Captives of Industry: How Wall Street is Cashing in on Your Insurance

By Lucy Komisar

Some of Wall Street’s biggest firms are using accounting gimmicks in life insurance companies

to bolster their profits by overvaluing their assets and holding risky investments on books in secrecy jurisdictions, according to government, trade union and financial regulatory experts. They say the actions threaten the financial health of these firms and the pensions of millions of workers and retirees.

The companies include giants in the financial industry: Apollo Global Management, the third largest asset management company in the world run by private equity billionaires; Metropolitan Life Insurance Company, the biggest U.S. life insurer; and the investment banking giant Goldman Sachs and Company have all employed these practices.

A review of their annual statements and state filings shows the three have set up a complex web of lightly regulated affiliates in secrecy jurisdictions offshore or in five lenient U.S. states, overstated assets in those affiliates that would be valued at zero under standard U.S. accounting practices and diverted the ready cash from insurance premiums into riskier, more speculative investments. The examination shows that if conventional accounting practices were used on their affiliates instead of those state ones, some of the affiliates owned by big names on Wall Street would be considered insolvent.

Some of these practices bear striking similarities to those that led to the unraveling of the global financial system in 2008 and the bailout of the insurance giant AIG, as well as the collapse of energy titan Enron Corp. in 2001, government and financial analysts said. Federal Reserve economists for years have been warning of their mounting concern over the way that private equity owners in the shadow insurance industry take advantage of lax jurisdictions to pour cash into higher risk investments, which are less easy to sell in a market downturn. Trade unions are sounding the alarm about the potential danger to pensions of their members.

With financial markets today under severe stress as interest rates rise and economies slow, regulators are watching closely. The Federal Reserve Board in its latest Financial Stability Report released in May flagged the growing risk, albeit in the dry language of finance. “Over the past decade the liquidity of insurers’ assets declined and liquidity of their liabilities increased, potentially making it more difficult for them to meet a sudden rise in withdrawals and other claims.”

The moves have prompted concern on Capitol Hill. In a hearing Thursday, Sen. Sherrod Brown (D-Ohio), chair of the Senate Banking Committee, said, “We know that workers end up worse off when Wall Street private equity firms get involved. We’ve seen it over and over.”  

"Over the past decade the liquidity of insurer’s’ assets declined and liquidity of their liabilities increased, potentially making it more difficult for them to meet a sudden rise in withdrawals and other claims."

Private equity companies have been buying up life insurance companies over the past decade and changing the way they do business. Global management consultants McKinsey and Company called tapping into the steady cash flow from life insurance and annuity premiums a “once in a generation opportunity” for investors who are willing to take higher risk to generate higher returns. Blackstone Inc., a leading global investment firm, and The Carlyle Group, private equity specialists, are getting into the game. The Federal Insurance Office at the U.S. Treasury reported that private equity controlled 11 percent of the life insurance industry’s cash and assets by the end of 2020, or more than $471 billion, up from almost nothing 10 years ago. 

Not only are private equity firms buying insurance companies, they also are taking over corporate pension plans and converting them into annuities. The aluminum company Alcoa Corp. and defense contractor Lockheed Martin Corp., for example, last year sent their workers’ pension funds with assets totaling $5.9 billion to Athene Holding, Apollo’s insurance arm.  But unlike company-run pension funds backed by federal ERISA guarantees, or bank deposits which are insured up to $250,000, there is no federal backstop for annuity contracts that replace pension plans. If an insurance company fails, retirees would stand in line with other creditors to pick up any scraps. 

This report focuses on three insurance companies dominant in the industry: Apollo’s Athene, MetLife and Goldman Sachs’ Accordia, which this year was acquired by global investment firm and takeover experts Kohlberg Kravis Roberts (KKR). The three have taken advantage of lax regulations and permissive accounting in offshore locations such as Bermuda and the Cayman Islands, and in five U.S. states that function as domestic secrecy jurisdictions by shielding their books from public view:  Delaware, Vermont, Iowa, South Carolina and Arizona.

The financial mechanisms detailed in this report are drawn from the annual reports filed with the state insurance departments and collateral forms filed with U.S. states under a 2015 policy adopted by the National Association of Insurance Commissioners (NAIC), which sets regulatory standards for the industry. These collateral forms part the curtain on the types of assets held on the books of subsidiaries registered in those states.

A spokesman for Athene denied the company engaged in practices that put clients at risk, and said that it met regulatory requirements in the states where it is based, calling the company one of the “best capitalized insurance companies in the industry.” Apollo did not respond to requests for interviews or comment. Accordia and MetLife declined requests for interviews.

How it works

Traditionally, insurance companies take in premiums and invest in relatively safe, high-grade corporate and government bonds. They create profits by generating higher returns on their investments than the amounts they have to pay out in claims. The NAIC sets overall guidelines on how to run a safe and secure insurance company, including following standard accounting, or what are called Statutory Accounting Principles (see Key Terms).

But the NAIC has no enforcement power, it can only threaten to withhold accreditation. Regulatory authority now resides with states, after the industry lobbied to get a federal law passed denying Washington that authority. Insurance companies increasingly are exploiting this patchwork regulatory regime to burnish their accounts, financial and legal experts say.

How are Insurance Companies Regulated?

(Sources:  NAIC, FIO, FSOC websites)

Regulated at the state level.
The National Association of Insurance Commissioners (NAIC) sets standards for the 50 states and the District of Columbia and provides guidance on best practices. But each state has discretion on how to regulate the companies registered in its jurisdiction.

Monitored at the federal level. The Financial Stability Oversight Council (FSOC), an inter-governmental body of financial regulators, monitors overall financial conditions, identifies risks and responds to emerging threats to financial stability. Established after the 2008 global financial crisis, it is headed by the Treasury Secretary and reports to Congress. The Federal Reserve chairman and one insurance expert are among its 10 voting members. The Federal Insurance Office (FIO), a Treasury agency, monitors the insurance industry and is a non-voting advisory member of FSOC.

There are four key practices all the companies in this report employ

Set up reinsurance companies offshore or in one of the five U.S. states that waive standard U.S. accounting principles. Offshore, limited public financial reporting is required and often taxes are low. Reinsurance allows companies to lower their need for surplus funds by transferring liabilities (future claims) to another company. The parent and affiliate companies agree on terms for sharing the risk and the premiums paid by policyholders. Financial experts estimate nearly $800 billion of the insurance industry’s $7.5 trillion total cash and investments are associated with these “captive” reinsurance affiliates, some offshore, some in industry-friendly states, meaning they are opaque and at best poorly regulated.

Take risk off the books. Records show that Apollo, Accordia and MetLife – the companies examined here – are offloading as much as 80-90 percent of their assets and liabilities, mostly through reinsurance affiliates they own, shifting many billions of dollars into lightly regulated venues. Reinsurance is standard practice in the industry but usually only about 20 percent is sent to independent companies: Such “authorized” reinsurers are regulated and audited the same way insurers are regulated. Not so when they are subsidiaries or affiliates of the parent company located in lax jurisdictions with opaque books. These reinsurers are known as captives and labeled “unauthorized” on financial statements, because they are not subject to the usual requirements on the types of collateral needed to back their financial obligations. In some instances, companies use traditional reinsurance companies for an initial transfer but then further move the deal to affiliated captives, steps that serve to muddy the audit trail.

Overvalue the assets in the affiliated reinsurance companies. Once assets are booked in offshore venues such as Bermuda, insurance captives are not required to file detailed financial reports, making their value hard to track. In the U.S., insurance commissioners in industry-friendly states allow the captives to list as assets certain types of collateral that would be valued at zero under Statutory Accounting Principles. By inflating the value of their assets, the captives can more easily meet reserve requirements set by states, leaving them extra cash to invest elsewhere. For the companies examined here, the assets their affiliates hold that are not recognized under standard accounting reach up to 40 percent of total assets; and one type they all rely upon significantly is Letters of Credit (LOCs) issued by banks, which are contingent loans or promises to pay claims if the affiliate cannot. Other unorthodox practices regarding assets include contingent notes and parental guarantees. 

Invest in riskier financial instruments. Traditionally, insurance companies buy mostly ultra-safe U.S. Treasuries and high-grade corporate bonds. Insurance companies examined here are putting larger shares of their investments into riskier asset-backed securities, which are more vulnerable during a market downturn. They also buy illiquid stocks and bonds issued by their own subsidiaries – essentially investing in themselves or moving cash from one pocket to another. The Federal Insurance Office in its 2021 annual report warned this presents a growing danger in a market downturn because companies may not be able to sell the assets quickly to meet capital ratios. “Due to the more illiquid nature of affiliated holdings, significant growth in affiliated investments has the potential to adversely affect an entity’s capital base.” The practice had reached $213.7 billion by the end of 2020 and had grown by 7 percent a year for the past decade, the office reported.

The level of risk in the insurance business is drawing increased scrutiny at the Federal Reserve, U.S. Treasury, and the Senate Banking Committee. Unite Here, a union group representing pension holders, and the not-for-profit insurance company Northwestern Mutual also have raised concerns to the NAIC about the practices of private-equity owned insurance companies.


This story focuses on the first three practices: how insurance companies use affiliates to take risk off their books and overvalue assets by exploiting lax state and offshore regulations.  Thomas Gober, a certified fraud investigator and former Mississippi Insurance Department examiner who has advised the U.S. Department of Justice on insurance fraud, analyzed the relevant documents and regulatory filings for 100Reporters.


Asset or Liability?

A key technique used by all three companies that 100Reporters examined is booking LOCs as assets, using affiliates offshore or in compliant states. David “Birny” Birnbaum, a member of Treasury’s Federal Advisory Committee on Insurance and Director of the Center for Economic Justice, said life insurers started setting up captive affiliates and using LOCs after state regulators in 2000 increased the amount of money companies must hold in reserve to meet immediate claims. The companies argued that the reserve requirements were too high and tied up too much idle capital, which could be put to better use. “Life insurers said we don’t think we need them (extra reserves), so we’re going to create captive insurers, not regulated the same as admitted insurers.” They began to buy LOCs, which lax states allow them to book as assets, making it easier to meet reserve requirements.

The problem with LOCs is that they bear all the features of a contingent loan, said Douglas Baker, an insurance analyst for Fitch Ratings. The bank requires collateral, charges a fee, and any credit extended must be repaid with interest – all features common to a loan, and loans are liabilities that have to be repaid. Some states might allow them, but not Fitch when it rates the safety of a company. “When we do capital calculations, we don’t include the LOCs,” Baker said in an interview. “We only use hard assets. When we look at captives, we black out the reserve credit, charge the full amount of liabilities.” 

“They are fake assets,” said Gober, the insurance fraud investigator.

The 100Reporters investigation found that without booking LOCs as assets, some of the insurance company affiliates face solvency issues and would not meet capital requirements. A federal government analyst, who requested anonymity because he was not authorized by his agency to speak, said the practice is very concerning. “The insurance industry is now writing more coverage, assuming more risk with the same or less capital. It’s less prudent. It’s the same as if a bank holds less capital for loans it is making. More risk with less capital could cause a company to fail. Policyholders would not be covered.”

“There’s also a knock-on effect,” the analyst said. “If the bank pays the LOC and the insurance company is broke, the bank is not paid back and faces a loss. LOC contracts link the insurance and banking industries.

“Recall insurance giant AIG selling credit default swaps that linked insurance and banks and required an $85-billion Federal Reserve bailout. Significant losses could reverberate through the financial system.”

Letters of Credit

What are Letters of Credit?

Letters of Credit (LOCs) are loan agreements that companies arrange with banks. The agreements are contingent, and represent the promise of a loan if some event happens.  Insurance companies pay fees to purchase an LOC, typically a percentage of the maximum loan. The fee is like buying an option: you buy the opportunity to get a loan when you ask for it. Companies must also pay interest on the amount borrowed. Under standard accounting practices, LOCs are treated as contingent loans, meaning they are liabilities. However, insurance is regulated at the state level, and in some U.S. states and offshore jurisdictions, regulators allow companies to book the LOCs as assets.

How are LOCs used?

Let’s say a company wants to write more insurance but is stretched thin on capital (assets),or wishes to invest capital. It sets up a reinsurance subsidiary, called a captive, in an industry-friendly state. The parent company takes risk off its books by sending liabilities (what it owes new policyholders) to the subsidiary. The company books a reserve credit for the amount reinsured, which reduces its liabilities and frees up more capital to grow its business. Meanwhile, the captive needs assets/premiums to match its liabilities.  So, the company buys LOCs from a bank, sends them to the captive in lieu of real assets, and tells the regulator it guarantees that all policyholders’ claims will be paid in the event the captive is short of money. The regulator allows the LOCs to be booked as an asset at full potential value, even though any loan would have to be paid back to the bank. The insurance industry is now writing more coverage, assuming more risk with the same or less capital than before. There’s also a knock-on effect: LOC contracts link risk in the insurance industry to the banking system.

Apollo Global Management

Apollo Global Management is one of the world’s largest private equity funds with assets of $455 billion. Founded by Leon Black –  the right-hand man of convicted “junk bond king” Michael Milken – Marc Rowan and Josh Harris, it was one of the first private equity firms to get into the insurance business. Rowan and James Belardi, a veteran of AIG, which collapsed during the global financial crisis, set up Athene Holding (Bermuda) to buy distressed assets from insurers. Apollo first took a small piece of Athene and acquired the rest earlier this year. Today, Athene has a complex interlocking structure of at least 12 affiliated companies. Its financial records show widespread use of reinsurance and letters of credit by directly owned affiliates, or captives, based in lenient locations.

Case in point: Vermont and Bermuda. Athene Annuity and Life Co.’s 2021 financial filings in the U.S. states where it does business show that it transferred $50.6 billion in liabilities to its reinsurance affiliate Athene Annuity Re in tax haven Bermuda, listing it as modified coinsurance, which is another form of reinsurance. It also transferred $1.37 billion to its captive reinsurance subsidiary, Athene Re USA IV (Vermont), taking a reserve credit for removing those liabilities from its books. Both these actions reduce the level of risk-based capital which determines the surplus the parent must hold, on the grounds that Athene has reinsured risk and has assets readily at hand. Financial filings in offshore Bermuda do not show details of holdings, so there is no way to know exactly the value of the assets, if any, and whether they fully match liabilities transferred there. “We love Bermuda,” Athene CEO Belardi told an investors conference call in 2020. “I think we have a fantastic relationship with the regulators.” 

The reinsurance transfers are all marked as “unauthorized” on their U.S. financial statements, because they are internal transfers, made with affiliated subsidiaries owned by Athene in actions not recognized under standard U.S. accounting principles. Since Athene says that some other company is now responsible for the insurance claims, it subtracts them from its liabilities.

Unite Here, a trade union representing 300,000 service industry workers in the U.S. and Canada, in a letter this year to the NAIC criticized these practices, warning that they leave policyholders more vulnerable. By transferring risk to its Iowa affiliate, Athene lowers its required capitalization and frees up capital to invest elsewhere; in doing so it weakens the buffer against potential losses, which may limit its ability to pay on insurance policies should an affiliate default, the union said.   

"It’s a shell game; you're not actually offloading the risk. You're moving it to the other pocket,"

Daniel Schwarcz, University of Minnesota law professor

Daniel Schwarcz, a University of Minnesota law professor who specializes in insurance and has frequently testified before congressional committees, says this is not real reinsurance: it’s shifting money to lenient jurisdictions. “It’s a shell game; you’re not actually offloading the risk. You’re moving it to the other pocket,” Schwarcz said.

The magnitude of reliance on LOCs was hidden in state and offshore records until 2015, when the NAIC instructed companies to file a new form listing what assets are being sent to cover claims in reinsurance transactions with their U.S. affiliates. While short on details, these new collateral reports begin to reveal the scale of reliance on assets not recognized under standard accounting. (They still do not have to file for their offshore affiliates where reinsurance is massive.) For Athene’s Vermont affiliate, reliance on LOCs made the difference between solvency and a capital shortfall in 2018 through 2021, records show.

PriceWaterhouseCoopers (PwC) in its 2020 audit said that Athene Re IV, with explicit permission from the Vermont insurance commissioner, had booked as an asset an LOC worth $133.7 million that year. When the LOCs were deducted, it wiped out Athene Re IV’s surplus for three years and revealed a capital shortfall: the affiliate ran deficits of $102.9 million in 2020, $106.2 million in 2019 and $102.2 million in 2018, PwC wrote.

“If Athene Re IV had not been permitted to include the letters of credit in surplus, its risk-based capital would have been below Mandatory Control Levels,” PwC said in the financial note. In other words, the Vermont affiliate was insolvent using NAIC Statutory Accounting Principles. Normally, unless the company put real assets on its books, it would be ruled insolvent, taken over by regulators and the parent could not book as a credit its reinsurance business in that state, Gober said.  But Vermont regulators gave Athene Re IV a pass. Asked about its findings, PwC spokesman Paul Bergman said PwC declined to discuss the audit.

The practice continued in 2021. Athene Re USA IV booked $117 million of LOCs as assets against reinsurance liabilities that year; without those assets, the Vermont affiliate would face a deficit  and fail to meet its risk-based capital requirements, according to Athene’s latest 10K filing and PwC’s 2021 financial audit.

PWC audit reveals how Vermont affiliate keeps Athene afloat

A reconciliation of Athene Re IV’s surplus between practices prescribed and permitted by the State of Vermont and NAIC SAP is shown below:

2021 2020 2019
Surplus, Vermont basis
Vermont permitted practice:
   Letter of credit
$ (117,144)
$ (133,743)
$ (138,737)
   Surplus, NAIC statutory accounting practices
$ (72,418)
$ (102,858)
$ (106,210)

The amounts reported for 2019 in the table above have been updated to reflect the amounts reported in the audited financials of Athene Re IV.

If Athene Re IV had not been permitted to include the letter of credit in surplus, its risk-based capital would have been below Mandatory Control Level.

PriceWaterhouseCoopers, financial note to audit

A Treasury Department report had warned as early as 2014 about Athene’s reliance on LOCs in its Vermont affiliate. Lead author Jill Cetina, now Federal Reserve Bank of Dallas vice president for supervisory risk and surveillance, cautioned that captives can “cloud regulatory reporting of an insurer’s financial position and create ‘blind spots’ in the monitoring of threats to financial stability.”

Athene and its Vermont affiliate are not an isolated case, yet states are ignoring the risks of allowing LOCs in shadow insurance transactions with affiliates, Schwarcz said. “State regulators say, ‘We wouldn’t let them take credit if we had any concern.’ That is lipstick on the proverbial pig; it’s still a pig,” he said.

Vermont Deputy Insurance Commissioner Dave Provost told 100Reporters that his state allows LOCs to be used as captives’ assets, because “the liabilities are overly conservative, and the (state) regulators have agreed that they are.” So, Vermont agrees with the company that its risk profile is lower than NAIC’s Statutory Accounting Principles would require and allows companies to use what he called “alternative” assets to support their reserves. He said it works like this: the parent company sends what he called “excess reserves” to a captive subsidiary, and Vermont allows LOCs to be booked as an asset because under their terms, the LOCs would pay out in the “very remote” chance the company’s assets fell to a minimum surplus level.  

Provost is saying in effect that insurance companies are required to hold more assets than they think they need, so they have figured out how to finesse the system using LOCs as assets, even though standard accounting would treat them as a loan that has to be paid back, hence a liability. And Vermont, as an insurance industry-friendly state, has agreed to abandon standard accounting. The advantage for Vermont: 400 people directly employed by the captive insurance system, including managers, attorneys, actuaries and accountants, by Provost’s count. 

“It was not a common practice 15-20 years ago,” said Don Bratcher, an insurance examiner for 30 years, mostly in Arkansas and Delaware. But today, when state insurance commissioners are competing for business, they appear ready to give a favorable look at what some consider dubious practices, Bratcher said. “The states are pretty much given a free hand to regulate the way they want to now,” he said. “The states are the ones that make up the NAIC, and people stay out of your business. The NAIC is not going to butt in unless it’s something very egregious.”

The NAIC declined requests for an interview.

"Industry and regulatory credibility could be questioned if a transaction involving a block of business could meaningfully reduce the total reserve and capital requirements, while the risks associated with that business remain substantively the same"

Andrew Vedder, Northwestern Vice President

Northwestern Mutual, a Milwaukee-based non-profit insurance company owned by its policyholders, complained in a letter to the NAIC in June about its lack of progress in addressing the mounting risks fed by regulatory arbitrage, where companies shift insurance offshore or into lenient states. Offshore reinsurance can result in “lower total reserves and capital, reduced state regulatory oversight and diminished stakeholder transparency from what would be required by the statutory accounting and risk-based capital requirements the NAIC has established to protect policyholders in the United States,” Northwestern Vice President Andrew Vedder wrote.

“Industry and regulatory credibility could be questioned if a transaction involving a block of business could meaningfully reduce the total reserve and capital requirements, while the risks associated with that business remain substantively the same,” he wrote.

Athene and its Vermont captive are not alone. Gober analyzed Athene’s publicly filed financial statements to reconstruct how Athene transferred money via reinsurance around a network of its affiliates – a figure it does not aggregate in its public filings. He calculated that Athene Annuity Re Ltd of Bermuda ended up with $87 billion on its books in 2020. The next year, a massive $115.7 billion was involved in circular transactions among its offshore captives and U.S. affiliates, he said.

Apollo reinsures most of its new liabilities with Bermuda affiliates, thereby freeing up “excess capital” though it retains the same amount of overall risk. The trade union group Unite Here raised concerns in its June letter to the NAIC about this, saying that “these inter-company reinsurance transactions do not actually transfer risk. But they allow Athene to lower its overall level of capital and reserves without corresponding declines in its state-regulated affiliates’ reported risk-based capital (RBC) ratios.”

Indeed, Athene reported razor-thin surpluses of $1.3 billion in 2020 and 2021. If only a fraction of the $115.7 billion reinsurance transferred to those affiliate companies in 2021 was backed by LOCs, and the LOCs were evaluated based on NAIC statutory accounting principles and disallowed, Athene would face a funding shortfall. Moreover, because the insurance companies of Athene Holding represent 40 percent of the value of Apollo Global Management, according to its financial statements, it would raise questions about the health of the financial behemoth itself, Gober said.

Layers upon Layers

How money moves via reinsurance offshore and to captives

Source: All data from 12/31/2021 annual statements, reinsurance Schedule S-Parts 1 and 3.
Graphic by Thomas Gober.  

Apollo spokesperson Joanna Rose did not respond to phone and email requests for interviews or comment.

Asked to comment, Athene spokesperson Danielle Collins said, “Policyholder protection is our top priority, and we do not engage in any practices that endanger our policyholders’ benefits. Insurance is regulated at the individual state level, and we work proactively with regulators to ensure that we operate our business in a manner that follows the respective state’s regulations. In addition, we transparently disclose our financial information quarterly, including for our Bermuda entity. Athene remains one of the best capitalized insurance companies in the industry.”

In 2018 and 2021 research papers, Fed economists cited Athene’s and MetLife’s complex structures, reinsurance practices and increasingly risky investments in collateralized loan obligations as cause for concern. “As we learned from the 2007-09 financial crisis, even such relatively small exposures may create a vulnerability for life insurers,” the most recent paper said.


Metropolitan Life Insurance Company is the largest life insurer in the United States. It has 4.3 million life and annuity policies and is responsible for $4.5 trillion in lifetime payouts. The holding company MetLife Inc. has hundreds of legal entities throughout the world, including dozens of U.S. insurance companies.  Like Athene and Accordia, the insurance company sets up captive reinsurance companies in lenient jurisdictions and sends them assets that are not accepted under standard U.S. accounting. Gober examined MetLife Inc.’s most recent 10K annual financial statement filed with the Securities and Exchange Commission and found that questionable assets had an important effect upon MetLife’s balance sheet.

In obtuse language loaded with acronyms, MetLife acknowledged that its Vermont affiliate, MetLife Reinsurance Co of Vermont (MRV), would be insolvent were it not for booking LOCs as assets. Its supplemental filing for Vermont shows $396 million in LOCs booked as assets.

The 10K states that the Vermont commissioner of insurance gave it “explicit permission” to value LOCs as collateral for reinsurance. This resulted “in a higher statutory capital and surplus of $2 billion in 2020 and 2021,” MetLife wrote. But if standard accounting principles were used, MetLife acknowledged the affiliate would face a capital shortfall and regulators would have to step in. “MRV’s RBC (risk-based capital) would have triggered a regulatory event without the use of the state-prescribed practice,” it said in the 10K filing. MetLife added that it has committed to “take necessary action” to maintain the level of capital required under Vermont state law. However, Gober pointed out this is whitewash, since MetLife’s captive already complies with Vermont law, which allowed the dubious practice in the first place.

MetLife affiliate insolvent, but for lenient rules in Vermont

MRV, with the explicit permission of the Commissioner of Insurance of the State of Vermont, has included, as admitted assets, the value of letters of credit serving as collateral for reinsurance credit…[Its balance sheet] would have triggered a regulatory event without the use of the state prescribed practice.

Source: MetLife 10K [7]

While MetLife also conducts reinsurance with affiliates in South Carolina and Bermuda, its 2021 10K filing reported a “regulatory event” only in Vermont.

MetLife had an $11.8 billion surplus in 2021, enough to absorb the loss from its Vermont affiliate. But there may well be more. Gober said that MetLife’s financial statements show it posted a total of more than $40 billion in modified coinsurance, which is another type of reinsurance, and reserve credit from liabilities sent to its U.S. captives and offshore affiliates in 2021. If all of these had LOCs or used other non-standard accounting in the same proportion as Vermont, namely 35 percent, more than $14 billion would be disallowed under statutory accounting principles — enough to wipe out MetLife’s $11.8 billion surplus, he said.

“Transparency is everything. In fact, the NAIC and the 50 states require that any material transactions between insurers and affiliates must clearly disclose their true nature and details. But with secret books, it is impossible to know the true financial health of MetLife,” Gober said. While the new NAIC guidance on disclosing collateral in reinsurance does provide some insight, still hidden is the detail required to assess the true value of these assets in the affiliates, he said.

Regulatory concerns about the health of MetLife’s insurance balance sheet are not new. The U.S. Treasury was sufficiently worried in 2014 about its size and complex financial arrangements that the Treasury Department’s Financial Stability Oversight Council (FSOC) named MetLife a systemically important financial institution (SIFI), meaning that it should be subject to supervision by the Federal Reserve and perhaps to heightened prudential standards, similar to those applicable to large U.S. bank holding companies after the 2008 global financial crisis.

In a 2015 legal filing, FSOC specifically pointed out that MetLife’s practice of reinsuring with captives posed dangers. This was not really reinsurance, rather the company in a circular fashion was using LOCs, collateral financing and notes to reinsure its own reinsurers. FSOC warned that if something went wrong, losses could spiral and spill over into the broader financial system.   

“In the event of material financial distress at MetLife, losses for MetLife’s customers and counterparties through the exposure transmission channel could be exacerbated due to its use of captives. In addition, the potential for off-balance sheet affiliated captive exposures converting to funded exposures could contribute to asset liquidation risk,” FSOC said in the filing.

MetLife successfully sued to stop federal oversight through a SIFI designation. The Trump administration later removed two other large insurers, AIG and Prudential, from federal oversight and changed the rules to review activities rather than entities. So, there is no federal regulation of companies, only the monitoring of insurance activities, even though the companies play an increasingly large and important role in the global financial system.

MetLife declined a request for an interview or comment for this story.

John Patrick Hunt, a financial regulatory expert at the University of California, Davis, who joined a group of law professors supporting the government’s attempt in the MetLife case to bring big insurance companies under federal purview, said MetLife’s reliance on unorthodox practices remains troubling.  

“MetLife seems to be taking on the riskiest pieces of complex products called CLOs (collateralized loan obligations), as well as using Bermuda captive reinsurers to reduce the equity U.S. regulators would otherwise require the companies to hold to cover losses,” he said. “Both would increase the risk that investment losses could make the insurance conglomerate insolvent, that is, unable to honor its commitments.” 

If a company the size of MetLife became distressed and had to sell its holdings quickly, the damage could spread throughout the economy. “If the insurer fails and can’t honor such contracts, that could contribute to the failure of the other party to the contract in a falling-dominoes effect, similar to what we saw in the global financial crisis,” Hunt said. 


Accordia initially was owned by Goldman Sachs through its Global Atlantic Financial Group, which it sold to private equity investment fund KKR this year. Like the much larger Athene and MetLife, Accordia uses offshore locations and affiliates in lenient U.S. states to reinsure policies and book LOCs as assets.

Its 2021 annual financial statements show that Accordia removed from its books $6.5 billion in liabilities through reinsurance with U.S. captives, of which $4.46 billion went to its Iowa-based affiliate Cape Verity III. On the asset side of the balance sheet, the Iowa affiliate reported $3.3 billion in primary securities, which usually are stocks and bonds that the NAIC accepts, plus $1.26 billion in other securities. The latter are listed as LOCs and LOC-like assets, which are not recognized under standard accounting. So, one-third of the claimed assets of more than $4 billion are of questionable value, said Thomas Gober,  the insurance investigator.

Repeated requests to the Iowa insurance commissioner for comment went unanswered.

The collateral reports for other Accordia affiliates tell the same story: Cape Verity I (Iowa) has $571 million dollars in LOC-like assets out of $1.4 billion in total assets; of Gotham Re’s total assets of $467 million, some $159 million lie in LOC-like assets. Add together all the LOC-like assets in affiliates that are not permitted under statutory accounting and they total $1.99 billion–more than double Accordia’s total surplus of $952.6 million that year. Rejecting those assets would wipe out Accordia’s surplus, raising serious questions about its financial health, according to extensive analysis by Gober.

Asked to comment about Accordia’s use of captives, the company’s spokesperson Brian Ruby said, “No comment.”

Regulating an Octopus

For financial and insurance regulatory experts, the nub of the problem lies in state regulation. Insurance companies run by global asset management firms that are huge and deeply interconnected with the global financial system and seek to maximize short-term profits are no match for state insurance commissioners with limited tools and expertise. Expecting them to review the books of a captive affiliate and look broadly at risk embedded in the complex, octopus-like structure of a huge financial company that might stretch across all 50 states, Bermuda and the Cayman Islands is unrealistic, experts said.

“Do we really trust the states to be looking out for the integrity of the broader financial system?” said Schwarcz, the insurance regulation scholar. “Will you leave it to New Jersey or Iowa to make decisions that help save our entire financial system, when they don’t have the resources or the incentives to do that?” 

And if something goes wrong, there is an implicit assumption after the bailout of AIG in 2008 that the federal government would rescue the insurance industry once again, which drives further risk-taking by their new owners – the big asset managers and private equity firms on Wall Street, Schwarcz said. “There is more of a likelihood to push the envelope at times, essentially to game the rules to seek out the most profitable strategy in the short term.”

This article was produced with financial support from the Fund for Investigative Journalism and legal guidance from the Reporters Committee for Freedom of the Press.

Story design by Jessica Skorich.

Lucy Komisar

Lucy Komisar

Lucy Komisar, a member of 100Reporters, is an investigative journalist focusing on corporate corruption. She won a 2010 Gerald Loeb award for exposing how the Florida Banking Dept. allowed Ponzi schemer Allen Stanford to move money offshore with no regulation. Her email is lucykomisar (at)

More From the Series

More From the Series

Fitah, 32, Somalia
Fitah has been a refugee for ten years but has only been in Brazil for a few months. After leaving his home country in 2007 due to the civil war, he went to South Africa, where he stayed until March 2017. Paying $4,000 USD to smugglers in Johannesburg, he managed to enter Brazil posing as a South African refugee. He wanted to travel on to the United States, but the “travel package” offered by his smugglers only gave him two options, Turkey or Brazil. He chose the latter.

Afonso, 28, Congo
Upstairs in one of the big bedrooms of the Scalabrinian Mission Afonso, a 28-year-old migrant from Congo, explained how he came from Kinshasa in 2015 by boat, escaping from the violent conflicts raging in his own country. He hired the service of smugglers and came on a cargo ship with a number of others. He paid for part of the trip by working on the ship. He was left in the coast of Santos, a city 55km away from Sao Paulo. He is now searching for a job.

“K.”, 39, Sierra Leone
At Caritas, a non-profit providing support to refugees and migrants, we met “K” (who asked not to reveal his full name), who had left Sierra Leone three months ago. His grandfather was a chief priest of a secret society for whom it is a tradition to initiate the oldest son of the family when the former elder dies. A Christian and a graduate in Information Technology, “K” refused to take part in the ritual and says he was then targeted. He fled to stay with family in the interior of the country, but was kidnapped and held captive in the forest. One night he managed to escape to the city and met a woman from a Christian organization which provided airplane tickets so he could leave immediately for Brazil.

Jorge, 25, Guinea-Bissau
Jorge is a trained engineer who came to Brazil two years ago, who is now selling counterfeit and smuggled clothes in a local market. His Brazilian girlfriend is now pregnant and he is waiting for a work permit in order to get a job as mason. He said that when Federal Police went to his home address to confirm he was living there - an essential step in the process of issuing a work visa to a migrant - his house mates thought they wanted to arrest him and denied he lived there. It delayed his chance of getting a permit that would allow him a legal and better-remunerated job. The lack of trust in Brazilian law enforcement is a huge issue among refugees and migrants, many say that they rarely provide help or support, but instead only make their lives more difficult.

Abu, 37, Senegal
In República Square in the downtown Centro neighbourhood, African migrants sell clothes - some of them counterfeit designer wear,, some not - and handicrafts. Abu, 37, from Thiès in western Senegal, came to Brazil in 2010 with the hope that World Cup would make Brazil a prosperous country and offer him a new life. He says migrants should be respected for having the courage to leave everything behind and restart from nothing. Discrimination and lack of jobs are an issue for Abu, so he says his plan now is to save money and go to Europe as soon as possible. When he first arrived, he had money to stay in a hotel for seven days. After that, he met people who got him a job as a street vendor for contraband and traditional Senegalese clothes sewn in Brazil with African fabrics. Every time the police come and seize the goods he sells, it can take up to five months to recover the money lost.

Ibrahim, 41, Senegal
Members of the Senegalese community gather in República Square every week for a party, mounting up their own sound system, bringing drums and singing. On the night we visit around 50 people were dancing and chanting traditional Senegalese songs. Later they take a seat and discuss issues important to the community. Ibrahim, one of the group, has a talent for sewing fake Nike and Adidas logos to clothing in an improvised atelier nearby. Although he is a professional tailor and prefers to dedicate his time to his own original work, he says financial pressures meant he was forced to join the market of counterfeit designer-label clothing.

Guaianazes street, downtown Sao Paulo

On Rua Guaianazes there is a run-down mosque on the second floor of an old and degraded building, which is frequented by many African migrants. Outside, the smell of marijuana and cheap crack is inebriating. Crowds gather on the streets in front of the packed bars, while different people ask us if we want cheap marihuana. We enter one bar that has literally no chairs or tables: there is a poster of Cameroon’s most famous footballer Samuel Eto’o on the wall, and a big snooker table in the centre while all around customers gamble, argue and smoke. The bar tender tells us it is a Nigerian bar, but that it is frequented by Africans of all nationalities. Among the offers of cheap marijuana, crack and cocaine, laughs, music and loud chat, you can barely hear to the imam's call. Rua Guaianazes is considered to be the heart of Cracolandia, a territory controlled by organized crime for more than a decade and now reportedly home to some African-led drug trafficking gangs.

Santa Efigenia neighbourhood
Santa Efigenia is an area of around ten street blocks in the heart of the Centro area where locals says you “won't find anything original product or any product that entered the country legally”. There are dozens of galleries with local merchants, migrants and hawkers selling their wares, and crowds shouting and grabbing to sell counterfeit and contraband electronics late in the night. When we visited, a homeless old man was setting a campfire out of trash to heat himself on the corner, the people passing by aggressively yelling at him due to the black smoke his improvised urban survival mechanism was generating.

“H”, 42, Angola
“H” is an Angolan woman now living in a house rented from the Baptist church. The area outside the house is a “boca de fumo” - an open drug dealing spot managed by armed guards. “H’s” house is annexed to the church building itself, and is very rustic and simple. She arrived a year ago with two of her children, and also pregnant. She says that after the family of the Angolan president took over the market of smuggled goods in her country, her small import business started to crumble. Her husband and two more daughters are still there. She is currently unemployed, but happy that her young son is studying, although often he comes home complaining about racism at school. “H” does not want him to play with the neighbourhood children, she is afraid he will be drawn to narco-trafficking if he gets in with the wrong crowd. In the long run, she wants to go back to Angola, but only under “a different political situation.”

Lalingé restaurant, Sao Paulo
Arami, the owner of the bustling restaurant Lalingé – which means “The Princess” in her language – has been in Brazil for seven years. She opened the restaurant a year ago so that the African community in the Centro neighbourhood has a place to gather and eat food from their continent. It’s the kind of place people arrive at any time of the night or day, order their food and chat.

Scalabrinian Mission, Canindé neighbourhood
The Scalabrinian Mission in the neighborhood of Canindé provides philanthropic aid to migrants. Soror Eva Souza, the director, says they have helped people from Africa (Angola, Congo, Guinea, Togo, Nigeria, South Africa, Mali, British Guyana, Somalia, Mauritania, Sierra Leone, Cameroon and Uganda), North Africa and the Middle East (Syria, Tunisia, Morocco, Egypt), Asia (Cambodia, South Korea, the Philippines, Bangladesh), Europe (The Netherlands, Russia, France) and Latin America and the Caribbean (Colombia, Venezuela, Bolivia, Haiti, Cuba). The Mission provides housing, food, clothing, medication and facilities for migrants. They only receive a small amount of financial support from local government, but work to help migrants find a job so they can live independently. Souza says many of those who arrive at the house are ill: some are seriously injured, others sick from the journey or the conditions they were living in before arriving in Sao Paulo. Since 2015, she says she has seen  human trafficking and slavery victims, drug mules, political refugees, and people who have lost their families en route. When we visit 40-year-old Mohamed Ali, from Morocco, was trying to find a job with the support of the Mission.

Clement Kamano, 24, Guinea-Conakry
Kamano was studying Social Sciences at Université Général Lansana Conté when he took part in the protests of September 28th, 2009, which ended up in a massacre with more than 150 people killed. Afterwards, he was repeatedly harassed because of his involvement in social movements. Fearing he might be killed, his father bought him a ticket to Brazil. Now he is a political refugee, who is almost fluent in Portuguese, and who enjoys talking about the sociologist-philosophers Emile Durkheim and Max Weber, even Leibniz and Nietzsche. He is currently applying to join a federal university in Sao Paulo.

What’s “cereza” in Arabic?
In a bright classroom in the centre of Quito, a group of students sit around a whiteboard. “Yo veo la televisión con mis amigos en la tarde,” they repeat after the teacher, “I watch television with my friends in the afternoon.” “Yo tomo el bus par ir al trabajo,” “I take the bus to go to work.”

Around the table are two Syrians who fled the war, one Cameroonian who says he wanted to escape the Anglo-French conflict in his homeland, two Afghans, one a former top-ranking police officer, an Egyptian and a Sri Lankan who wanted to go anywhere where he could make enough money to help his family. Migrants who arrive in Ecuador from Africa, Asia and the Middle East face a steep learning curve: it might be relatively easy to enter the country, thanks to Ecuador’s liberal open-border policy, but finding work here and learning Spanish can be difficult. Today their teacher is translating between Arabic, Spanish and English. “Market”? asks one. “Souk” replies another member of the group, while a fellow student does a quick translation into Pashtu.

Experts say some of those who come through language centres like these are planning on continuing their journey north, others on staying in Ecuador.

A little piece of Nigeria, in Quito
As the night closes in, Grace, a 25-year-old law graduate from Cameroon, dashes between a barbeque out on the street and the kitchen in the small Nigerian restaurant where she is working the night shift, as a television showing an African football league plays in the background. She wears a dark top, and her hair pulled back, as she fans the tilapia grilling on the coals. When she was denied a Canadian visa, despite having a scholarship, she decided she still wanted to leave Cameroon, where she complains of a lack of jobs and opportunities for the country’s English-speaking minority. With three friends, she bought a ticket heading west for Ecuador where she heard she could enter with her invitation to study at a language school. She soon converted to a missionary visa, and now works here and sings in the choir at a church up the hill, teaching Sunday school at the weekends. Like many of her customers, she also wants to travel north to the US or Canada, but only with the correct papers. “If you go without papers and through the jungle, you might be lost. Then my family is lost as well.”

The Afghan police officer
Asadullah, a former police officer, spent 31 years training new recruits and fighting terrorist groups in his country. Among the documents he smuggled out with him is a photograph of him with Robert Gates, the former US Secretary of Defence, paperwork from a training programme at the National Defence University in Washington DC, and training certificate from the George C Marshall centre in Europe, signed by the German defence minister.

His career had been high-profile and illustrious, but while that brought recognition from the Americans and their allies, it also brought him the unwelcome attention of the Taliban and other extremist groups.

For three years before he fled, he says terrorists were calling him saying he needed to end his work with the police. “Come and work with us,” they’d coax. When he refused, someone tried to throw acid on his child at school – that was when he decided to leave.

Today the family are renting a spacious flat in central Quito, with a big beige sofa and swept wood floors. A big TV is mounted on the wall behind him, and one of his children brings in sweet tea and fruits. His wife and six of his children are with him, awaiting a decision from the migration authorities on their asylum case. For the sake of his children – who all speak English – Asadullah wants to go to the US.

“I want to go to America, but it’s a process: it will take a lot of time,” he says. “We have been waiting to get an answer. I only came here because the bad people wanted to kill us. I’m just here so I’m safe.” He considered going to Europe, but considered the route there more dangerous. “Many Afghan people wanted to go to Europe, to Turkey, but many people died in the sea.”

The Artist
Mughni Sief’s paintings once made him a well-known artist in his native Syria: he taught fine art in a top university, and was invited to Lebanon to show his work. But since the war, and his decision to flee, his paintings have taken on a darker tone. One , “Even The Sea Had A Share Of Our Lives, It Was Tough” touches on the horrors so many Syrians have seen as they try to flee to safety.

“This painting is about Syrians crossing the sea to go to Europe from Turkey. I put this fish head and cut the head off to show the culture of ISIS. This here is the boat people,” he explains in his spartan apartment in Ecuador’s capital, Quito. “Syria was empty of people, and there are so many people dying in the sea.”

From the windows of his bedroom-come-studio, you can see the mountains, washing hanging in the sunshine on a neighbours balcony, beige tiles. Behind him the bed sheets – which came with the house – are adorned with images of teddy bears and the phrase “happy day.”

In the corner is a small, rolling suitcase in which he brought his wood carving tools, crayons, and charcoals from Syria: everything from his old life that he dared bring without alerting attention that he was leaving the country. In a small backpack he bought a Frederick Nietshce paperback, a birthday present from a friend, and a book he bought in Syria: “Learn Spanish in 5 days”. He didn’t bring any photos, in case his bag was searched.

Frustrated by restrictions he faced as a Syrian in Lebanon, he started to research other places where he might make a new start. He read that Ecuador was “one of the few countries that don't ask for a visa from Syrians. I had problems leaving Lebanon, and in El Dorado in Colombia but at Quito I came in no problem. The only question was: why are you coming to Ecuador, do you have money? I said nothing about asking for asylum so they just gave me a tourist visa.”

Soon after he made his asylum application, and today, he paints while he waits for a decision. “Before the war I was focused just on humans, on women, but when the war started that changed, and I began focusing on the miserable life that we live in Syria,” he says as he arranges three paintings on the bed. In one, he explains, is a woman who can’ face something in her life, so prefers to stop speaking.

Although many of the migrants that make their way to Ecuador are able to travel more independently than those making the journey across the Mediterranean, examples abound of exploitation of some who arrive here. Mohammad, for example. He’s  a 24-year-old from Sri Lanka who first tried his luck in Malaysia, but was cheated by a travel fixer who took his money while promising him a work visa that never materialized. When he was arrested for working without the proper documents, a friend had to come and pay the police to get him out. Travelling west, to Ecuador, after religious violence broke out in his hometown, he says he paid someone he knows to help sort out his travel, unsure of how much he took as a cut. When he flew in, alongside a Sri Lankan family, the agent arranged for him to be picked up by an unknown woman who charged each of them again to take them to a hostel. He is now renting a room from a man he met at the mosque. Every day continues to be a struggle, he said.

“At home, I saw so many troubles each day. I decided to come here thinking maybe things will be good. But I did one week working in a restaurant, they treated me like a slave. For three months I was searching for work. They are good people here but I have no opportunities here. Seven months I have nothing, I’m wasting my time.”