Delaware Life Insurance Company and Clear Spring Life and Annuity Company are under investigation by federal prosecutors and the Securities and Exchange Commission over the treatment of private loan investments backing retirement accounts.
Delaware Life restated its related-party investments from approximately $1.3 billion to approximately $18 billion after receiving grand jury subpoenas from the US Attorney's Office in Manhattan in February. The core question under investigation is whether loans introduced by an affiliate should have been flagged as related-party deals. No charges have been filed.
The $16.4 billion in relabeled investments came from annuities and life insurance policies sold to individual savers, many of whom may not understand what assets back their retirement promises. Credit rating agencies have responded by downgrading Delaware Life to A-minus with negative outlooks or watches.
Private Credit Growth in Insurance
Private equity firms have significantly expanded their ownership of insurance companies. The National Association of Insurance Commissioners counted 137 insurers under private equity ownership at the end of 2024, up from 90 in 2018. Together, those firms held $704.3 billion in assets.
Private credit investments lack public market prices, creating opacity around valuations. Unlike publicly traded bonds or stocks, these loans can take months to sell, while roughly half of annuity surrender values can be withdrawn within a week.
Risk and Liquidity Concerns
Early annuity withdrawals typically carry surrender charges of 7-10% in the first seven years, declining thereafter. These charges create friction that typically stabilizes the system, but rapidly rising redemption requests could create strain if savers lose confidence.
The case of Italian life insurer Eurovita illustrates potential risks. As interest rates rose and bond values fell in 2022, customers cashed out faster than expected. Eurovita's solvency ratio fell from 230% to nearly 130%. Italy froze withdrawals in February 2023 and held the freeze until October, when five rival insurers absorbed the policies. Policyholders did not lose money in that resolution.
Private credit stress signals have reached levels last seen in 2017, according to available indicators.
