With the cost of capital rising along with interest rates, JPMorgan Chase CEO Jamie Dimon says there is one place that the bank may look for cheaper balance sheet fuel: life insurance and reinsurance.
In JP Morgan’s fist quarter earnings call earlier today Dimon said that the bank is rethinking is capital optimization strategy as the bond market gets pricier and sees the flood of private equity deals in the life insurance and reinsurance industry as possible blueprint.
“We've got our smartest people figure out every angle to reduce capital requirements for JPMorgan,” he told investors. “And we've been doing it, but there are securitizations, there are partnerships. You've seen a lot of the private equity do the life insurance companies. And I expect that we're going to come up with a whole bunch of different things over time.”
He did not elaborate or cite any possible deals, but also mentioned the bank’s focus on “capital optimization” in his shareholder letter issued earlier this month.
Dimon’s comment refers to the flood of private equity capital that has moved into the life insurance and reinsurance market over the past several years, with over $200 billion in life liabilities acquired in 2021 alone, according McKinsey & Company.
The consulting firm adds that private equity firms own over $900 billion of life and annuity assets in Western Europe and North America and about 12 percent of all life and annuity assets in the US.
Life insurance and reinsurance is considered relatively low-cost “permanent” capital with long dated maturities that allows its owners to invest and make money on the spread.
As McKinsey points out, the model being embraced by private equity is based on Warren Buffett’s 50 year track record with its 1967 acquisition of National Indemnity.
