The recent push of U.S. private equity firms into the life insurance business is expected to slow, as much of the low hanging fruit may have already been picked, suggests Fitch Ratings in a new report.

In the past couple of years, private equity firms and funds have expanded into the life sector by entering deals that have, in turn, helped Canadian and European insurers pull back from the U.S. market, Fitch notes. For instance, Guggenheim Partners recently acquired Sun Life’s U.S. life and annuity business, and Apollo Global Management’s insurance-focused affiliate, Athene Holding Ltd., acquired British insurer Aviva’s U.S. life and annuity business. Other private equity firms that have completed acquisitions in the life sector, too, it says, including Harbinger, Global Atlantic and Resolution Life.

Fitch notes that an added rationale for private equity’s investment in the life space, in addition to acquiring core insurance businesses, is the potential to manage the acquired businesses’ investment holdings. For instance, it reports that Apollo earns a 40 basis point fee on Athene’s overall investment portfolio, which totals US$60.1 billion, along with the fund-level private equity fees it generates on US$11.8 billion of sub-advised assets invested across Apollo’s funds.

However, the rating agency says that this growth is expected to moderate “as the high-value opportunities in the sector that manifested themselves the aftermath of the financial crisis have largely dried up.” Additionally, Fitch notes that heightened scrutiny from state insurance regulators “will also be a headwind on private equity’s further penetration in the life sector, at least over the short term.”

Fitch says that regulatory risk has long been a curb on private equity’s interest in the insurance sector due to the involvement of individual state regulators in approving changes in ownership and special dividends, among other things. It says that state regulators’ concerns about private equity control typically center on the private equity’s potential prioritization of short-term profits over the long-term health of the insurance company and its policyholders.

“Fitch sees this concern as especially important when a fund purchases the insurance company, given the limited fund life and need for an exit strategy,” it says.