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.