Risky Business: How Insurance Companies are Chasing Profits over Policyholder Security

By Lucy Komisar

Major U.S. life and annuity insurance companies are endangering their policyholders’ benefits

with risky investments that trade client security for bigger payouts for executives and shareholders, according to an examination of financial filings, annual reports, and experts on insurance finance.

These strategies are part of a broader industry shift as insurance mutuals become publicly-traded companies. Private equity firms, too, have entered the insurance business and assumed greater control over corporate pension funds. 

Their actions have prompted Federal Reserve economists and trade unions to issue warnings about investment strategies that, they say, heighten risk for millions of insurance policyholders. These concerns are amplified by the significant role that insurance companies and private equity are playing in credit markets since the 2008 global financial crisis, with little federal oversight. 

The companies involved include giants of the insurance industry: Athene Life & Annuity Company, owned by Apollo Global Management Inc., one of the world’s largest asset management and private equity companies; Metropolitan Life Insurance Company (MetLife), the country’s largest life insurance concern; and Accordia, purchased last year by KKR & Co. Inc, also known as Kohlberg Kravis Roberts, the multi-billion-dollar investment and private equity firm. Together, these companies account for roughly one in six life insurance policies and annuities written in the United States.

The three, not alone in the industry, are diverting insurance liabilities into offshore entities, where oversight is scant. They use funds from policyholders to create credit products and buy other types of investments that are far less liquid than traditional investments and carry more risk. These include:

Driven by the growing involvement of private equity, giants of the industry are seeking quick returns, said Daniel Schwarcz, a law professor at the University of Minnesota and an expert on insurance regulation. And in the aftermath of the 2008 financial bailout and rescue of the insurance giant AIG, a number of insurance companies have increasingly abandoned traditional investment strategies that had a long-term horizon in the belief that the government will step in if things go bad, he said. 

There’s more of a willingness to push the envelope, to game the rules, to seek out the most profitable short-term strategy. There's some understanding that in a scenario like 2008, there's going to be bailouts. That changed the calculus.

Daniel Schwarcz
Law professor at the University of Minnesota

Insurance providers began as not-for-profit policyholder cooperatives, known as mutuals or fraternals. Meeting their obligations to policyholders was their top priority. Their managers bought U.S. Treasuries and corporate bonds that were largely safe and easy to sell on any exchange, matching maturities to the predictable, long-term payout schedule of benefits.

Some mutuals, such as MetLife in 2000, later converted to for-profit companies. Maximizing returns to shareholders became the new mantra, with managers incentivized to raise corporate profits. In the past decade, private equity (PE) companies began to buy up insurance companies and take over corporate pensions.

They, too, used the steady inflow of cash from policyholder premiums (insurance liabilities) to fund more speculative ventures, said David “Birny” Birnbaum, a member of the Treasury Department’s Federal Advisory Committee on Insurance (FACI), executive director of the Center for Economic Justice and a former member of the Federal Reserve’s insurance advisory board.  Insurance companies also created asset management firms owned by their parent to manage these more volatile portfolios, Birnbaum said, further increasing the parent company’s revenue through high management fees.

They’ve increased the risk of investments significantly. They put more money into CLOs and real estate, as well as more exotic types of investments.

David “Birny” Birnbaum

“Life insurance historically invested in bonds. You buy a term life policy, 20 or 30 years, the company buys a bond for 30 years that matches the liability to that asset. And they are liquid, you can sell bonds,” Birnbaum said. But that has changed under new Wall Street owners.   

“The business model is based on fees for managing assets. They’ve increased the risk of investments significantly,” he added, pouring more money into collateralized loan obligations and “more exotic types of investments.” These investments are less liquid and more volatile, he said. 

The trade union Unite Here has warned of a growing risk to the pensions of its members, citing the growing reliance on less liquid asset-backed securities and alternative investments to drive higher returns, the use of investment management agreements with their own affiliates, and the reinsuring of liabilities offshore. Unite Here has flagged the risk of systemic financial collapse.

“We believe that it will ultimately require state, federal and international regulators working together to protect the public from the risks of large life insurer insolvencies and/or contagion to the larger financial system to which they are interconnected,” Unite Here said in a June comment to the National Association of Insurance Commissioners (NAIC), which sets guidance for state regulators overseeing the industry.

In a September 2021 report, the NAIC Financial Stability Task Force noted that when insurance firms invest in affiliated companies, the firms may increase risk to their own solvency. The same report also pointed out that insurance firms often fail to accurately disclose investments in affiliated companies.

This report, the second in a series on how Wall Street is cashing in on the insurance industry, examines three types of risky investments each company uses to boost its profits, drawing from the annual reports filed with the Securities and Exchange Commission and state insurance departments, as well as collateral forms. 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 for 100Reporters.

Bundles of Risk

Among structured securities, collateralized loan obligations, or CLOs, are considered the most complex, least liquid and highest risk asset category. The CLOs usually are pools of corporate loans with low credit ratings, or loans taken out by private equity firms to conduct leveraged buyouts. The loans are bundled together to create a high-yield debt instrument structured into tranches, based on the cash flow and on the riskiness of the underlying loans, with higher ratings for tranches claimed to be the most secure. Nobody except the seller knows exactly what’s in them. What is known: None of them are as safe as government bonds.

The rapid growth in the trade of such structured securities recalls developments in the U.S. sub-prime mortgage market in the run-up to the 2007-2009 global financial crisis, the Bank for International Settlements (BIS) said in its 2019 quarterly review.  Like CLOs today, sub-prime mortgages in the 2000s were cut into tranches with varying levels of risk, and they were rated by credit agencies.

As the world discovered in 2008, many of those ratings were misleading, which contributed to investors acquiring bundles of low-rated loans with a high risk of failure. BIS said the opacity of CLOs, their high concentration in financial institutions and uncertainty about the resilience of underlying loans are causes for concern. 

Federal Reserve Board economists have noted the heavy use of CLOs by insurance companies, including  Apollo’s Athene Life and Annuity and MetLife, and pointed to their dangers during a market downturn. In an exhaustive 2021 analysis, the economists detailed how the largest U.S. life insurers use their affiliates to establish shadow banking systems, reshaping the risk profile of the financial system.

By extending credit to these risky projects the insurers earn a sizable (interest rate) spread over the cost of their annuity liabilities. By holding the CLO deal risk of their affiliates and the rapidly growing portfolio of commercial real estate loans, life insurers are vulnerable to a downturn in the credit cycle.

Federal Reserve Report, 2021

But there is a danger. “By holding the CLO deal risk of their affiliates and the rapidly growing portfolio of commercial real estate loans, life insurers are vulnerable to a downturn in the credit cycle,” they warned. For example, a widespread decline in the value of the loans backing the CLOs would directly wipe out equity held by the affiliated subsidiaries of life insurers, they said.

“As we learned from the 2007-09 financial crisis, even a relatively small exposure would create a vulnerability for life insurers who pledged their excess capital to the deal risk,” the 2021 analysis found. As equity declines in value, institutional investors could withdraw wholesale funding, further pressuring life insurers and creating a severe liquidity crisis for the industry, they wrote. 

Athene Dives In

Despite these warnings, a sizable part of Athene’s investment strategy includes buying loan exposure through CLOs. They accounted for 10 percent of Athene’s portfolio in 2022, while other types of asset-backed securities made up 11 percent, according to Athene’s report to investors. Add residential and commercial mortgage-backed securities of 6 percent, that makes 27 percent — or nearly $50 billion, over a quarter of its investments — in riskier assets that are known to face declines in periods of economic stress. Even a slight market downturn could overwhelm Athene’s $1.27 billion surplus, said Gober. (Surplus is the amount of assets over liabilities the company must hold below which regulators can rule it insolvent.)

Athene invests more in high-risk collateralized loans and asset-backed securities

Source: Athene report to investors 2022

Athene’s exposure is 21 percent for asset-backed securities (ABS) and CLOs, over three times higher than its peers, which had 6 percent.

The NAIC Financial Stability Task Force in its September 2021 report expressed concern about the concentration of asset-backed securities in the holdings of private-equity owned insurance companies. “[P]rivate equity]-owned companies focus far more on investing in asset-backed securities (ABS) than the industry as a whole: 25 percent vs. 10 percent of total bonds in 2020,” the task force said.

The Fed economists in their 2021 report cited Athene, among others, in noting that “these life insurance companies hold some of the riskiest portions of the CLOs issued by their own affiliate asset managers.” It added that “a widespread default or downgrade of risky corporate debt could force life insurers to assume balance sheet losses of their CLO-issuing affiliates, wiping out their equity.”

Apollo's much-touted success in fashioning Athene as a ‘permanent capital vehicle’ for fee-generating asset management has spawned a bevy of private equity-affiliated imitators, transforming what we and others once viewed as a potential retirement security concern affecting a few thousand annuity owners into a much broader macroprudential challenge

Unite Here

Unite Here has voiced similar concerns. “Apollo’s much-touted success in fashioning Athene as a ‘permanent capital vehicle’ for fee-generating asset management has spawned a bevy of private equity-affiliated imitators, transforming what we and others once viewed as a potential retirement security concern affecting a few thousand annuity owners into a much broader macroprudential challenge,” it said in June comments to the NAIC.

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.” 

100Reporters also contacted Carl McCall, the former New York State comptroller, once charged with oversight of the state’s insurance companies. McCall joined Athene’s Board of Directors in 2016. Asked about Athene’s risky investment strategies and use of captive reinsurance companies in secrecy jurisdictions, McCall declined to comment.   

MetLife Exposure

MetLife has a similar high exposure to risky investments. Its 2021 annual financial report shows $16 billion listed under “Other loan-backed and structured securities.” Gober, the insurance investigator, said these include CLOs and student and credit-card loans bundled into asset-backed securities known for their higher default rates. In addition, MetLife reported its residential and commercial mortgage-backed securities were more than $27 billion, bringing riskier investments to $43 billion. MetLife’s surplus, at $11.8 billion, is just under 3 percent of total assets, or half of the national average for insurance companies.

These investments have caught the attention of Fed economists, who said in their 2021 paper: “U.S. insurers returned to RMBS (residential mortgage-backed securities) issuance in 2017, though issuance levels remain low relative to CLOs. The two main players in this relatively niche market are AIG and MetLife.”

John Patrick Hunt, professor at the University of California, Davis and a former regulatory lawyer and litigator who specializes in the financial regulation of insurance companies, told 100Reporters, “MetLife seems to be taking on the riskiest pieces of complex products called CLOs, 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 such moves increase the risk that investment losses could make the insurance conglomerate insolvent, and ultimately unable to honor its commitments.

MetLife seems to be taking on the riskiest pieces of complex products called CLOs, as well as using Bermuda captive reinsurers, to reduce the equity U.S. regulators would otherwise require the companies to hold to cover losses.

John Patrick Hunt
University of California

Books in Bermuda are largely secret, so the public doesn’t know the details of what investments those companies hold. Scholars and regulators have identified ways in which the financial distress of a large insurer like MetLife could ripple through the entire financial system. “Large insurance conglomerates historically have had obligations to other systematically important financial firms such as major banks,” Hunt said. “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.

MetLife’s head of communications Dave Franecki emailed, “We appreciate you reaching out and walking through some of the themes.” But he declined to comment further: “MetLife is not going to provide an interview or comment for your story or the related series of stories being published by 100Reporters,” Franecki said.

Accordia is a small company compared to Athene and MetLife. Last year, the private equity firm KKR purchased a majority stake in Accordia’s parent company, Global Atlantic, from Goldman Sachs. Global Atlantic is based  in the Cayman Islands, where books are largely closed to the public and profits shielded from US taxes.

In its 2021 Schedule D bonds filing, which is part of its annual financial report, Accordia lists $2.5 billion under “Other Loan-Backed and Structured Securities”, which includes CLOs.

Lightly Regulated

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.

Funding Agreements, or Handy Tricks for Turning a Liability into an Asset

Funding agreements are short-term investor loans, which can appear on the insurance company’s balance sheet as an asset when in fact they are debt obligations. They generally are issued through a shell company known as a Special Purpose Vehicle (SPV) or Special Purpose Entity (SPE), which issues a note on behalf of the insurance firm. Investors buy the note from the SPV or SPE, which passes the money on to the insurance firm.

Spared from public disclosure requirements, SPVs played a major role in the 2008 financial crisis. “The SPV is off-balance sheet and under-regulated,” Gober said. “The SPV is a shell that impedes regulatory oversight and improves the insurer’s financial appearance.”

The SPV is off-balance sheet and under-regulated. The SPV is a shell that impedes regulatory oversight and improves the insurer’s financial appearance.

Thomas Gober
Certified fraud investigator and former Mississippi Insurance Department examiner

Why does the insurance company run this deal through an SPV? Doing so allows insurance companies to report such debts as “insurance products,” lowering the reserves they must hold against their eventual payment. On the balance sheet of the insurance company the influx of funds appears as an asset when the money is invested in securities. In reality, however, it is also a liability, because the money has to be paid back.

By lowering the reserve requirements, the insurance company frees up more cash to invest, said a senior government policy advisor on insurance, who spoke on background because he lacked authorization to speak to a journalist. But these loans are short-term and can be readily recalled, making the insurance companies less resilient to volatility in the marketplace.

Financial experts say a similar set of financial conditions prevailed during the banking crisis of 2008. At that time, plunging loan markets caused lenders to request their money back on short notice, forcing companies to liquidate their assets, which triggered a cascade of selling. SPVs were especially hard hit. Aggravating the damage, investors and regulators had little visibility into their risk, especially for SPVs held in offshore subsidiaries where financial disclosure is scant.

Funding agreements heighten risk for policyholders in another way. In the event of bankruptcy, insurance policyholders usually are the first in line to get paid. But under the terms of these funding agreements, the loan investors are deemed of equal standing with policyholders.

These funding activities render the insurer vulnerable to runs. During the financial crisis, runs on insurers forced them to scramble for liquidity from other sources, including FHLBs [Federal Home Loan Bank]. In some cases, insurers required substantial government assistance to prevent spillovers to households and to the rest of the financial system.

Federal Reserve Report, 2021

If the insurance company becomes insolvent, policyholders must compete with investors for the leftovers. And because of secret side agreements that give private equity companies wide discretion for favoring friends, relatives, and some select investors over others, policyholders and pensioners will have less standing as they compete for the remaining crumbs.

The Fed economists in their 2021 paper raised a red flag about these types of loans in particular. “These funding activities render the insurer vulnerable to runs,” the Fed economists wrote. “During the financial crisis, runs on insurers forced them to scramble for liquidity from other sources, including FHLBs [Federal Home Loan Bank]. In some cases, insurers required substantial government assistance to prevent spillovers to households and to the rest of the financial system.”

Despite the 2008 crisis which led to the taxpayer bailout of AIG, insurance companies have managed to remain outside federal regulation of the industry, leaving oversight to a patchwork of states, some of which have become havens known for lax oversight.

The latest filing by Athene says that none of its funding agreements allow discretionary, or on demand, withdrawals, which could cause a run during a steep market decline. MetLife says a small number allow them. However, the senior government insurance policy advisor asked, “What does discretionary mean? Is the term a long term? It’s feasible that fixed means a month. Or let’s say they are fixed for a year but they are staggered. At any point some are coming due.” The companies’ filings report their funding agreements but don’t answer those questions on their maturity dates.

Gober analyzed how funding agreements are reported as income, rather than debt, by Athene and MetLife.

In the section for reporting liabilities on its 2021 annual statement, Athene listed nothing on line 22 under “Borrowed Money”. It is blank, showing zero debt. 

But in another part of the annual statement for 2020, called Schedule T for reporting on premiums and annuity, there’s a hidden debt of $1.8 billion called “deposit-type contracts,” which are funding agreements – or loans issued through SPVs. 

This is not income but a form of debt, though Athene doesn’t report it as such. By 2021, funding agreements, shown in column 7, had increased 47-fold to $11.1 billion, up from $310 million in 2015, dwarfing Athene’s $1.2 billion surplus. Athene announced it was the largest issuer of funding agreements across six different currencies.



billion, up from
$310 million in 2015

According to Athene’s filings, nearly all of the $11.1 billion raised through funding agreements and listed as insurance products is sent to reinsurance, much of it to lightly regulated affiliates or offshore, where secrecy reigns; it is unknown how much is invested in illiquid assets, of the kind the Fed warned of in its report. A sudden demand for the cash could be dangerous, Gober cautioned. In the face of massive losses, Athene’s nearly one million policyholders seeking claims would be standing in a very long line for payouts, absent significant government intervention.

Government economists long have expressed concern about MetLife’s heavy reliance on funding agreements, going back to the creation of  the Financial Stability Oversight Council (FSOC) in the U.S. Treasury, in the aftermath of the 2008 global financial crisis. The FSOC was charged with detecting conditions that could threaten the country’s financial system and was given authority to audit and assess not only banks but other large financial companies, including insurance companies. If FSOC considered a firm vital to the safe functioning of global markets, it was assigned a red flag and labeled “systemically important financial institutions” (SIFIs).

Along with AIG and Prudential, MetLife was a focus of the financial stability council’s’s investigation and was designated a SIFI, on the grounds that the collapse of any one of these companies could devastate the financial system. The financial stability council noted in a 2014 report that MetLife’s funding agreements made it vulnerable, since it issued 75 percent of the $50 billion market for funding agreements (FA) and FA-backed securities issued by U.S. life insurers in the first six months of 2013. In a financial downturn, creditors could immediately call that money back, forcing MetLife to liquidate assets at fire-sale prices, which would affect the wider markets, the Financial Stability Oversight Council said in its 2014 report.

Despite this warning, MetLife reported $30 billion in funding agreements in 2018, and its latest financial filing shows the insurer had increased that to $72 billion in 2021, listing them as  “deposit-type contracts.” Its website shows that it is actively promoting these instruments as a retirement solution for clients. 

Instead of calling this borrowed money, MetLife lists funding agreements on its financial statement alongside premiums. It describes these contracts as “holding the Deposit for the benefit of the Beneficial Owner.” Gober pointed out this is a convoluted way of describing a loan, since the beneficial owner is the creditor, not MetLife. He noted that by 2021, funding agreements dwarfed by three-fold MetLife’s worldwide business of $24.3 billion in premiums, shown on column 6 of its Schedule T. According to its filings, Gober noted, MetLife is borrowing three times as much money as it takes in as premiums.

If MetLife were forced to liquidate assets but had invested the money raised through SPVs in risky securities, it would be in trouble.

Thomas Gober
Certified fraud investigator and former Mississippi Insurance Department examiner

MetLife's Fight Against Federal Oversight

MetLife fought back against the financial stability council’s too-big-to-fail designation. It hired lawyer Eugene Scalia, then a partner at the law firm Gibson, Dunn and Crutcher and son of Supreme Court Justice Antonin Scalia. (The younger Scalia would go on to become Labor Secretary under Donald Trump.)

In a suit against the Treasury Department, MetLife argued that the FSOC used a flawed argument to determine that its collapse could devastate the financial system. It insisted that captives funded in part by letters of credit did transfer risk. And it argued that as it already operated under a strict state regulatory system, that non-bank SIFI regulation put it at a disadvantage against its competitors. MetLife maintained that the financial stability council should address the risk posed by specific systemic activities rather than by the size of companies. The case was brought during the Obama administration.

In 2016, U.S. District Judge Rosemary Collyer, a President George W. Bush appointee, overturned the designation, rejecting that MetLife was systemically important to the U.S. financial system and “too big to fail,” and determining the council’s decision  was “arbitrary and capricious.” The judge accepted MetLife’s argument, and ruled the Financial Stability Oversight  Council: “never established a basis for a finding that MetLife’s material financial distress would ‘materially impair’ MetLife counterparties….FSOC never projected what the losses would be, which financial institutions would have to actively manage their balance sheets, or how the market would destabilize as a result….FSOC was content to evaluate interconnectedness and to refrain from calculating actual loss, i.e., to stop short of projecting what could actually happen if MetLife were to suffer material financial distress.”

FSOC, by then chaired by President Donald Trump’s Treasury Secretary Steve Mnuchin, a former Goldman Sachs banker, didn’t appeal. Mnuchin also removed the SIFI designations from the insurance giants AIG – which had contributed to the 2008 financial crisis — and Prudential. In December 2019, Mnuchin issued new guidelines changing the SIFI criteria: instead of identifying institutions that pose systemic risk to the financial system, the government would identify certain types of investment activities that merit special monitoring. Today there are no financial institutions outside the banking sector designated as SIFIs, despite a major expansion of their credit intermediary role in the financial system. After the decision, FSOC regulatory oversight of the insurance industry was constrained and left to the states.

A senior Biden administration official, who worked on the FSOC designation process and requested anonymity because the official was not authorized to speak publicly, told 100Reporters that insurance oversight has not changed under the current administration. “We have not gone back and been aggressive,” the official said, adding there is a lack of “courage and backbone” to take on the insurance industry. This has caused mounting frustration among some Democrats on Capitol Hill.

MetLife has continued the practices that raised red flags over a decade ago.

The smaller Accordia does not have the financial size to borrow billions of dollars through funding agreements.

Shuffling Funds to Shells

Companies normally buy stocks and bonds in the open market, where prices are transparent and based on perceived risk. But there is a second strategy some insurance companies are using. It works like this: the insurance company sends $1 billion in cash to a related company which doesn’t have audits, isn’t publicly traded, and is, in fact, a shell. In return, the insurance company receives an internal IOU, which it calls a bond but which is not a marketable security. No one outside can see the paper trail. Essentially, the insurance company is buying a piece of itself and counting that as an investment. Gober said this lack of transparency is especially concerning for insurance companies that have subsidiaries in US states with lax regulations and offshore where they dump billions of dollars of investments that cannot be overseen because their books are largely shielded from public scrutiny. Outsiders cannot assess the level of risk, he said.

The Federal Insurance Office, an agency in the U.S. Treasury tasked with monitoring the industry under the Dodd-Frank law, has warned against the practice. “Due to the generally illiquid nature of affiliated holdings – i.e.: a market does not exist for such types of investments making it difficult to ascertain their value – significant growth in affiliated investments can erode the strength of an entity’s capital base,” it said in its 2019 annual report.

U.S. Treasury Annual Report on the Insurance Industry
(September 2019)
Due to the generally illiquid nature of affiliated holdings — i.e., a market does not exist for such types of investments, making it difficult to ascertain their value — significant growth in affiliated investments can erode the strength of an entity’s capital base.

Two years later, the NAIC Financial Stability Task Force warned in its September 2021 report that state regulators may be failing to adequately assess the risk from this practice. “Affiliated transactions are considered by regulators, but it is not clear if all appropriate PE (private equity) transactions are captured,” it said.

Hidden Gamble

Apollo Capital Management has used its affiliated companies in questionable ways for at least a decade. Athene’s annual statement for 2014, for example, shows that in 2013 it made an investment in an Apollo affiliate to disguise a bailout of Caesar’s and Harrah’s casinos, which subsequently went bankrupt. 

Under a Nevada law passed to keep out organized crime, changes in casino ownership must be approved. In July 2013 the Nevada State Gaming Control Board heard a proposal to transfer an interest in Caesar’s Entertainment to Apollo. A lawyer for Caesar’s said, “This is essentially an investment by Athene indirectly in Caesar’s.” Five months later, Athene bought AAA Investments (Co-Invest VI). Nobody reading Athene’s financial statement would know that AAA Investments was a vehicle for funneling money to two risky Nevada casinos.

Since then, the practice of affiliated investments has ballooned. In a four-year timespan, Athene’s purchase of affiliated stocks and bonds increased 700 percent to $10.4 billion by 2021 from $1.5 billion in 2017, according to its annual statements. Athene declined requests for comment.



to $10.4 billion by 2021
from $1.5 billion in 2017

MetLife, too, engages in internal money transfers. For 2021, its annual report shows affiliated investments of $10.7 billion and similar amounts for the prior three years, down from $15 billion in 2017. In the event of financial stress within an insurance group, opaque affiliated paper is typically first to plummet in value, Gober said.

The $10.7 billion of investments in affiliated businesses, combined with MetLife’s $44 billion in loan-backed and structured securities, indicate that more than one third of MetLife’s $155 billion in total investments is high-risk, Gober said.

While MetLife reported an $11.8 billion surplus in 2021, or $9.8 billion above the required minimum of $2 billion, the nature of its investments renders the company vulnerable, the Fed and other experts said.

A major correction of the kind currently roiling financial markets adds to the concerns. “The $55 billion worth of assets are the highest risk categories,” Gober said. “These asset categories are especially sensitive to economic stress.” A drop in portfolio value of 18 percent, or $9.9 billion, — which is in major market correction territory– would wipe out MetLife’s $9.8 billion surplus. Regulators would then have to work with the company, requiring it to find sufficient cash to restore the surplus; if they failed to do so, regulators could declare the company insolvent and take control.

Accordia’s affiliated investments for 2021 are $758 million, or 6 percent of assets, substantially higher than in past years. While its total assets ($12.739 billion) and liabilities ($12.709 billion) have grown from 2020 to 2021, its surplus has shrunk relative to liabilities, which it has to cover.



Which representS
80 percent OF ITS surplus

Companies in an agreement reached with the NAIC are allowed to determine the level of risk-based capital they hold as a buffer to ensure they can meet their liabilities. The figure Accordia set in its 2021 financial statement was $141.8 million. It is the bare minimum that must be covered by the surplus.

Accordia’s affiliated investments for 2021, a 65 percent increase over the year before, represent 80 percent of surplus. Were a substantial number of affiliated investments to decline sharply in value, Accordia could be ruled insolvent, though its owner has the option of providing the missing cash. Combined with its structured loan portfolio, Accordia’s high-risk investments total $3.8 billion, leaving Accordia’s buffer vulnerable to an economic downturn, Gober said. Accordia declined requests to comment.

Rich Returns

Executives and shareholders of for-profit life insurance companies and their private equity owners can benefit generously from investment strategies that pour cash into higher risk assets.

As a mutual, policyholders were owners and they received dividends from MetLife, for example. When executives proposed it demutualize, or transform itself into a for-profit company, they won policyholder approval in part by promising that they would continue to receive dividends. They did, but their value went down to virtually nothing.

MetLife’s stock price has tripled to $71.47 over the last decade outpacing the overall gains in the broad stock market, and annual dividends to stockholders have risen from 60 cents a share in 2013 to $1.96 today. These gains have enriched its Chief Executive Officer Michael Khalaf: he enjoyed a 25 percent increase in his base salary to $1.35 million between 2019 and 2021, plus a 28 percent increase in stock and stock options awarded, bringing his total compensation last year to $16.62 million. Three of his top executives have received similarly rich rewards. 

In contrast, MetLife’s policyholder dividends fell to $23 million in 2020 down from $133 million the year before and $1.36 billion in 2012, even as executive compensation rose. Dividends continued to plummet to negative $1.9 million in 2021, while executive payouts grew still more. The increased payouts for executives are typical of mutuals that privatize.

They plummeted from $23 million in 2020 to negative $2 million in 2021, while the company was earning still more.

Athene found an extra way to reward its Chief Executive Officer James Belardi. In addition to his compensation package from Athene, Belardi owned a 5 percent stake in the investment management company set up by Apollo to handle Athene’s assets, which meant he benefited directly from the fees paid by his own company. Moreover, the Financial Times reported in 2018 that an internal investigation showed Athene was paying its investment management firm twice as much as an independent manager would charge for similar services – 0.3 percent of assets under management compared with 0.15-0.25 percent for an unaffiliated manager. Athene, which declined to comment for this article, has elsewhere defended the high fees, telling the Financial Times, “Apollo has sourced investment opportunities for Athene that other managers simply can’t provide, including some of our most successful investments to date.

What’s at stake

The investment practices described here represent dangers to policyholders on several levels should an insurance company grow insolvent, said Birnbaum, the veteran advisor on insurance to the Fed and Treasury. Even though state guarantee funds exist to cover policyholder losses, most states have caps of $250,000-$350,000. People who have paid higher premiums for more insurance or anticipate retirement annuities may lose much of their investment.

There’s a reason we have federal bank regulation. With these types of institutions, you want to limit how much risk they take, because when things get really bad, things will be felt by a lot of people. There are guard rails at the federal level. It’s not the same with insurance

Veteran advisor on insurance to the Fed and Treasury

Additionally, guarantee funds are based on the premise that the failure of one company is absorbed by others. States recoup the cost through a surcharges, which then get passed onto policyholders through a surcharge. But state regulators may be under-estimating the risk.                   

“Abusive and deceptive sales — the domain of market regulation, not solvency regulation — can lead to solvency issues,” Birnbaum said. “That’s exactly what happened during the financial crisis with bond and mortgage insurers.

“The competition for these insurers to get the business of bond issuers and mortgage originators led to abandonment of risk management by the insurers that solvency regulators missed,” Birnbaum said.

“There’s a great danger because the financial regulators look at solvency solely from the perspective of a company going insolvent – Do they have adequate reserves? Do we have adequate oversight? That limited vision was exposed during the (2008) financial crisis,” he said.

There is also a risk that other parties to a transaction will not be able to fulfill their obligations. “It’s not just one company. If they’re all doing it, it’s all connected. If there are numerous significant failures, the guarantee fund system won’t be able to handle that,” Birnbaum said. Nor would the financial system.

Schwarcz, who was the lead author of the legal brief filed by insurance regulation scholars in support of the government’s move to oversee MetLife, said risk is compounded because insurance companies today are deeply interwoven with global credit markets. When a counterparty demands its money back on short notice, can the insurer liquidate assets quickly enough to repay?

“Unfortunately, it’s rather opaque,” Schwarcz said. In the past, financial companies that engaged in high-risk strategies have dipped into taxpayers’ pockets. Insurance conglomerate AIG survived the 2008 crash only with an $85 billion bailout by Federal Reserve Bank of New York..

Birnbaum fears a repeat. “As the products become more complex and riskier, there’s greater likelihood the [state] regulators don’t fully understand the risk and can’t stay on top of it. We’re talking about trillions of dollars of assets held by life insurers.” 

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.

Photography Credits

Photo by Harry Gillen on Unsplash 

Photo by Kevin Matos on Unsplash 

Athene’s CLOs
Photo by Sean Pollock on Unsplash 

MetLife CLOs
Photo by Rodrigo Sümmer on Unsplash 

Accordia’s CLOs
Photo by Annie Spratt on Unsplash

MetLife Too Big
Photo by Finn on Unsplash 

Photo by Stephen Dawson on Unsplash

Athene’s Affiliates
Photo by Sid Suratia on Unsplash 

MetLife’s Affiliates
Photo by Izaac Crayton on Unsplash 

Accordia’s affiliates
Photo by Christian Wiediger on Unsplash 

Rich Returns
Photo by Claudio Schwarz on Unsplash

What’s at Stake
Photo by Lianhao Qu on Unsplash

Part 1: Captives of Industry

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) thekomisarscoop.com.

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.”