A recent Moody’s Ratings research states that between 2019 and 2024, U.S. life insurers transferred close to $800 billion in reserves to overseas affiliates as the expansion of private lending changed the industry and brought with it several hazards.
Public life insurers adopted a number of strategies to optimize returns and maintain their competitiveness with their expanding private credit counterparts when interest rates dropped to around zero between 2015 and the beginning of 2020, according to a report released on Monday by Moody’s analysts.
These included collaborating and combining with alternative asset managers or private equity firms, a practice that has persisted despite the current rise in interest rates.
According to Moody’s, between 2019 and 2024, life insurers and private equity firms engaged in M&A transactions valued at about $75 billion.
These included Brookfield Reinsurance’s 2022 acquisition of American National for $5.1 billion and Allstate’s 2021 sale of its life and annuity businesses, now known as Everlake, to companies run by Blackstone for $2.8 billion.
At a record-breaking rate, the trend has caused life insurers and alternative asset managers to transfer billions of assets from their U.S. operations into offshore accounts in the Cayman Islands or Bermuda.
To “support growth, offer more competitive pricing and returns in products such as annuities… (and) pursue shareholder-friendly activities such as share repurchases,” Moody’s analysts stated in the research. They do this in to free up money.
At year-end 2024, the U.S. life insurance market had around $6 trillion in cash and invested assets, with a projected one-third of that amount going to private credit, according to Moody’s.
This comes as American life insurance companies progressively shifted a larger portion of their investment portfolios to private credit, particularly fund finance or credit given to alternative asset managers to capitalize their funds.
Fund finance “will likely grow in the next three to five years based on our survey,” the analysts stated, even though most insurers’ portfolios are made up of fixed-income assets like corporate bonds and commercial real estate.
Several dangers associated with this changing business model were highlighted by Moody’s.
These private credit assets are difficult to value because of their opaque structure and specifics, according to the analysts.
They added that in the event that a corporation is forced to liquidate, the illiquid character of such instruments makes them riskier.
