Todd Boehly’s insurer has won a temporary reprieve from new rules that would have hit its capital reserves, as regulators tussle with private capital-backed players over how groups invest retirees’ savings.
Security Benefit, a $60bn life insurer owned by the billionaire sports investor’s asset manager Eldridge Industries, has succeeded in delaying changes to capital rules despite a warning from one regulator that current regulations create a “capital arbitrage” that is being “actively exploited”.
At issue are collateral loans, an investment structure that allows insurers to back promises to policyholders with debt secured by underlying assets. These range from mortgages to intellectual property rights, future cash flows and the riskiest slices of collateral loan obligations.
Security Benefit has been by far the heaviest user of collateral loans in recent years.
As of 2024, the most recent data available, the Kansas-based insurer alone held 47 per cent of the entire US life insurance sector’s collateral loans. Security Benefit had $12.9bn — more than a quarter of its total invested assets — in collateral loans in 2024.
Under current rules, insurers can incur a flat 6.8 per cent capital charge on these investments. If they were owned outright, they would typically incur higher capital charges.
“By simply papering the investment as a collateral loan”, Iowa’s insurance division warned in a recent note, insurers can cut the capital they are required to have against these investments by as much as two-thirds compared with holding the asset directly.
The Iowa regulator, which oversees more insurance assets than any other state, said that collateral loans are “the most easily exploited asset class for capital arbitrage”. This arbitrage was “being actively exploited”, it added.
The National Association of Insurance Commissioners, which develops the rules used by US states to regulate insurers, has set out plans to make it more expensive to rely on collateral loans backed by riskier exposures, such as equity investments.
NAIC officials including Philip Barlow, who chairs a working group tasked with overseeing changes, had pushed for rule changes — which the body has been developing for more than two years — to go into effect by the end of this year.
But after lobbying by Security Benefit, the rule change has been pushed back, handing a temporary reprieve to the insurer, which is seen as the primary target of the sector-wide rule changes.
At the NAIC’s spring meetings, the working group Barlow chairs agreed to delay closing the loophole until next year, people familiar with the talks told the FT.
Insurance regulatory officials from Kansas backed the insurer in its effort to delay changes, the people said.
Unlike some other users of collateral loan structures, nearly all of Security Benefit’s collateral loans — about $12.8bn out of $12.9bn — were backed by affiliated assets.
Recent filings, for example, showed that Security Benefit had an affiliated $185mn collateral loan backed by an investment in the Los Angeles Dodgers baseball team.
The next largest user of collateral loan structures, MetLife, had just 1 per cent or $2.8bn of its total invested assets in collateral loans, and most of these were unaffiliated.
Boehly owns a 20 per cent stake in the Dodgers directly, while his asset manager Eldridge Industries separately holds a 7 per cent stake in the franchise, according to Sportico.
NAIC officials and senior industry analysts told the FT that they were concerned that asset managers could use collateral loans to stuff insurance subsidiaries with potentially risky investments.
“This is how insurance companies get in trouble — when assets that can’t be parked anywhere else are parked inside insurance companies,” one NAIC official told the FT.
Several singled out Security Benefit and said they were concerned that Boehly’s asset manager could be using policyholder funds to provide cheaper financing for assets he controlled, building up a potential future funding shortfall.
Under planned changes, NAIC would “look through” to the investments underlying the collateral loans, and would apply a 30 per cent capital charge when they are backed by equity stakes in companies or the equity tranches of structured investments such as collateralised loan obligations.
The capital that Security Benefit would be required to hold against the $185mn loan backed by the Dodgers investment, for example, could rise from about $13mn to as much as $56mn.
Two people said they expected Security Benefit to make significant changes to its investment portfolio in advance of the new rules being enacted.
However, if it made no changes to its allocations, Security Benefit’s risk-based capital — a measure of its buffer to meet obligations to policyholders — could fall by as much as half, based on its latest filings.
Some NAIC officials told the FT that the delay highlighted the body’s vulnerability to industry pressure.
“There was no reason to delay this other than industry pressure,” one NAIC official close to the proceedings said.
In a statement to the FT, Security Benefit said that since 2020 it had undergone three examinations by its regulator, the Kansas Department of Insurance, including one focused exclusively on collateral loans. These reports “reflect no material findings”, it said.
Asked why it invested so heavily in affiliated assets, it said: “Our collateral loans typically have robust protections including senior secured rights in the underlying collateral.”
In a letter to the NAIC, Security Benefit had urged officials to delay the rules taking effect until at least the end of 2028. The insurer argued that the data available did not suggest that there was an “an emergent solvency or policyholder protection concern that would justify emergency action”.
The Kansas Department of Insurance echoed the argument from Security Benefit, telling the FT in a statement that it had argued for “a reasonable timeline for the implementation of all changes”.
Eldridge Indstries declined to comment.
