European regulators have urged more detailed oversight over alternative assets and reinsurance arrangements at insurers backed by private equity.

The European Insurance and Occupational Pensions Authority has told national supervisors across the European Union of their expectations for the regulation of PE-backed insurers.

Bermuda is a global capital for life and annuity reinsurers backed by private equity and alternative asset managers.

Bermuda and US regulators have sought to affect a balance by ensuring the financial stability of insurers and adopting regulatory guidance and initiatives to address perceived risks.

Eiopa warned of key areas in which EU supervisors should assess and closely monitor all PE-backed re/insurers even before they are authorised to operate.

The supervisory statement aims to promote consistent, high-quality and risk-based supervision of private equity-backed undertakings across the EU.

Eiopa said: “Private equity firms have over the past decade shown a growing interest in acquiring and managing re/insurance undertakings.

“While PE actors can bring potential benefits to the sector, their business strategies, ownership structures, asset allocations and governance arrangements can also pose challenges for effective supervision.”

The supervisory statement “sets out supervisory expectations for the authorisation by National Competent Authorities of private equity related re/insurance undertakings in the context of portfolio transfers, acquisitions of (qualifying) holdings and mergers (ownership changes), as well as for ongoing supervision.”

Eiopa said it considers it necessary to set out common supervisory expectations because of the increasing trend of acquisitions of insurance undertakings by PE firms across several member states, including cases involving undertakings with a significant market share.

The statement said: “This trend has been accompanied by the emergence of specific supervisory risks, such as more complex ownership and group structures and riskier investment strategies.

“At the same time, divergent supervisory practices have been observed, which may undermine supervisory convergence and the effective functioning of the single market.”

In February, Eiopa launched a public consultation on a draft supervisory statement concerning the authorisation and ongoing supervision of re/insurance undertakings owned or influenced by PE firms.

Law firm Norton Rose Fulbright flagged concerns that the increasing PE firms European insurance and reinsurance undertakings was often accompanied by changes in governance, strategy, risk management, asset allocation and group structures.

The firm said Eiopa and the NCAs believe risks associated with the acquisitions include short or misaligned investment horizons relative to long-term policyholder commitments; significant shifts towards illiquid or private-credit-heavy portfolios; increased reliance on reinsurance counterparties in third countries; and, complex ownership structures that may hinder effective oversight.