What Private Equity Does Differently: Evidence from Life Insurance

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.