Private equity firms have spent nearly $40 billion buying U.S. insurance companies in recent years, promising to earn higher returns on the mountains of money that insurers set aside to pay policyholders years or decades from now.
The firms are moving some of the money out of traditional low-yield investments such as government bonds into riskier, harder-to-sell assets such as private loans and equity.
The shift has caught the eye of regulators and raised concerns about a cash crunch if asset managers had to liquidate large portfolios in a hurry to meet insurance claims.
PE-insurance marriages can be joyous: Asset managers have skills and access to investments that insurers lack, and insurers provide cheap funding. PE firms also earn…