America's safest retirement product moved offshore

It looks safe.

That's the point of it. A couple on a dock at sunset. Guaranteed income for life. Your money protected, whatever the market does.

Americans bought $464 billion of annuities last year. The fourth record year in a row. About 4.1 million of us turn sixty-five every year now, and most of us have no pension waiting. So we buy the guarantee instead.

I understand the appeal. My worry isn't the product.

It's what happens to the money after you hand it over.

You write the cheque to a US insurer with a state licence. Then, very often, that insurer signs your policy over to somebody else. The industry calls it ceding. Your insurer keeps your name and your paperwork. A different company takes the liability, and the assets behind it, onto its own books.

Last year US life insurers ceded $580.5 billion in premium. That's up 32.8% in twelve months. On the annuity line alone the figure was $278.1 billion, up 28.3%. Those are the regulators' own numbers, out of the NAIC's year-end report on the industry.

So where does it end up?

Offshore, mostly. Fitch counted $2.4 trillion of reserves ceded by US life insurers at the end of 2024, up from $1.3 trillion in 2020. More than $1.1 trillion of that now sits outside the United States — a 147% jump in four years. Bermuda took 84% of it.

The company named on your contract is not always the company holding your money.

The next part is the interesting one. AM Best found that nearly 70% of the reserves sent offshore go to affiliated reinsurers. The insurer is handing the risk to a company it already owns a piece of. And firms backed by asset managers or private-equity sponsors make up 46% of those affiliated deals.

The reason is not a secret. In a poll of insurance executives, 90% named capital efficiency as the main motive… which is the industry's way of saying the same promise costs less to back once it lives somewhere else.

Bermuda's rules are not America's rules. The Financial Stability Oversight Council said so directly: offshore reinsurers may be required to hold fewer reserves than US insurers, and that could erode policyholder protections.

So the promise stayed the same. The cushion behind it got thinner. And you never signed anything about that part.

I'm not telling you these companies will fail. Most won't. Bermuda's regulator brought in a prudent person principle and much wider asset disclosure in January. US regulators added a new asset adequacy test for ceded business. The Treasury started asking questions in May. People are watching.

But the plumbing under the safest product in American retirement changed shape in about five years, and it changed for reasons that have nothing to do with the person who bought it.

That's the part I keep coming back to.

Follow the accounting and the story gets stranger.

US life insurers earned $46.4 billion in 2025, against $35.5 billion the year before. A good year. The NAIC then names the largest single reason for the improvement, and it isn't selling more policies.

It's a line called reserve adjustments on ceded reinsurance. That line swung $100.6 billion in twelve months, from minus $8.0 billion to plus $92.6 billion. Alongside it, the commissions and expense allowances insurers collect for ceding business rose 54.9%, to $49.4 billion.

Meanwhile the actual business of selling indexed annuities ran an operating loss of $6.3 billion.

So the profit is arriving from moving liabilities around rather than from underwriting them. That works while there's somewhere to move them to. It's a strange engine to build a retirement industry on.

And here's where it spreads.

A life insurer used to be a boring bond fund with a sales force. Corporate bonds are still the biggest holding, at 55% of the long-term book. But look at what grew.

Schedule BA is the line where regulators park private funds, joint ventures and other holdings that carry no daily price. It now holds $411.2 billion, up 40.4% in five years. Mortgage loans reached $832.8 billion, up 30% over the same stretch. Asset-backed paper is 27.2% of the entire bond portfolio, and non-agency CLOs and their cousins take 6.6% of long-term bonds on their own.

Affiliated investments tell the same story from another angle. The industry held $231.4 billion of them in 2015. By 2024 the figure was $486.3 billion. More of the portfolio is now managed by people connected to the owner.

Bermuda's long-term reinsurance sector, on the other side of these deals, runs $1.52 trillion in assets and stands behind roughly 90 million policyholders worldwide. Its own trade body says 82% of the business it takes in comes from the United States.

None of this is illegal or hidden. It's disclosed in tables most people will never open.

Meanwhile, the other side of the balance sheet is getting busier.

Surrender benefits reached $487.6 billion last year. Set that against premiums and you get a ratio the NAIC tracks: 61.1%, up from 58.4% the year before and 43.9% back in 2016. Older contracts are coming out of their surrender-charge windows and holders are moving the money.

That's the tension. Liabilities that can walk out on short notice, funded increasingly by assets that need a buyer and a valuation before they turn into cash.

Money that can leave tomorrow, invested in things that take months to sell.

The referees have noticed. The NAIC named life reinsurer investment practices a strategic priority for 2026. Bermuda's regulator listed liquidity risk management as a supervisory priority for the same year and reviewed 76 solvency self-assessments. The IMF has written about contagion risk running through offshore reinsurance.

Three separate bodies looking at the same plumbing in the same year. That, on its own, is worth a second look.

Three more things worth keeping track of.

Electricity in the largest US grid market got 76% more expensive in a year. Monitoring Analytics, the independent monitor for PJM, put the total wholesale cost at $136.53 per megawatt-hour in the first quarter of 2026, against $77.78 in the same quarter of 2025. It's the biggest single-year rise that market has recorded, and capacity costs alone were up 398%. This month's capacity auction cleared at its price cap for the third time running. Sixty-five million people live inside that grid, and the monitor's own view is that the increases are not reversible.

European leveraged loans had their busiest quarter since early 2025, and almost none of it was new money. PitchBook's second-quarter wrap found the surge came from repricings, refinancings and maturity extensions rather than fresh lending. Average single-B loan spreads have fallen to levels last seen before 2008, with policy rates far above where they were then. New loan supply has been negative for years while CLO issuance keeps setting records… so the buyers are bidding against each other for a pool that isn't growing.

Dry bulk shipping went the opposite way from oil. The Baltic Dry Index sat near 2,000 points at the end of March. On July 20 it closed at 2,671, roughly a third higher, even with Chinese steel demand in its seasonal lull and crude falling week after week. Capesize vessels were earning close to $31,800 a day. Freight usually tells you something before the trade data does. We'll see.

Fred Carr had the best product on the shelf.

He ran Executive Life, out of Los Angeles. Through the 1980s it grew into the largest life insurer in California. It sold annuities and guaranteed investment contracts, and it paid more than anyone else did. If you were retiring in 1985 and you wanted certainty, Executive Life handed you more certainty per dollar than any competitor could.

He managed that because of what sat behind the promise.

Carr bought junk bonds. He bought them from Michael Milken at Drexel Burnham Lambert, and he bought an extraordinary quantity of them. Through the 1980s roughly 55% to 60% of the portfolio was high-yield corporate debt rated below investment grade. By the time regulators arrived, the state valued that pile of bonds at more than $6 billion.

The people buying those annuities never chose those bonds. They chose the guarantee.

The product was the safest thing on the shelf. The portfolio behind it was among the riskiest in the country.

Then Drexel went under and the junk market came apart. In April 1991 the California Insurance Commissioner seized Executive Life. It was the largest life insurance failure the United States had seen.

Around 300,000 policyholders were caught in it, roughly 180,000 of them in California. The commissioner sold the bond portfolio separately, to Altus Finance, a unit of the French bank Crédit Lyonnais, for about $3.25 billion. That left the insurance business standing without enough assets behind it.

So the payments were cut.

The GAO counted it two years later. 44,000 retirees received 70% of their monthly annuity for more than a year. These were people who had already stopped working. Some of them were structured-settlement recipients, accident victims living on a monthly cheque.

California then spent two decades in court over how the sale was handled. Its total recovery eventually passed $930 million. The retirees had lived through the shortfall long before that.

There was no warning label on any of it. The contract said guaranteed, and every word of that was true right up until the assets stopped covering it.

The promise was never the risk. The portfolio was.

We'll see.