Life Insurance Carrier Financial Strength: The $235 Billion Offshore Reinsurance Problem

Most people who buy a cash value life insurance policy spend their diligence on the product: the base premium, the paid-up additions rider, the illustrated cash value in year 10. Very few spend any time on the balance sheet of the company making the promise. That order of priorities is backward for anyone using a policy as a multi-decade capital base, because the product is only as good as the carrier's ability to pay it out in 2060.

The risk that never shows up on an illustration is whether the carrier will still hold enough real capital to keep its promises when you need them. Tom Gober has spent 41 years examining insurance companies, first as a state examiner and now as an independent analyst who pulls statutory data from roughly 700 life and annuity carriers every year. His conclusion is direct: some carriers, particularly those controlled by private equity, are running surplus so thin, and moving so many liabilities into affiliated offshore reinsurers, that outsiders cannot tell how much capital actually stands behind the policies.

This matters more for The And Asset than for almost any other use of life insurance. The And Asset treats a whole life policy as a capital base you borrow against for decades, while the policy keeps compounding net of mortality and expense charges. Every policy loan comes out of the carrier's general account. If that account is hollow, the strategy fails at the source.

We have structured more than 2,000 policies, and carrier selection is one of the first decisions we make, before design and long before anyone borrows. What follows covers how carrier financial strength is actually measured, how offshore and affiliated reinsurance can manufacture surplus that is not real, why ownership structure changes the risk, a step-by-step carrier check, and where this fits in the rate of return math that governs every And Asset decision.

Gober's talk includes the actual charts behind these numbers, including his surplus ranking of private equity carriers against mutuals and the reinsurance flow diagram that took him weeks to map. Watching him walk through them shows how much is buried in a single filing:

01 / The problemWhy Is Carrier Strength the Risk Nobody Illustrates?

Carrier strength goes unexamined because the sales process is built around the product, and the product looks identical on paper whether the company behind it is overcapitalized or running on fumes. An illustration projects cash value from a dividend scale. It says nothing about the surplus behind that scale, the quality of the assets backing reserves, or where the liabilities have been moved.

Gober puts the incentive problem bluntly. In his experience, many agents pick carriers by commission rate. The policyholder inherits that decision for 40 years.

The legal structure makes it worse. Large insurance groups report consolidated GAAP results that combine the holding company with hundreds, sometimes thousands, of subsidiaries. A policyholder has no claim against any of them. Your rightful legal claim runs only against the underwriting carrier, the name printed at the top of your policy. If that entity is thin, the strength of the parent does not help you.

Read the issuing carrier, not the brand.

02 / The frameworkWhat Does The And Asset Require From a Carrier?

The And Asset requires a carrier that will still be solvent, liquid, and honoring its loan provisions decades from now, because the entire strategy runs through that carrier's balance sheet. The policy is the capital base. When you borrow, you are not withdrawing your own money from a separate account. You are borrowing from the carrier's general account with your cash value as collateral.

Nelson Nash pioneered the idea of using whole life as a personal banking system in Becoming Your Own Banker. His insight about the cost of interest paid to outside lenders and the cost of idle capital is the foundation we build on. The And Asset shares roots with IBC but operates on different principles.

Where IBC Ends and The And Asset Begins

IBC says you can use a whole life policy as a personal banking system for any purchase. The And Asset says you only deploy capital from the policy when the borrowed dollars will produce a return greater than the carrier's loan cost, because anything less is an expensive way to spend money. IBC content often frames whole life as the destination. The And Asset frames the policy as the capital base, and a capital base is worth exactly what the institution holding it can deliver.

Many IBC marketers also say you are paying yourself interest. You are not. The interest goes to the carrier. Your return is what the deployed capital earns elsewhere while the policy keeps compounding net of mortality and expense charges. That correction is the reason carrier strength matters: the carrier is a counterparty on both sides of every loan you take.

03 / The bufferWhat Is Surplus, and How Much Should a Carrier Hold?

Surplus is the capital a life insurer holds above what it owes policyholders, and it is the only buffer between solvency and insolvency. A life and annuity company does not manufacture anything or carry inventory. It holds long-term promises and the assets set aside to pay them. Regulators do not allow a carrier to reach zero surplus, let alone go negative, so the size of that buffer relative to liabilities tells you how much room the company has before trouble.

Gober measures surplus against liabilities using statutory data from every life and annuity carrier. The national average across roughly 700 carriers is over 7%. He prefers 9, 10, or 15%. The thinnest carrier on his chart sat at 1.22%.

The pattern on that chart was not random. The carriers at the thin end were primarily private equity controlled, plus a few large publicly traded carriers. The carriers with ample surplus were mutuals. In Gober's professional opinion, private equity controlled carriers intentionally keep surplus as thin as regulators allow, because every dollar not held as surplus is a dollar the controlling group can put to other uses.

Why Statutory Accounting, Not GAAP

Statutory accounting exists to answer one question: can this company pay its policyholders? GAAP answers a different question for a different audience. It is designed for shareholders and is filed with the SEC. A carrier can look healthy under GAAP at the consolidated level while the specific entity that issued your policy carries a thin statutory buffer.

GAAP protects investors. Statutory protects you.

The stakes have widened. Insurers now take on entire corporate pension plans through pension risk transfers, so retirees who never bought a policy are depending on the same balance sheets. The buffer has to be real. A large number on paper is not enough.

04 / The mechanismHow Does Offshore Reinsurance Create Fake Surplus?

Offshore reinsurance creates fake surplus when a carrier transfers more in liabilities to an affiliated reinsurer than it transfers in assets, and the difference shows up on its own books as new surplus. Reinsurance itself is a normal tool. Its purpose is to spread risk to an outside party with its own capital. The problem begins when the reinsurer is a sister company in a jurisdiction where its finances cannot be seen.

Gober's worked example is simple. A carrier cedes $10 billion of real policyholder liabilities to an affiliated captive. No independent reinsurer would accept $10 billion of obligations without $10 billion of assets. An affiliate will. The carrier sends $6 billion of assets. Its liabilities drop by $10 billion, its assets drop by $6 billion, and its reported surplus rises by $4 billion overnight.

The hole does not disappear. It moves into a captive where policyholders, and often regulators in other states, cannot inspect it. Gober's view from four decades of examinations is that a hidden shortfall tends to grow, because nothing forces it to be filled.

The $235 Billion Concentration

The figure in the video title comes from Gober's reading of Athene's statutory annual statement, a filing that runs past 9,600 pages for one company in one year. By his analysis, Athene has ceded roughly $235 billion of liabilities to one reinsurer. He raises three concerns, in ascending order. The amount sits with a single counterparty, which defeats the purpose of spreading risk. That counterparty is an affiliate rather than an independent company with its own capital. And it is offshore, where its finances are not available to the public.

We have not audited these filings. The figures are Gober's reading of public statements, and the structure alone does not prove any carrier is insolvent. What it does mean is that outsiders cannot measure how fully those liabilities are funded, which is exactly the information a policyholder needs.

The Reinsurance Map Nobody Reads

To show how this looks inside a large group, Gober spent weeks matching columns across Schedule S, the reinsurance schedules of the statutory statement, for one publicly traded group. The result was a map of reinsurance flowing between its operating insurers and seven captives domiciled in Arizona, with single flows of $1.56 billion, $5.95 billion, and $12.6 billion circulating inside the group. A policyholder of the operating companies cannot obtain the captives' financial statements. Gober's question to anyone looking at that map: can you name a legitimate business purpose for every arrow?

05 / How it worksHow to Check a Carrier Before You Fund a Policy

Checking a carrier takes seven steps, and the first five happen before you look at a single illustration. This is the sequence we use, built around the statutory data Gober works from.

1. Identify the issuing carrier. Find the exact legal entity on the policy. Large groups run several insurers with similar names, and your claim runs only against the one that issued your contract.
2. Pull the statutory annual statement. Statutory statements are filed with state regulators and are often available through the carrier or the state insurance department. Use these, not the parent's SEC filings.
3. Measure surplus against liabilities. Divide capital and surplus by total liabilities. Below the 7% industry average is a yellow flag. Gober wants to see 9 to 15%.
4. Trace the reinsurance. Schedule S shows business ceded to other companies. Look for large cessions to affiliates, to captives in states such as Arizona or Vermont, and to offshore jurisdictions such as Bermuda, the Cayman Islands, or Barbados.
5. Compare risk to surplus, not total assets. Add higher-risk and less liquid assets to offshore reinsurance and divide by surplus. In Gober's framework, a ratio below 600% is comfortable, up to about 1,000% is tolerable, and anything above that marks a higher-risk, less transparent carrier. The safest carriers in his data sit near 40%.
6. Ask the offshore question. Ask the agent, in writing, how much of the carrier's business is ceded offshore or to affiliated captives. Most agents will not know. The question then has to go to management, and how they answer is information in itself.
7. Design and deploy with discipline. Once the carrier passes, design for cash value with a minimized base and a heavy paid-up additions rider, stay under the MEC limit, and only borrow for activities that return more than the loan rate.

Step five is the one the industry skips. Regulators and analysts often measure risky assets against total assets, which makes almost any exposure look small. Gober's point is that a write-down does not come out of the whole balance sheet. It comes out of surplus, and surplus is the thin layer on top.

Divide by the buffer, not the balance sheet.

06 / OwnershipWhy Does Private Equity Ownership Change the Risk?

Private equity ownership changes the risk because it puts a group with a short return horizon in control of a balance sheet that has to last for decades. A life insurer is a cash engine. Premiums arrive every day of the year, and the obligations they fund may not come due for 40 years. That float is what makes an insurer attractive to a controlling investor, and it is what the policyholder depends on.

Gober names four practices he sees as the greatest current threats to the life and annuity industry, and ownership structure drives most of them. Surplus has gotten too thin. Transparency is disappearing into captive and offshore reinsurance. Some carriers are buying ultra high-risk, illiquid investments, sometimes assets sourced from the controlling private equity group itself. And the fourth, which Gober finds most worrying, is excessive interdependence inside the group.

The Cash Cow Problem

In a tightly interdependent group, the insurer invests in its affiliates, lends to them, guarantees their obligations, and reinsures with them. While everything works, this looks efficient: no money leaves the group. When one affiliate fails, the insurer is exposed through every one of those channels at once, and because the connections sit in filings few people read, the fragility is invisible until it is not.

Gober also criticizes how some states supervise these structures. He points to permitted practices, which are state-granted exemptions from standard statutory accounting rules, and to captive reinsurers whose financial filings are not available to the policyholders whose liabilities they hold. His argument is that a regulator cannot protect policyholders from a balance sheet no one is allowed to see. Gober is explicit that the good news sits with mutual carriers and some smaller, privately held stock carriers.

07 / The mathDoes Carrier Strength Change the Rate of Return Math?

Carrier strength does not change the core test, which is that whatever you deploy borrowed capital into must return more than the carrier's loan cost. It changes the denominator of risk underneath that test. Policy loan rates vary by carrier and rate environment. At the time of writing many carriers fall in the 5 to 6% range, but treat any specific number as a variable to verify, not a constant.

The And Asset math has two legs. At a non-direct recognition carrier, the policy keeps compounding on its full cash value, net of mortality and expense charges, while the loan is outstanding; direct recognition carriers such as Penn Mutual adjust dividends on the borrowed portion. The deployed capital earns its own return. If that return beats the loan cost, the same dollar has done two jobs. Both legs assume the carrier honors its contract for the full horizon. A weak carrier does not lower your loan rate or raise your deal's return. It puts a question mark under the policy leg of the equation for the entire time you own it.

If the deal does not clear the loan rate, do not borrow.

This is also why a small illustrated advantage is a poor reason to accept a weaker carrier. A few thousand dollars of projected cash value in year 10 is not worth uncertainty about whether the capital base exists in year 30.

08 / The mistakesWhere Do Agents and Marketers Get Carrier Selection Wrong?

Agents and marketers get carrier selection wrong by competing on the illustration and the dividend rate, then treating financial strength as a box checked by a rating letter. Ratings from agencies such as AM Best are a useful starting point. They are not a substitute for reading what a specific issuing carrier has done with its reinsurance and its surplus.

The second mistake is quoting the dividend rate as if it were the growth rate. It is a gross figure. Cash value compounds at the dividend net of mortality and expense charges, and the dividend itself is only as durable as the surplus behind it.

The third mistake is selling around the question entirely. Gober's request to advisors is simple: when a client is considering a high-risk carrier's product, have the client ask that carrier's agent how much business goes offshore. The agent almost never knows. The question has to travel to management, which is often the first time anyone in the sale has looked.

Marketers have ruined the way this strategy should be explained, and carrier selection is part of it. A pitch that leads with the biggest projected number and never mentions the balance sheet is selling the product while ignoring the promise behind it.

09 / The tradeoffsBenefits and Real Tradeoffs of a Strict Carrier Screen

A strict carrier screen protects the capital base, and it costs you some illustrated value and some convenience. Both sides deserve a plain statement.

The benefit is durability. A carrier with surplus at 9 to 15% of liabilities and little affiliated offshore reinsurance has room to absorb write-downs, rate shocks, and bad years without touching its promises. For a strategy measured in decades, that margin is the point.

The tradeoffs are real. First, a well-capitalized carrier may illustrate slightly lower values than a thin one, as in the composite above. Second, the screen narrows your choices: in Gober's data, the strongest balance sheets cluster among mutuals, which limits the menu. Third, the data is hard to use. A 9,600-page filing is not something most buyers will read, and the finances of captives and offshore affiliates cannot be read at all. Fourth, Gober's thresholds are one experienced analyst's framework, not a regulatory standard. They are a disciplined starting point, and a reasonable analyst could set the lines differently.

State guaranty associations exist as a backstop if a carrier fails. Their limits are set state by state and are often well below the cash value an overfunded policy accumulates, so they are not a reason to accept a weaker carrier.

10 / Head to headMutual vs Private Equity vs Publicly Traded Carriers

Compared side by side, the ownership models differ most in who the carrier answers to and how much real capital stands behind each dollar of promises. The table uses Gober's dataset for the surplus figures and translates them into dollars per $1 million of liabilities.

11 / The fitHow Does Carrier Selection Fit Into a Broader Capital Strategy?

Carrier selection is the first layer of the capital strategy, and everything after it depends on that choice holding for decades. The order we follow is carrier, then design, then deployment discipline. Get the carrier wrong and a perfect design sits on a weak foundation. Get it right and the remaining decisions are about structure and math.

For entrepreneurs and investors who already deploy capital, a policy loan is one source among several, next to bank lines, home equity, and retained earnings. The And Asset earns its place in that stack through control: a loan the carrier cannot demand you repay, on a capital base that keeps compounding. The limit is real: if the loan plus accrued interest grows past the cash value, the policy lapses, and a lapse with an outstanding loan can be a taxable event. That control is only as good as the counterparty. If you already own a policy, the same check applies, and a second opinion on the issuing carrier is a reasonable step before you build more on top of it.

This is for entrepreneurs and value creators, not savers. The math has to work, and the carrier has to be there when it does.

FAQCarrier Financial Strength Questions