NEW YORK ( TheStreet) --New York State is taking a hard look at the acquisition of annuities portfolios by private equity firms and strategics to make sure the securities aren't used to disguise risk in the same way financial institutions spread risk across asset-backed securities leading up to the financial crisis.

There is one investor who has been careful to steer clear of the state regulator by the way he has gone about picking these portfolios: Warren Buffett.

Private equity as well as strategic players making deals to acquire annuities portfolios are getting inquiries from the New York State Department of Financial Services (DFS). Headed by Superintendent Benjamin Lawsky, the regulatory agency is looking into how portfolio managers take on more risk with the new pools of capital they control. The agency has a reputation among lawyers and dealmakers for being the most aggressive state investigatory agency for insurance M&A in the United States.

A handful of private equity transactions to buy annuities companies, as well as a few strategic deals, have to undergo a review process by the DFS. However, through careful sourcing of recent deals, Buffett's Berkshire Hathaway ( BRK.B - Get Report) legally skirted the state's regulatory agency that oversees and approves insurance M&A, sources say.

Assets in the variable annuity death benefit business include commercial mortgages, public and private bonds, and back up death benefit policies and guaranteed minimum income annuities.

Regulators are inquiring into how portfolio managers approach risk when it comes to annuities' investable assets, a source said. New owners of annuities portfolios may elect to use these assets to back riskier investments like mortgage-backed securities.

"They have injected some more risk into the system," said one banking source, of investors now making annuities deals to use investable assets in riskier bets, adding, "They've taken advantage of this regulatory arbitrage."

To be sure, the activity is legal--it simply adds more risk to a portfolio.

A company can only make a certain amount of investments in riskier assets like mortgage-backed securities (which, in turn, provide an opportunity for bigger returns) in greater amounts if the assets are re-insured elsewhere.

With better returns for themselves, investors in annuity portfolios can also afford to offer more lucrative returns to their customers.

However, the DFS can singlehandedly scuttle a transaction. The department oversees change-of-control transactions--even ones involving a stake as small as 10%--where the buyer's business has any dealings in New York State. The same also goes for businesses domiciled in New York.

Those with no operations and headquarters in New York fall outside of Lawsky's and the DFS' jurisdiction, however. (Lawsky formerly served as New York Governor Andrew Cuomo's chief of staff in Albany.)

As strategic players in the insurance space have scaled back their activity, because of the risk involved, private equity firms have stepped in to capitalize businesses at a time when few--or, in some cases, no--other bidders exist.

"The nub of the issue is the ability to use policyholders' money to generate returns," said one legal source. "And there is a disparate level of inquiries being levied at private equity firms right now."

DFS scrutiny of recent private equity portfolio acquisitions could potentially upend deals. Tiptree Financial Partners, Apollo Global Management ( APO), Guggenheim Partners, Harbinger Capital Partners and Global Atlantic Financial Group (formerly known as Goldman Sachs Reinsurance Group) are among private equity investors that sources say have received requests for more information from New York's DFS. None of the firms responded to requests for comment.

Although the agency might be more wary of sponsor-backed deals, strategics aren't immune from review. The $600 million sale of Lincoln Benefit Life by Allstate ( ALL - Get Report) to Resolution Life Holdings has been stalled by inquiries from DFS and the agency may also delay the closing of another strategic deal, the sale of British insurer Aviva's United States annuity business, to Athene Annuity & Life Assurance, according to Reuters reports.

It also took until the end of July for DFS to approve Guggenheim Partners' $1.4 billion acquisition of Sun Life Financial's ( SLF) annuities assets, while others remain in limbo.

But Buffett, careful asset picker that he is, has made sure that the portfolios his companies pick up aren't within the New York regulator's jurisdiction.

For example, in February, Berkshire Hathaway came to control the variable annuity death benefit business belonging to Cigna ( CI - Get Report). Berkshire assumed control of all future annuities policies--which could pay out up to $4 billion--in exchange for the business, valued at $1.8 billion, as well as $100 million in cash from Cigna and $300 million in the form of a tax benefit the seller was to receive.

"The Cigna entity that ceded the reinsurance portfolio to Berkshire Hathaway was Connecticut General Life Insurance Company," said a legal source. "No New York-domiciled company was involved."

Then there was the June deal Berkshire Hathaway struck through its insurer Columbia Insurance for Hartford Financial Services ( HIG - Get Report) British variable annuity business; Hartford Life. wouldn't be subject to DFS review because of its cross-border nature. That deal was for $285 million, but it was also a transaction that added $1.75 billion in assets under management to one of Buffett's companies.

The source said that, like the Cigna deal, the stock transaction between Berkshire Hathaway and The Hartford's U.K. entity also wouldn't come under the purview of New York's DFS.

After contacting multiple state insurance agencies, it is not clear how well Berkshire's deals were scrutinized compared to other annuities transactions--or, if they were reviewed at all.

The Connecticut Insurance Department has no inquiry going forward regarding the Berkshire Hathaway deals, a representative said.

A representative for the Nebraska Department of Insurance said the agency "has not conducted inquiries or reviews" of Berkshire deals.

A Cigna representative said: "The assets/operations were managed out of Cigna's Connecticut-based headquarters," adding that the portfolio is "a very large and complex pool," but did not comment specifically on regulatory issues.

To be certain, Buffett's Berkshire Hathaway is a far more seasoned investor in the annuities and insurance space than are private equity firms, even those firms with staffs of seasoned ex-bankers and buy-side veterans deployed to source transactions.

The Department of Financial Services did not respond to multiple requests and e-mails seeking comment. When The Deal contacted Lawsky, he did not respond to repeated e-mails seeking comment.

Berkshire Hathaway, which was contacted multiple times for this story, did not respond to inquiries. A personal assistant for Warren Buffett declined to comment on his behalf. --Written by Jonathan Marino in New York--