretty good idea actually of what their life insurance liabilities are going to be.
Post-GFC, this creates issues because, especially in the annuity business, annuities were struck at higher rates.
So someone might be promised a payout of
four, five, six percent post-GFC, yields come way down and insurers have this giant mismatch of they're no longer making spread because they owe people four, but they can only reinvest at two.
Additionally, their bond portfolios are way down and the new assets are not yielding enough to create that spread.
So insurers start unloading insurance assets, which really are insurance liabilities, to alt managers.
And alt managers, again, in this desire to get off the vintage fund treadmill, are attracted to this long duration capital that for them is at reasonably low cost.
So
If you think about an insurance is highly regulated, but basically what you can do with that insurance capital is ninety to ninety-five percent has to be invested in investment grade fixed income.
Triple A or cash.
Five to 10% of that becomes equity that you can take more risk with.
And so that's really what these alt managers are attracted to.
Yes, they can maybe earn a little bit of spread on that 90-95% portion, but this five to 10% that drops out is a great source of long-term low-cost capital for them to grow their businesses, for them to seed other strategies or funds.
And so all alt managers.
post-GFC make varying degrees of investment into the insurance business.
Some are joint ventures, some are equity, some are just management agreements, but they're all playing in this space a little bit.
So Apollo buys American Equity Life in two thousand and nine, and it's such a great opportunity because they load the balance sheet up with mortgage-backed securities, which the prices have collapsed, but they're paying out nonetheless.
But by 2010, the fixed income markets normalized.
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