Private equity’s headlong rush into the life insurance industry has misaligned incentives, inflated risky assets, and produced a crop of “zombie insurers” just waiting to blow up, according to one of the few insiders willing to say so out loud.

“We know them, we see them, we whisper about them,” Anant Bhalla said on the latest episode of Semafor’s Compound Interest. “We need to speak more openly about it.”

Bhalla warned that private equity’s pressure is “high-octane fuel” pushing what should be the safest asset people own — retirement guarantees and death benefits — into dangerous investment territory.

Bhalla ran American Equity, a $50 billion insurer he sold to Brookfield in 2023, giving him a front-row seat to the transformation of life insurance from a sleepy, bond-oriented business into a multitrillion-dollar funding engine for alternative asset managers. He now runs 1823 Partners, a private investment firm backed by one of Europe’s richest families, and oversees investments in a life insurance company it bought last year.

Apollo’s 2014 bet on its insurer Athene spawned a decade of copycats, and over the past few years most big alternative asset managers have either bought a life-insurance company or launched dedicated businesses to manage their money. The few that didn’t have hustled to catch up. As traditional fundraising gets harder, the flood of money available in insurance — Athene had $83 billion of inflows last year, 57% of the money Apollo raised across all its strategies — is keeping deal machines humming. (Bhalla quickly answered “yes” when asked if an investment firm without insurance capital would become obsolete.)

These firms steer policyholders’ money into their own financial products, which have higher risks and higher returns than the blue-chip corporate bonds favored by more conservative independent insurers. The last comprehensive study, conducted in 2021 by insurance data and ratings firm AM Best, found that insurance companies owned by Wall Street investment firms earned 0.62 percentage points more on their portfolios than traditional insurers, which suggests they are invested in riskier assets.

“Anything that has a cash flow or even the hope of a cash flow” is fair game, Bhalla said.

Not that he’s opposed to alternative assets. “The question isn’t ’can we go back to the good old days of having 100% plain vanilla bonds, because that ship sailed 10 years ago. To me, the fundamental question is, can we make it work with a healthy mix… Can we do it with safer private assets?”