Over the past several years deploying capital in the insurance capital markets, I’ve found that most coverage rarely goes beyond surface-level headlines, outcomes, and broad narratives. 

This newsletter takes a different approach - a perspective from inside the market - the pricing cycles, the capital flows, what’s moving markets, and what’s behind the headlines.

My mother-in-law rang me last week. Her sister had been in to see a financial advisor that morning and came home with a product pitch - a fixed indexed annuity.

Could I take a look?

Sure. Running a fund, one-year-old at home, sleep rationed. What else would I be doing? Call this issue my homework for the week.

After a couple of hours into the issuer's statutory annual statement, I still couldn't give her the one thing she actually wanted to know - will this company be there, decades from now, when her sister is drawing on it?

How do you actually evaluate if an issuer will be there to pay out 20, 30 years from now?

If a professional investor in the insurance capital markets can't fully understand the risk in an annuity, it's worth asking how a typical policyholder is supposed to.

I'm not convinced the rating agencies, the Wall Street analysts, or the regulators can either, at least not with the data they currently have access to.

The apparatus we'd normally use to evaluate financial strength has been progressively walled off from the people who need to use it.

I want to be specific about why. That means picking one name and walking through what it looks like inside a single platform. I'll use Brookfield — partly because the disclosures are unusually visible after a tech-team accident earlier this year put a set of internal statutory statements briefly online¹, and partly because the structure is generally representative of the broader PE-owned life and annuity playbook described in Issue 2.

Brookfield acquired American National Insurance (ANICO) in 2022. Then it acquired American Equity Investment Life (AEL) in 2024. What happens after a PE acquisition of a life and annuity platform follows a consistent pattern across the sector. In Brookfield's case it's been documented in enough detail to walk through.

Move the risk offshore. Liabilities get ceded from the U.S. insurer to an affiliated reinsurer in Bermuda. In ANICO's case, 95% of annuity reserves were ceded to Freestone Re, domiciled in Bermuda. Freestone's annual disclosure runs nineteen pages. Brookfield's combined Bermuda insurance disclosure runs about sixty. A comparable U.S. statutory annual statement for a life insurer of this scale runs several thousand.¹

Harvest the surplus. The surplus the U.S. company built up over decades of underwriting gets paid out. ANICO (founded in 1905) had a $4 billion surplus that fell to $2.3 billion in three years — a 43% decline driven by extraordinary dividends and reinsurance commissions. At AEL, the pattern compressed into a single year: statutory capital fell by $517 million, the company recorded a $747 million statutory net loss, and the parent still paid itself $320 million in dividends from a loss-making entity.

Patch the hole. With surplus thinner, capital has to come from somewhere. In ANICO's case, the Texas Department of Insurance permitted a $560 million stop-loss reinsurance agreement from an affiliated Bermuda entity to count as admitted surplus. AEL goes further. Filings that briefly appeared online show $1.48 billion in admitted capital backed by an excess-of-loss contract written by a Hanover entity. The Hanover entity has booked zero reserves against it — its own accountants do not expect it to pay. Hanover's total capital surplus is $775 million. The backstop is booked larger than the backstopper. Across three AEL captive entities, similar mechanisms support $5.28 billion of capital. AEL's own filing states that without the captives, the insurance subsidiaries "would fall below minimum regulatory requirements."¹

Re-route the assets. Portfolio assets get reallocated into vehicles managed by the parent. $4.8 billion of ANICO's $20 billion investment portfolio has been rotated into Brookfield-managed vehicles. AEL is lending directly to Brookfield affiliates — $415 million to Brookfield Securitization CFO Inc., $165 million to BIP REU Holdings — policyholder money financing the parent's securitization and infrastructure arms.

None of these moves is individually illegal. State regulators signed off on each one. The question isn't whether any single step crossed a line — the question is whether anyone outside the asset manager (allocator, policyholder, regulator) is in a position to look at the composite structure after all four and say with confidence what it's actually worth.

There are two structural reasons I couldn't give my mother-in-law a clear thumbs up.

The two blockers compound. If I can't see the assets, I can't verify the marks. If I can't verify the marks, the capital number I'm being asked to trust is a number produced by the same asset manager that originated the paper, manages the portfolio, and influences the rating. Everything routes back through one counterparty.

Two oversight communities would normally price or enforce the underlying risk in a structure like this. Both are looking somewhere else.

The analysts covering Apollo, KKR, Brookfield, etc. are alt-asset-manager analysts. They model fee-related earnings and spread. The analysts who understand life insurance statutory filings cover life insurers — not alt managers. So the work falls in the gap between two specialist communities, and parent-company valuation ends up anchored to the narrative rather than the underlying solvency math. I don't think that gap is deliberate. I think it's structural. It's part of why this feels under-examined relative to the scale of the balance sheets involved.

Insurance regulation in the U.S. is organized state by state. Each state department has authority over the carriers domiciled there — and no meaningful access to what happens to ceded liabilities once they're offshore. Five states — Vermont, South Carolina, Delaware, Arizona, Iowa — have particularly permissive regimes for captive reinsurers and affiliated transactions. State insurance departments are, in most cases, understaffed and outgunned by the entities they're meant to supervise. That asymmetry isn't new. What's new is the scale and complexity of what PE-owned platforms have built on the other side of it.

The asset manager earns management fees on the insurer's capital when it's invested in parent-managed funds. It captures origination fees on paper sold into the insurer. It collects reinsurance commissions on blocks ceded to its own Bermuda affiliate. It charges advisory fees across the rotated portfolio.

It doesn't earn a fee on the long-dated promise at the base of the whole structure. That obligation stays with the insurer — a subsidiary whose investments, marks, and reinsurance are now all run by the parent whose fee stream routes through every one of those decisions.

The question any allocator or policyholder should probably be asking is straightforward: across the whole life of this promise, who is economically aligned with it, and who is being paid on everything that sits upstream of it?

The same observation has a visibility implication. The people with the clearest view of the structure — how the marks are set, what the offshore entity actually holds, what the reinsurance arrangements actually cover — are also the people collecting fees on the status quo. If a crisis were building here, it wouldn't be visible from outside. The best-placed observers would have every reason not to flag it.

So what do I tell my mother-in-law?

Two hours in the filings and I still don't know. I can walk her through what I read, though I suspect death by boredom would arrive before the first annuity payment.

I can tell her what I'd want to see and why I can't see it. I can explain that the product is a long-dated claim on an entity whose capital is progressively tied to decisions made by a single related party, and that the normal checks on that relationship (independent ratings, arm's-length reinsurance, transparent statutory filings) have each been relaxed in the specific structures that have grown fastest.

She asked me a good question. I couldn't answer it. Neither, as far as I can tell, can anyone else outside the asset manager.

More in future issues on how this plays out — the impact of regulatory changes, the Egan-Jones story, and what the credit cycle might do to these structures when spreads finally widen.

If there's a question you've been sitting on - whether it’s to do with an insurance product, structure or investment theme - send it over. Some of the best issues will come from readers asking things I haven't thought to ask yet.

Until then.

Charlie Evans, CAIA
Chief Investment Officer, Zephyros Investments

¹ https://mispricedassets.substack.com/p/the-hole
² https://content.naic.org/sites/default/files/capital-markets-special-reports-private-ratings-report-statement_1.pdf
³ https://www.bloomberg.com/news/articles/2025-11-06/egan-jones-probed-by-sec-over-its-credit-ratings-practices
⁴ https://www.youtube.com/watch?v=a7MM0UnQ4o4