Insurers are turning to specialist asset managers in search of yield, outsourcing their balance sheets to navigate volatile markets. However, recent failures from this model highlight the risks of outsourcing judgment and decision-making along with asset management.
Leadenhall Capital Partners, a specialist in insurance-linked investments, faced a cautionary tale in the industry. Despite appearing as an ideal partner for insurers with sector focus and regulatory oversight, the firm’s aggressive capital deployment into complex businesses led to distress, litigation, and substantial value erosion.
Friday Health Plans, once a disruptor in the ACA marketplace, expanded rapidly but faced a collapse in 2023. Texas, Georgia, and Oklahoma took regulatory action as the company entered liquidation, showcasing the risks of rapid growth without operational discipline.
Health IQ, valued at $450 million, pivoted repeatedly and relied on commission revenue before filing for bankruptcy in 2023. The company’s downfall involved WARN Act litigation, mass layoffs, and liabilities exceeding assets, highlighting the dangers of unsustainable growth strategies.
RMIT’s Chapter 11 filing in late 2022 exposed challenges with rising interest rates and liquidity pressure. The bankruptcy process revealed disputes over financing and creditor claims, showcasing the complexities and risks of private credit tied to insurance-adjacent assets.
Leadenhall’s 2024 lawsuit against 777 Partners and A-CAP highlighted allegations of fraud and improper pledging of collateral. Temporary restraining orders and frozen assets worth over $600 million signaled a legal battle with serious implications for the insurance industry.
Insurers must heed the lessons from these failures, recognizing that capital injections and growth strategies do not guarantee success in regulated businesses. Operational discipline and risk assessment are crucial to avoid the pitfalls that led to the downfall of these companies.
Read more at Yahoo Finance: When Insurers Outsourced Risk to Leadenhall, They Inherited Managers’ Failures