Private Equity Creating Attractive Rates For MYGAs / Life Insurance?

One of the lessons from the 2025 Berkshire Hathaway Annual Meeting was that you never know where your next investment idea will come from, so you should “turn every page”. For example, I like to read the entire transcript of the Q&A session (thanks to Steady Compounding) instead of just reading the WSJ or CNBC articles. Take this question and answer came up from Ajit Jain, their head of insurance:

Becky Quick: This question is from Peter Shen in New Jersey. It’s for Mr. Buffett and Mr. Jain. In recent years, large private equity firms like Blackstone, Apollo, and KKR have aggressively expanded into insurance, raising permanent capital, managing float, and aiming to replicate the model that Berkshire pioneered decades ago. Given that these firms are now directly competing for insurance assets, often using higher leverage and more aggressive investment strategies, how do you view their impact on Berkshire’s insurance operations and underwriting discipline? Do you believe that the private equity model poses risks to policyholders in the broad financial system, and has this competition made it more challenging for Berkshire to find and price insurance opportunities safely and profitably today?

Ajit Jain: Part of the question is very easy. There’s no question the private equity firms have come into the space, and we are no longer competitive in the space. We used to do a fair amount in this space, but in the last 3-4 years, I don’t think we’ve done a single deal.

You should separate this whole segment into two parts: the property casualty end of the business and the life end of the business. The private equity firms you mentioned are all very active in the life end of the business, not the property casualty end.

You are right in identifying the risks these private equity firms are taking on both in terms of leverage and credit risk. While the economy is doing great and credit spreads are low, these firms have taken the assets from very conservative investments to ones where they get a lot more return. As long as the economy is good and credit spreads are low, they will make money – they’ll make a lot of money because of leverage.

However, there is always the danger that at some point the regulators might get cranky and say they’re taking too much risk on behalf of their policyholders, and that could end in tears. We do not like the risk-reward that these situations offer, and therefore we put up the white flag and said we can’t compete in this segment right now.

Basically, Berkshire can’t compete in life insurance right now because private equity firms are flush with money and are expanding into insurance and competing very aggressively on rates. The only real insurance-as-investment product that interests me (I do have term life insurance) are multi-year guaranteed annuity (MYGAs), so I decided to check the current rates.

Sure enough, a new name called Knighthead Life is at the top of the charts at Blueprint Income. Their rates will vary by state and investment amount, but I saw 7-year MYGAs at 6.80% and 5-year MYGAs at 6.55% (simple interest). Knighthead Life even has a relatively solid A- rating for financial strength from AM Best. Usually, the top rate will be offered by an insurer with a lower B++ rating.

Digging further, we find that private equity firm Knighthead Capital Management/Knighthead Insurance Group recently completed a $550 million capital raise, acquired Merit Life Insurance in January 2025, and quickly rebranded it as Knighthead Life.

Another top MYGA provider on the list, Revel One, was founded in 1980 and acquired by private equity firm Axar Capital in 2022.

I’m still trying to keep my investments simple, but these MYGA rates are a pretty significant 2%+ spread above current bank CD rates and Treasuries. They are not directly comparable, but they are comparable. MYGA are much more complicated and there are pitfalls to avoid. Please do your own research before investing.

In addition, perhaps this also makes it a good time to shop for term life insurance rates. I haven’t shopped around in a while. We got ours set up at a reasonable cost before having kids and I’m always happy to know that it is there for my family if they need it.

I wonder if looking back, this will have been an opportunity to take advantage of the consumer-friendly rates resulting from the current rush of money into private equity, or if the risks of “higher leverage and more aggressive investment strategies” will eventually create a crisis event if some of these insurance companies start to fail. (How long will that shiny A- rating last?)