The investment office of an insurance company used to be one of the more boring departments in finance, focused on putting customers' premiums into [PERSON_NAME] assets like bonds. But over the past two decades, this onetime backwater has become an engine of enormous wealth, as private equity firms have acquired insurers en masse and redirected those premiums into their own risky investments. Now, the wisdom of that approach is in the spotlight as one of its biggest stars, [PERSON_NAME], faces a financial reckoning during a federal investigation into whether some of his companies improperly characterized tens of billions of dollars in assets.

Mr. [PERSON_NAME], 66, might be Exhibit A in the how-to manual for transforming insurance money into private fortune, steering a modest asset manager, Guggenheim Investments, to acquire a string of insurers in the years after the 2008 financial crisis. He then oversaw the sale of many of those insurers to his personal investment firm. He used billions of dollars of premiums to buy sports teams, including the Los Angeles Dodgers, the Los Angeles Lakers and the Cadillac Formula 1 team, as well as real estate debt. And he made loans to companies as varied as [PERSON_NAME] and Wendy's.

But over the past few weeks, Mr. [PERSON_NAME] has scrambled to sell some of those assets to shore up his insurance empire. His surprise deal this month to sell a majority stake in the [PERSON_NAME], after owning the team for only a year, signaled the depth of his woes. Mr. [PERSON_NAME], who declined to be interviewed, has not been charged with a crime. His representatives say he is cooperating with the authorities. His situation has raised alarms across the nation's insurance industry, where private-equity giants like Mr. [PERSON_NAME] owned about $1.1 trillion in life insurance assets last year, according to AM Best, a credit rating firm.

Mr. [PERSON_NAME]'s trouble burst into view in June when Delaware Life and Clear Spring Life, another insurer he owns, disclosed that they had misclassified a collective $21 billion in investments as being independent. In reality, the premiums were invested in companies that were intertwined with Mr. [PERSON_NAME] and his network of entities, creating a complex web of financial relationships that regulators are now scrutinizing.