Alternatives don’t make up a particularly large percentage of insurance companies’ portfolios, but in a deep dive of Schedule BA investments, Sterne Agee analysts John Nadel, Wesley Carmichael, and Michael Ward found that alt exposure goes as high as a quarter of GAAP equity.

Insurers with highest exposure to riskier alternatives

“As a percentage of GAAP equity the exposures are in some cases material. Companies with the highest exposure to “riskier” alternatives (private equity, hedge funds, etc.) include Principal Financial Group at 24% of equity, Metlife at 22%, and Prudential Financial and American International Group, each at 18%,” they write. Including all Schedule BA assets pushes those percentages even higher.

insurer Alternatives exposure rank 1214

Insurer alt investments mostly composed of hedge fund, private equity stock equity positions

Principal Financial Group Inc is the most heavily exposed to Schedule BA assets, 27.8% of equity, followed by MetLife Inc, Prudential, and AIG as the only life insurance companies with alt exposure above 20% of equity. In most cases, the bulk of their alt exposure is listed under the category “JVs, LLC common stock,” which basically means hedge fund and private equity investments. PFG stands out as having its highest alt exposure in “JVs, LLC fixed income” with common stock coming in second.

insurer Alternatives  exposure 1214

“Perhaps a deeper dive into alternative assets (such as private equity and hedge funds) isn’t top of mind right now, but we believe this report will have sufficient shelf life such that it could prove useful for investors the next time capital markets prove challenged,” says the report.

True exposure to oil & gas industry via alts is hard to measure

With oil prices still low, and plenty of disagreement about where they’re headed next year, investors might also want to know their exposure to oil & gas via alts, but finding a reliable figure is eaier said than done.

Insurers had small positions in oil & gas partnerships, but measuring their direct exposure is misleading. Prudential and AIG, with exposure equal to 4.6% and 3.0% of equity respectively, are the only ones with any significant direct exposure, but this doesn’t account for the investments in hedge funds or private equity funds which are in turn invested in the oil & gas sector (not to mention second-order exposure through other impacted industries). But the Sterne Agee report warns that figuring out the insurance companies’ total exposure would be essentially impossible without their cooperation.