CounterPunch Exclusives

CounterPunch Exclusives

When the AI Bubble Bursts, Who Will Be Left Holding the Bag?

A new paper making a stir in the financial press spells out the dangers to which private equity-owned life insurance companies are exposed by private credit funds with large portfolios of loans to software and AI companies. It’s a complicated story that could have enormous consequences.

Pranjal Drall and Andrew Granato, the report’s authors, argue that some of these insurance companies could become insolvent if these loans crash. And an unanticipated consequence of a 60-year-old rule that protects insurance company policy holders from losing all of their life insurance benefits or annuity payments could leave taxpayers holding the bag.

Let’s step back to understand some of the backstory. In 2022, I wrote about private equity firms gobbling up life insurance companies, and in 2026 about the risky, high-fee investments these companies were making with people’s life insurance and annuity premiums. Private equity firms are best known for the private equity (PE) buyout funds they sponsor. These funds buy up anything from doctor’s practices to single-family homes to youth sports leagues. PE funds use money committed by their investors as the down payment (the equity) on these acquisitions, and they use lots of debt to acquire companies in what are known as leveraged buyouts (LBOs).

As PE firms diversify their holdings, life and annuity insurance companies are an attractive target because they amass premium income, but may not need to pay out benefits for years or even decades. PE’s interest in owning life insurance companies emerged in earnest in 2009 following the Great Financial Crisis, and accelerated in the early 2020s.

While traditional insurance companies mostly invested premium income in corporate and Treasury bonds, PE firms count on earning high fees for managing risky investments made with these assets, and on profiting from the spread between what it owes policyholders and what its investments earn. There are no legal barriers to private equity-owned insurance companies using their assets to........

© CounterPunch