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What Private Equity Does Differently: Evidence from Life Insurance

Author

Listed:
  • Divya Kirti
  • Natasha Sarin

Abstract

This paper studies how private equity creates value and its consequences for consumer welfare in the insurance industry, where PE investments grew tenfold following the financial crisis. PE firms add value through regulatory and tax arbitrage that increases profits relative to their non-PE counterparts. Crucially, the impact on consumer welfare is nuanced: in the short run, consumers benefit from more favorably priced products. But the arbitrage strategy also exposes them to more risk, as annual expected losses scaled by capital buffers rise by 50 percentage points. This creates the possibility of consumer harm in the event of a downturn.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Divya Kirti & Natasha Sarin, 2024. "What Private Equity Does Differently: Evidence from Life Insurance," Review of Finance, European Finance Association, vol. 37(1), pages 201-230.
    • Handle: RePEc:oup:revfin:v:37:y:2024:i:1:p:201-230.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhad055
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    More about this item

    Keywords

    G22; G24; G11; G28; G32;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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