Matt Tracy

(Reuters) - US Life Insurance Corporation handed over nearly $800 billion in reserves to offshore branches between 2019 and 2024, as growth in private credit has changed the industry and raised several risks.

As interest rates fell to near zero between 2015 and early 2020, public life insurers have taken a variety of ways to maximize earnings and remain competitive with their growing private credit counterparts, Moody's analysts said in a report released Monday.

These include working with private equity firms or alternative asset managers and continue the trend despite the high interest rates now.

Moody's said there were approximately $75 billion in life insurance equity mergers and acquisitions between 2019 and 2024. These include Allstate's 2021 sale of its lifespan and annuity business, now known as Everlake, managing Blackstone-managed entities for $2.8 billion, and Brookfield Reisbrance's acquisition of the U.S. state in 2022 for $5.1 billion.

This trend has allowed life insurers and alternative asset managers to transfer billions of dollars from their businesses to offshore accounts in Bermuda or the Cayman Islands at record rates.

They do this to free up capital “to support growth, provide more competitive pricing, and earn returns in products like annuities… and engage in shareholder-friendly activities such as stock buybacks,” Moody’s analysts said in the report.

Moody's said the U.S. life insurance industry holds about $6 trillion in cash and investment assets by the end of 2024, with an estimated one-third of them allocated to private credit.

This is because American life insurance companies are gradually shifting a larger percentage of their portfolio into private credit—especially financed or expanded to alternative asset managers’ credit to capitalize their funds.

“While fixed income assets such as corporate bonds and commercial real estate account for the largest share of insurers’ portfolios, based on our survey, fund finance could grow over the next three to five years,” analysts said.

Moody's noted that this ever-evolving business model poses several risks. Analysts say the lack of transparency in the details and structure of these private credit assets makes them difficult to value.

They say that if companies are forced to liquidate, the liquidity of such products also makes them more risky in the downside situation.

(Reported by Matt Tracy; Edited by Tom Hogue)