U.S. insurers are stepping up sales of annuities and other capital-intensive assets amid a surge in interest from new and established private equity buyers hungry to boost the amount of money they manage, according to industry sources and public data.

Companies such as Sixth Street Partners and KKR & Co Inc have spent billions of dollars in the last year buying up insurance assets they can use as foundations for further acquisitions, while Blackstone Group Inc last month bought a business after restructuring its insurance operations under a new executive last year.

Insurers inked 441 deals worth $25 billion in 2020, up from 356 deals worth about $22 billion the year before, according to data from Refinitiv. That momentum continued into January which was the most active month for insurance deal-making in 20 years, according to PricewaterhouseCoopers.

Among January’s deals were Blackstone’s $2.8 billion purchase of Allstate’s life and annuity business and State Street’s $2 billion takeover of Talcott Resolution.

The demand is allowing insurers to release capital for share repurchases and investment in core businesses, while private equity buyers can increase assets under management and generate more revenue, though they do take on some risk.

“There’s a whole new attitude in the C-suite and board rooms of insurers,” said John Marra, U.S. insurance deals leader at consultant PricewaterhouseCoopers.

He said executives across the industry had been given the green light to hire advisors and consult with regulators as they step up the hunt for books of business or whole units to sell.

Super low interest rates have eroded yields from the regulatory capital required to back life insurance and annuity policies, driving insurers to consider selling inactive blocks and non-core business lines. The Federal Reserve has said it expects to keep rates near zero until 2024.

Credit Suisse estimates insurers have about $1.7 trillion in annuity assets that could be sold to eager private equity firms.

“They can divest blocks of annuities at pretty good multiples, in the 8-12 range, and often buy back stock at half those multiples,” said Credit Suisse analyst Andrew Kligerman, referring to multiples of earnings.

Feeding Frenzy

Private equity firms can invest the cash from insurance premiums into their existing raft of higher-yielding assets such as real estate and infrastructure, at the same time driving operational cost savings, say industry executives.

Executives said a range of new strategies are emerging.

Retirement services firm Athene Holding Ltd, backed by private equity giant Apollo Global Management, has led the charge in leveraging insurance assets for more than a decade. Apollo generates fees by charging Athene for sourcing higher-yielding investments, an arrangement some other private equity players are looking to replicate, said executives.

Brookfield Asset Management is among them, announcing in October it would take a 19.9% stake in American Equity Investment Life Holding Co and provide the fixed index annuity provider with access to Brookfield’s alternative assets.

Other private equity firms are looking to consolidate the insurance assets onto their own books to bolster their financial metrics.

For example, when KKR announced last year it was buying U.S. annuity provider Global Atlantic Financial Group for $4.4 billion, it said the transaction would increase permanent capital as a percentage of its total assets under management to 33% from 9%.

Higher permanent capital ratios point to greater financial security for private equity firms, as companies have more stable cash reserves.

Insurance assets, though, do pose some risks for buyers. To value blocks of policies, for example, buyers must estimate future payouts on the policies as well as tax and regulatory capital requirements. That means more competition is unlikely to inflate sale prices for insurers, industry figures said.

Where competition will take its toll is on smaller private equity-backed insurance vehicles that don’t have the name-brand recognition, or the financial resources, of the larger entrants.

“A few players will win out,” said the head of one private equity firm’s insurance operations. “There are only a few people in the world who can write $1 billion checks.”