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A Bridge from Private Markets to 401(k)s?

Posted on November 2, 2025 by No Author -

Those who deal in private market assets know that it can take years for such investments to pay off. And for good reason. It’s illiquidity, after all, that delivers the illiquidity premium. But some private market investors inevitably want to drink their wine before its time, so to speak, and cash-out early.

That’s where “secondaries” have become increasingly important. Partners—general and limited—in private equity (PE) funds can now find buyers for their stakes without waiting for an initial public offering. And managers of private credit funds (collateralized loan obligations, or CLOs) can now cull loans from their stacks without calling them in.

Secondaries can do more than make PE and CLO stakes more negotiable. They can broaden the appeal of PE and CLO investments. They might also expand the market for them. Could secondaries be the bridge that carries private assets into the defined contribution world? Do secondaries matter to the Bermuda Triangle strategy?

To learn more about secondaries, we turned to ChatGPT. It started by distinguishing between primary investments, secondary investments, and what it called “primary secondaries.”

RIJ: What are “secondaries,” and why all the fuss about them?

ChatGPT: “Primary secondaries” sit at the intersection of private-equity mechanics and investment-market evolution. Let’s unpack it step by step.

What “Primary Secondaries” Are

The term comes from private-equity (PE) and private-markets investing:

Primary investments: when a limited partner (LP) — say, a pension fund or endowment — commits fresh capital to a new private-equity fund at launch.

Secondary investments: when an investor buys an existing stake in a private-equity fund (or portfolio company) from another LP who wants liquidity before the fund winds down.

Now, a primary secondary (also sometimes called a GP-led continuation fund or a structured secondary depending on context) blurs that line:

It’s a new fund (a “primary”) created specifically to buy assets out of an existing fund (a “secondary”) — often led by the same general partner (GP).

In practice:

A GP nearing the end of an existing fund’s life creates a new vehicle to buy one or several portfolio companies from that old fund.
Existing LPs can either cash out (selling their interests) or roll over into the new structure.
New investors (the “primary secondary” capital) come in to finance the transaction.

So: Primary because it’s a new fundraise. Secondary because it’s buying existing assets.

Why All the Fuss: Market Demand and Liquidity Pressures

In recent years, private markets have become enormous and illiquid — and LPs need ways to get cash out before waiting 10–12 years for fund wind-downs.
At the same time, funds are taking longer to exit their portfolio companies (IPO and M&A markets are slower).
That combination makes the secondary market for private assets explode — it exceeded $130 billion in annual volume globally.

Within that, GP-led “primary secondaries” are the fastest-growing sub-segment because:

GPs can hold on to prized assets longer.

LPs get optional liquidity.

New investors get exposure to mature assets (with lower J-curve risk) at often discounted valuations.

Valuation and transparency concerns

Critics call them “financial engineering” or “optics games” — because GPs are both buyer and seller, setting prices between two related vehicles.
Hence the fuss: Are these fair-market transactions or a way to sidestep poor exits?
Regulators and investors worry about conflicts of interest, valuation transparency, and fee layering (the GP earning new fees on old assets).

Structural innovation

Defenders argue they align interests: LPs can choose liquidity or continued exposure, and great companies aren’t sold prematurely just to fit a fund’s time horizon.
Large institutional investors — Blackstone, Lexington Partners, Ardian, Coller, HarbourVest — now run multibillion-dollar secondary programs; many asset allocators view GP-led deals as a permanent fixture of the PE landscape.

Bottom Line

Primary secondaries are now a key innovation that helps private-equity firms manage liquidity in a high-AUM, low-exit environment.

They’re controversial because they blur the boundaries between buyer and seller, fee structures, and investor transparency.

Where secondaries enter the Bermuda Triangle

Although the word secondaries originated in the private-equity context, its logic—creating liquidity, redistributing risk, and recycling assets—now bleeds into the insurance-asset-manager ecosystem in a few ways.

Secondary trading of private-credit assets

Asset managers like Apollo, KKR, and Blackstone increasingly hold illiquid private-credit loans, CLO tranches, or structured securities inside their insurance portfolios.

As those assets season, they can be repackaged and sold to other investors — much like a secondary PE transaction — to free up capacity for new origination or to manage duration/risk.

These sales may take the form of secondary transactions in private-credit funds, loan portfolios, or CLO mezzanine tranches.

This secondary-market recycling helps maintain yield targets and liquidity within the Bermuda-Triangle loop — allowing the same families of entities to trade with each other or with outside buyers at current marks.

Secondaries in the fund-of-funds sense

The same alternative-asset managers that own insurers often run secondary private-equity or private-credit funds for institutional LPs.
Those vehicles can buy stakes in other private-credit funds — including, at times, portfolios that are similar to or even originated by the manager’s own insurance affiliates.
Thus, the secondary-fund business provides an exit and valuation mechanism for the illiquid credit/loan portfolios that back insurance liabilities.

Capital recycling / “NAV lending” hybrids*

Some Bermuda reinsurers and affiliated asset managers now use NAV-based financing (a cousin of secondaries) — borrowing against the net-asset-value of their private-credit portfolios to fund new annuity purchases or asset origination.

In effect, secondaries and NAV finance act as synthetic liquidity valves for the insurance-asset complex, allowing continuous growth without waiting for maturities or sales.

Conceptual fit: Secondaries as the Triangle’s new liquidity layer

Here’s how the mechanics align conceptually:

So, while the Bermuda Triangle is not about PE secondaries per se, the same structural logic applies:

Long-dated, opaque, illiquid assets require an aftermarket — a secondary layer — to keep the system liquid and expandable.

That’s exactly what “secondaries” provide: a way to re-price, recycle, and redistribute exposure without formal liquidation.

The strategic implication

The Triangle depends on ever-expanding balance-sheet velocity—annuities bringing in fresh liabilities, credit origination supplying assets, and reinsurers freeing capital.

Secondaries markets (private credit, CLOs, fund interests, NAV loans) are becoming the plumbing that lets that system keep spinning while appearing stable.

Regulators and rating agencies are watching this closely, because if those secondary valuations ever seize up (say, during a credit crunch), both the liquidity and reported solvency of the system could be tested.

Secondaries are to the modern Bermuda Triangle what repo markets were to pre-2008 banking —a critical but sometimes invisible layer of leverage and liquidity.

*NAV (Net Asset Value) lending is a form of fund-level financing where loans are secured by the value of a private equity fund’s investments rather than the uncalled capital commitments of limited partners (LPs). NAV-based credit facilities provide liquidity to private equity funds by allowing them to borrow against the underlying portfolio. With the growth of private equity as an asset class, the NAV lending market has expanded significantly, with transaction sizes increasing from millions to upwards of $1 billion in recent years.

Tax Cuts and Culture Wars Don’t Reduce the National Debt

Posted on November 1, 2025 by Eugene Steuerle -

The Treasury Department recently released its estimates of government spending, revenues, and the deficit for the fiscal year 2025, which ended on September 30. For those willing to look beyond political rhetoric, the data clearly show the severity of our budget crisis.

Non-wartime deficits relative to our national income at this level of low unemployment are at all-time highs, while debt as a share of national income will soon reach records, even surpassing what was needed to fight World War II.

The data also reveal why our budget choices reflect those of a declining economy. Very little in the largest spending categories is allocated to workers and their families, or to efforts that would promote upward mobility and wealth building for most individuals. [To learn about Steuerle’s latest book, Abandoned, click on image at right.]

Meanwhile, recent legislation and executive actions primarily focus on vulnerable constituencies rather than on the parts of the budget that continue to increase the national debt at unsustainable rates.

The deficit for 2025 hit $1.8 trillion, roughly the same as in 2024. At six percent of GDP, it’s unlike anything we’ve seen during times of relative prosperity. For example, from 2013 to 2019, after the initial recovery from the Great Recession, the deficit was at 3.4 percent.

Remember, a non-recessionary deficit of 3.4 percent is already unsustainable because it doesn’t provide enough resources to handle a recession or emergency. The COVID-19 and post-COVID-19 years clearly show this failure, as the debt-to-GDP ratio surged and continued to rise afterward. Budget deficits have been a concerning trend throughout this century, and the situation has only gotten worse.

The largest spending categories in the budget are Social Security and Medicare, other health care expenses (mainly Medicaid and Obamacare), interest on the debt, and defense (see graph above). The first four have been increasing automatically—that is, without new appropriations—at a very rapid pace. Meanwhile, Congress has been enacting significant increases in defense (the fifth-largest item) and veterans’ benefits.

Even with those increases, the interest on the debt surpassed defense spending for the first time in U.S. history only last year and this year. The other items in the budget have been growing at a much slower rate than our national income and, in some cases, have not increased at all in real terms.

So what did Congress and the President do this year? They reduced income taxes while passively allowing the President to offset some of those cuts with tariffs. Regardless of their constitutionality, tariffs imposed whimsically by the President are a highly inefficient, price-increasing source of revenue. They often decrease the international competitiveness of the very industries they claim to support.

On the spending side, Congress and the President focused on government employees, foreign aid recipients, and other smaller budget items.

The only exception was the cutback in health programs other than Medicare, with some reductions in the growth rate for Medicaid and Obamacare exchange subsidies. A significant portion of those cuts will affect lower-income beneficiaries. While controlling government health spending is necessary, it won’t be effective if it targets only those groups.

Additionally, many beneficiaries will likely visit emergency rooms more often, and hospital administrators will probably find ways to pass those costs onto you through higher insurance charges.

Once again, I urge you to look at the graph. Is this the kind of government you support? Are you comfortable passing so many costs onto future taxpayers, including any children and grandchildren you might have? Do you agree with spending priorities that largely ignore working families?

Do you approve of how the government has responded this year with tax cuts that further fuel unsustainable deficits and debt? Do you support cultural warfare and attacking vulnerable groups in small parts of the budget rather than focusing on the broader policies that address how the government collects and spends your money?

Lastly, are you willing to give up something now to free up resources for something better in the future?

Data Connection

Posted on November 1, 2025 by No Author -

The Bucket

Posted on October 31, 2025 by Editorial Staff -

Record 3Q2025 annuity sales led by fixed deferred products

U.S. annuity sales totaled $119.3 billion in 3Q2025, a new quarterly sales record in the third quarter of 2025, according to preliminary results from LIMRA’s U.S. Individual Annuity Sales Survey, which represents 89% of the total U.S. annuity market.

At $345 billion (up 4% YOY), annuity sales in the first three quarters of 2025 were the highest ever recorded for the first nine months of any year. Sales have exceeded $100 billion for eight consecutive quarters.

“Although the Federal Reserve’s expected interest rate cuts will likely dampen fixed annuity sales gains, LIMRA is projecting annuity sales to surpass $450 billion in 2025,” said Bryan Hodgens, senior vice president and head of LIMRA research, in a release.

“Registered annuity products – traditional variable annuities and registered index-linked annuities – posted double-digit growth, contributing to the overall growth in quarterly sales. Despite continued market volatility, the equity market’s overall performance attracted investors looking to counter persistent inflation,” he added.

Sales by annuity segment

Registered index-linked annuity (RILA) set a new quarterly sales record of $20.6 billion in 3Q2025, up 20% YOY and 10x their sales a decade ago.
Traditional variable annuity sales were $16.7 billion in the third quarter, up 11% year over year.
Total fixed-rate deferred annuity (FRD) sales were $41.7 billion in the third quarter, 3% higher than third quarter 2024 sales.
Fixed indexed annuity (FIA) sales fell 6% YOY to $33.2 billion in 3Q2025.
Single premium immediate annuity (SPIA) sales rose 6% in the third quarter, to $3.7 billion.
Deferred income annuity (DIA) sales were $1.3 billion in the third quarter, down 5% year over year.

Alight to offer MetLife income annuities to 12m DC participants

MetLife, Inc., and Alight, Inc., are partnering to put MetLife’s institutional income annuities on the Alight Worklife platform, which serves nearly 12 million defined contribution (DC) plan participants, an October 29 Alight release said.

Alight’s plan sponsor clients will have access to MetLife’s Guaranteed Income (MGI) fixed immediate annuity and Retirement Income Insurance (RII) QLAC, a fixed deferred income annuity, within their DC plans. Participants will be able to purchase these solutions and convert a portion of their savings into predictable monthly income.

The collaboration complements Alight’s partnership with Goldman Sachs Asset Management, L.P. (GSAM). GSAM will serve as a sub-advisor in the Alight Financial Advisors (AFA) Defined Contribution solution.

AI tool for researching annuities launched by Agatha Global Tech

Agatha Global Tech (AGT) has launched GrantAI on its flagship platform, Annuities Genius. The artificial intelligence-driven process will allow advisors to research, compare, design, and communicate personalized annuity recommendations through a single conversational interface, according to a release and new whitepaper.

The tool gives advisors access to more than 2,000 products and instant quotes for more than 250 income riders. The AI capability assists with product matching, visualization, and documentation. The founder and CEO of Agatha Global Tech is David Novak.

GrantAI is powered by AGT’s proprietary data infrastructure, connected to the calculators, comparison, simulation, and illustration tools of Annuities Genius. For example, in searches for fixed indexed annuities, the AI allocator instantly optimizes allocation plans, explains rationales, and generates supporting materials.

NAIC, ACLI differ over public disclosure of insurers’ risk-based capital ratios

A proposal to limit disclosures of insurers’ risk-based capital (RBC) ratios by a joint task force of the National Association of Insurance Commissioners (NAIC) is inconsistent with the life insurers’ trade association’s preference for transparency.

The RBC issue will be discussed further at a Nov. 19 NAIC online meeting.

In March, the NAIC’s Capital Adequacy and Risk-Based Capital Model Governance task forces proposed prohibiting any publication, dissemination or circulation of RBC levels. Some regulators have said that RBC levels don’t provide clear or meaningful ways to rank insurers, according to AM Best.

But the American Council of Life Insurers (ACLI) has objected that limitations of RBC disclosures could result in a “significant lack of transparency” into an insurer’s financial health and complicate validation of RBC-related information for rating agencies, investors and reinsurance. The ACLI said regulators should promote strengths of the RBC system rather than highlight its weakness.

“RBC is no longer solely used to ‘identify weakly capitalized companies,'” the ACLI wrote to regulators. “It is now part of a complex solvency assessment and regulatory framework that includes other tools like the own risk solvency assessment and liquidity stress testing that support efforts to assess capital adequacy and risk management.”

Axonic Insurance gets $210 million from new investors

Posted on October 31, 2025 by Editorial Staff -

Axonic Insurance, an annuity and insurance platform that facilitates annuity/alternative asset/offshore reinsurance strategies, has received a $210 million preferred equity investment led by LuminArx Capital Management (LuminArx) and Deutsche Bank.

The investment from LuminArx and Deutsche Bank “will support Axonic Insurance’s continued growth across retail and institutional distribution channels while also enabling it to further accelerate technology development and enhance product servicing capabilities,” a release said.

Axonic was the subject of an April 2024 article in RIJ. “We’re decomposing the insurance industry into its parts,” Axonic Insurance CEO Michael Gordon (pictured above left) told RIJ at that time. “We want to make Lego sets, and put pieces together.”

According to a 2024 press release, “Axonic Insurance works closely with institutional partners to design, manufacture, and distribute fixed annuities on a global basis. In addition, Axonic Insurance provides investment advisory services for insurance-company general account portfolios.”

Axonic Insurance is wholly owned by Axonic Capital, a $7 billion New York-based alternative investment manager founded in 2010. The firm specializes in structured credit, commercial and residential real estate debt and equity, and systematic fixed income.

Axonic Insurance is licensed in all 50 states and the District of Columbia to sell annuities issued by non-affiliated, Oklahoma-domiciled AmFirst Life. Axonic has created an affiliated life insurer, Texas-domiciled Axonic Annuity and Life Insurance Company. But Axonic said that its new Texas insurer has no immediate plans to issue annuities.

Axonic Insurance also sees potential for the sale of annuities globally. Its affiliated underwriter in the Cayman Islands, Axonic Insurance Company SPC, is licensed to issue annuities outside the U.S. Those products are serviced by Axonic Services LLC, a Puerto Rico LLC.

Linking the capabilities of Axonic Capital, AmFirst Life, and an offshore life insurer, Axonic Insurance has all three capabilities required for the business model that RIJ has called the “Bermuda Triangle,” but out of the Cayman Islands instead of Bermuda. It provides those capabilities for its parent and in the role of a “business process outsourcer” for others.

But an Axonic Insurance spokesperson told RIJ that its business model relies less on transactions with affiliates and less on offshore “regulatory arbitrage” than a pure Bermuda Triangle strategy, where asset manager, life insurer, and offshore reinsurer are all in the same holding company and take advantage of Bermuda’s flexible capital requirements.

Instead, almost all of Axonic’s annuities will be issued by an unaffiliated insurer (AmFirst Life), Axonic told RIJ. It also uses third-party asset managers in addition to its parent, Axonic Capital, and its Cayman-based life insurer maintains stringent U.S. RBC (risk-based capital) standards instead of local capital standards.

Third Point Joins the Triangle, Cayman-Style

Posted on October 30, 2025 by Kerry Pechter -

Daniel S. Loeb, the billionaire CEO of asset manager Third Point Investors Ltd., is all-in on the arbitrage that RIJ calls the “Bermuda Triangle.” That’s the synergistic linking of U.S. annuities, private credit, and offshore reinsurance.

Loeb is a latecomer to a semi-mature, crowded, interest rate-sensitive, complex business. It’s a business that has drawn scrutiny from U.S. and global regulators. Presumably, he knows all that. In little over a year, Loeb and his team have:

Turned their Hudson Yards-based closed-end fund into a London-listed insurance holding company
Bought Birch Grove, an $8 billion private-credit investment shop
Established Malibu Life Re, a reinsurer in the Cayman Islands
Acquired a Texas-domiciled U.S. life insurer
Hired a veteran Cayman reinsurance executive to run Malibu Life
Agreed to provide “flow reinsurance” to an unnamed “blue-chip annuity platform”
Secured equity commitments from Voya and its ReliaStar unit
Prepared to issue a fixed deferred annuity in the U.S. in the first half of 2026

Loeb’s main departure from the Bermuda Triangle template involves choosing the Cayman Islands instead of Bermuda as Malibu’s headquarters. [See Malibu Re’s recent investor presentation.]

Otherwise, he’s following the playbook written by Apollo/Athene, KKR/Global Atlantic, Brookfield/American Equity, etc. Like them, Loeb has set up the pure version of the Triangle. It can issue and reinsure it own fixed deferred annuities offshore, do “block” or “flow” reinsurance for others, dabble in pension risk transfer (PRT) deals, originate private debt and sell tranches of bundled high-risk loans to its own insurer.

Hiring seasoned experts

Key staffers in the new venture include Loeb, Robert Hou, and Gary Dombowsky. Loeb, 63, is not a direct descendant of the founders of the investment firm Kuhn, Loeb & Co. (which lasted from 1867 to 1984). His father, Ronald, was a director and briefly president at Mattel. His great-aunt, Ruth Handler, created Mattel’s Barbie doll.

A 1984 economics graduate of Columbia, Loeb worked in distressed debt and high-yield bonds as an executive at Jeffries LLC and Citicorp, respectively, in the early 1990s. He started Third Point Management in 1995 “with $3.3 million from family and friends.”

Robert Hou, who will serve as Malibu’s COO, joined Third Point in 2021 from Blackstone’s Insurance Solutions Group. He had helped launch that group, which now manages hundreds of billions of dollars in insurance company assets. In 2023, Loeb hired Christopher Taylor, CEO of private credit specialist Apogem Capital, to lead Third Point’s private credit team. Last month, three former Apogem private credit professionals joined Third Point, Bloomberg reported in October.

Gary Dombowsky

For experience running a reinsurer in the Cayman Islands, Third Point hired Gary Dombowsky as CEO of Malibu. Dombowsky had co-founded Knighthead Annuity & Life with $230 million raised from 30 investors in 2014. His co-founder, Nate Gemmiti, is now CEO of Cayman-based Triangle upstart Ibexis Life & Annuity.

In October 2020, Dombowsky and Gemmiti founded the Cayman International Reinsurance Companies Association (CIRCA). The two had a shared history at Scottish Re’s since-defunct reinsurance operations (later bankrupt) in the Cayman Islands. Dombowsky left Knighthead and joined Malibu this year.

Third Point’s makeover

In its new organization, Third Point owns all of Malibu Holding, which owns all of Malibu Life Re and TruSpire. Malibu Life Re owns all of Malibu Life Re Segregated Portfolio 1.

TruSpire, which Third Point last month announced plans to acquire from Mutual of America by early 2026 for about $45 million. The life B++ insurer is licensed in 44 states. It’s a member of the Federal Home Loan Bank, a key lender of low-cost funds to Bermuda Triangle companies.

Malibu Re’s target asset class mix. Source: Third Point Investors Presentation, July 2025.

Mutual of America had acquired Landmark Life in October 2023 and renamed it TruSpire with the intent of selling fixed index annuities and competing for PRT deals. AM Best gave TruSpire an a- (Excellent) rating two years ago but updated that to bbb+ (Good) and “under review with developing implications” after the Malibu Re deal.

Malibu Life Holdings, at last notice, has been more or less an address in George Town, Grand Cayman. It has so far outsourced most of its functions; its local management and Cayman residency requirement is furnished by a Cayman company, Artex (Artexrisk.com).

Malibu Life Re has already reinsured $981 million in annuity liabilities (on a 25% quota share, funds-withheld coinsurance basis) for an unnamed “blue-chip” U.S. annuity platform that was established in 2020. There’s an estimated $2 billion more in that pipeline.

Voya is also in the picture, as an investor, and possibly more. Voya Retirement Insurance and Annuity and Voya-unit ReliaStar Life Insurance Company both agreed last July to buy up to $25 million in ordinary shares of Malibu.

Is Voya Malibu’s anonymous blue chip reinsurance partner? A Voya spokesperson offered a “no comment” response.

Malibu’s acquisition of private credit specialist Birch Grove, which raises Third Point’s total AUM to ~$21 billion, should give Third Point new expertise in finding borrowers, originating leveraged loans and bundling the loans into collateralized loan obligations (CLOs).

From Third Point Investors presentation

Malibu’s prospectus included this statement about its investment philosophy: “For assets backing reserves, Third Point will invest predominantly in high quality fixed income securities with robust cash flow modeling to match liability cash flows which prioritizes income and preservation of capital and mitigates market risks. For surplus assets, Third Point will invest prudently in return-enhancing assets while considering their volatility and impact on Malibu’s capital.”

[This approach may strike readers as counterintuitive. Unlike, say, the salt line between a river and the sea it empties into, there’s no clear line in an insurer’s general account between surplus assets and reserve assets. The capital and surplus are simply the excess of assets (what others owe the insurer) over liabilities (what the insurer owes others). As a rule, practitioners of the pure Triangle strategy (e.g., Apollo and KKR) minimize their surpluses and maximize their “return-enhancing” assets. On its face, Third Point’s stated investment strategy sounds prudent—but potentially inconsistent.]

Why Third Point rushed into the Triangle

In 2024, Third Point’s back was to the wall. Its flagship closed-end fund was trading at a 20% discount. Investment returns were lagging the benchmark. Its investors were restless. In August 2024, Loeb created a team to brainstorm a corporate reboot.

Loeb’s decided to do a “reverse takeover” that would turn Third Point into London-listed Malibu Life Holdings and clone the Apollo/Athene insurance strategy. That proposal didn’t please all the investors, who marshalled opposition to it.

One Third Point investor told the Financial Times in August 2025 that the proposed business was a latecomer in a crowded field. “Every alternative asset manager now has some sort of reinsurance or insurance client,” said Tom Treanor of Asset Value Investors, part of the investor group opposed to the takeover.

But Loeb, a 25% owner of Third Point, was able to get the 50% vote he needed to push the plan through. Rupert Dorey, chair of the board of Third Point Investors, told the Financial TImes, “The board is confident it has found that balance through a thorough, transparent and independent process, and on behalf of shareholders is genuinely excited by the potential within Malibu.”

Even if Loeb is a latecomer to the party, the party may be getting much bigger. In an August executive order, President Trump blessed the distribution of private credit, crypto, and annuities through 401(k)s. There’s about $9 trillion in U.S. defined contribution plans, and trillions more in other retirement vehicles. Whether regulators will remove all barriers to the distribution of alternative assets through qualified plans remains to be seen. BlackRock, Apollo and Empower are campaigning to make sure they will.

What could spoil the party? A couple of things. Changes in interest rates could affect revenues from the sale of fixed deferred annuities, which play a critical role in financing the loans that asset managers bundle into collateralized loan obligations (CLOs). Higher rates, as we’ve seen, make fixed-rate annuities more attractive. Lower rates—which President Trump has demanded—boost equity prices, which boosts the crediting rates of fixed index annuities. The Fed has lowered rates by a quarter-point twice this year.

Legal arbitrage—between state/federal regimes and onshore/offshore regimes—is also essential to the success of the strategy. Any new regulations that shrink the benefits of offshore reinsurance or spoil the internal synergies of the pure Triangle strategy (where counterparties are sometimes closely-affiliated rather than at arm’s-length) could hurt the trend. In any future Democratic administration, the Labor Department may try (again) to reclassify FIAs as securities, or to put regulatory hurdles between them and qualified plans.

Of course, a big credit crisis would wreak havoc with CLO valuations.

How Life Insurers Changed Alt-Asset Managers

Posted on October 3, 2025 by Kerry Pechter -

The secret to successful asset management, one hears, is to acquire other people’s money at low cost and hold onto it as long as possible (keeping it “sticky”). If so, the business of gathering funds by selling long-dated fixed indexed annuities to Boomers should be ideal.

Since the mid-2010s, the biggest “alternative-asset managers,” or AAMs—Apollo, KKR, Blackstone, etc.—have entered the annuity business and used it to finance their private credit operations. Leveraged with offshore reinsurance, it’s a model RIJ has called the “Bermuda Triangle” strategy.

New research from Harvard Business School shows just how successful this strategy has been for the AAMs. From 2014 to 2024, “total AUM of publicly listed AAMs grew five times, from $1.1 trillion in 2014 to $5.5 trillion… [and] $2.5 trillion in credit-focused AUM, almost ten times what they had in 2014.”

The paper, “Permanent Capital Meets Private Markets: The Transformation of Alternative Asset Managers,” documents the “structural change” in the “funding architecture” of 11 publicly-listed AAMs with assets under management of $100 billion or more as they bought, started, or partnered with life/annuity companies.

RIJ’s reporting has focused since 2020 on the way the AAMs’ money changed the life/annuity business. In their paper, Harvard economist George Serafeim and three analysts from State Street Global Advisors show how the life insurers’ money changed the AAMs.

From their perspective, the AAMs needed access to the life insurers’ general account assets because their existing sources of deal capital were shrinking. From RIJ’s perspective, life insurers were weakened by the Great Financial Crisis, regulation and the Fed’s ZIRP policy. AAMs supplied them with cash and investment expertise.

“The appeal of insurance products to AAMs can be understood based on the limitations of existing fund-raising avenues, product scope, and market valuation,” the paper said. “Closed-end private-equity and private-credit funds require periodic vintages, each preceded by a marketing cycle and followed by distributions that return capital to limited partners.”

That was a Sisyphean model. “This episodic model obliges general partners to remain in quasi-permanent fund-raising mode and subjects fee momentum to macro-cyclical investor sentiment,” the authors found. “Life insurers, by contrast, collect policyholder premiums continuously; fixed and fixed-indexed annuities alone generated roughly $280 billion of new deposits in the United States during 2024.”

The authors divide the 11 big AAMs into three categories, heavily, lightly or not at all invested in the insurance business. Apollo (affiliated with Athene), Brookfield (with American Equity Investment Life), and KKR with Global Atlantic, were the three most heavily invested.

The paper show how the AAMs directed insurance funds into private credit:

Following Blackstone’s insurance deals, year-over-year AUM grew by ~$260 billion; $104 billion of that was an increase in credit strategies.
For Apollo in the three years following the merger with Athene, AUM grew by more than $250 billion. Credit AUM grew by ~$200 billion during that period.
For Ares, following the founding of Aspida, AUM grew by more than $300 billion, with credit AUM growing by ~$200 billion. F
For Carlyle, following the Fortitude Re deal, AUM grew by about $200 billion, with $150 billion attributed to credit strategies.

There’s a downside to the insurer partnerships for publicly-held AAMs, the paper points out. “Public markets assign lower valuation multiples to insurance-integrated AAMs,” the authors write. “Insurance integration requires navigating solvency regulation, asset–liability management, and complex capital structures. Cross-border reinsurance arrangements introduce opacity, and the commingling of fee and spread businesses raises questions around governance, risk appetite, and cultural fit.”

The complexity of the Bermuda Triangle strategy stems in part from its use of regulatory arbitrage. The AAMs are SEC-regulated. The insurance companies are state-regulated. The reinsurers are in Bermuda or the Cayman Islands. The strategy allows the AAMs to sell investment-like products under state supervision and to use Bermuda accounting standards to manage down the capital requirements that can make annuities a tough business.

We should clarify what we mean by “investment-like products.” There’s a misconception about today’s most popular annuities that the HBS paper doesn’t correct. The AAMs don’t sell the sort of traditional annuities that people buy in their 60s for income in retirement. Instead, they mainly sell fixed deferred or options-based fixed indexed annuities with guarantees against loss. Most people buy them for yield, not income.

The AAMs have not so much embraced “your grandfather’s” life insurance business as they have helped complete its evolution into an annuity business and then into an investment business—a process that began decades ago.

A Look at Nine RILA Income Riders

Posted on October 3, 2025 by Kerry Pechter -

Registered index-linked annuities (RILAs)—structured products introduced by large life/annuity companies over the past 15 years—were originally marketed as sophisticated, conservative savings vehicles for people in their 40s or 50s.

That original target market is now approaching retirement. It’s little surprise, then, that nearly half of the 20 principal issuers of RILAs have taken the next logical step and equipped their contracts with lifetime income riders. Demand for such riders has so far been modest but promising.

Sales of first half of 2025. Source: LIMRA.

“Most fixed index and RILA contracts are being bought without a GLB (guaranteed living benefit),” said Bryan Hodgens, senior vice president and head of LIMRA research, last year. “However, in recent quarters we have seen a slight uptick in consumers buying the GLB rider on FIAs and RILAs.”

In this issue of RIJ, we examine the income benefits on RILAs from nine insurers: the six largest RILA sellers (Equitable, Allianz Life, Prudential, Brighthouse, Lincoln, and Jackson) along with Principal, Pacific Life, and TruStage (part of CUNA Mutual Group).

Rather than dissecting each rider—the details can be numbing—we asked a simple question: If a single man bought a RILA with an income rider at age 65 and waited eight years (until age 73, when the IRS begins requiring annual distributions from tax-deferred accounts) to activate his guaranteed lifetime income stream, what would his annual payout rate be?

We were particularly interested in the deferral bonuses: the annual increases in either the payout rates or the benefit base (a notional minimum accumulation amount) that issuers use to encourage contract owners to delay withdrawals. These often stop after 10 years and may be subject to waiting periods.

Source: Issuer websites.

Column four shows the annual deferral bonus on each rider. Two issuers (Brighthouse and Equitable) offer “roll-ups” (percentage increases of 5% and 7%, respectively) to the benefit base during the eight-year deferral period. Equitable’s roll-up applies to any annual gain in the contract’s value, while Brighthouse’s provides the greater of the roll-up or the actual gain.

Roll-ups were popular in the early 2000s but often confused buyers. Many mistook increases in the benefit base for guaranteed increases in their account value—essentially “free money.” In reality, the cash value remained exposed to market risk, while the benefit base was simply a notional figure used to calculate income payments.

Source: FRED, Federal Reserve Bank of St. Louis.

The other seven income riders instead offer annual increases in the payout rate for each year income is deferred. For example, if the payout rate is 6% at age 65 and the deferral bonus is 40 basis points, the payout rate at age 73 (after an eight-year delay) would be 9.2% (6% + 8 × 0.40%).

Clients may not realize that deferral bonuses aren’t giveaways. They cost issuers nothing. The higher payout rate simply reflects the fact that the owner is older, and thus expected to collect payments for fewer years.

The far-right column of the chart highlights three riders that allow contract owners to fine-tune their payout at age 73. Allianz Life, for example, offers either a fixed payment equal to 10.10% of the account value or a lower initial payment (8.8%) based on an account value that continues to grow. The trade-off: the RILA effectively converts into a fixed indexed annuity, with reduced growth potential.

Making apples-to-apples comparisons of these riders is nearly impossible. Final payouts depend not only on market performance but also on the indexes chosen, the issuer’s crediting formulas, and the buffers or floors that limit potential losses.

Like FIAs, RILAs are structured products that generate yield through call options on equity indexes. FIA returns might range from 0% to 5%, while RILA returns can range from –10% to +10% or more.

As a rule, annuities with income riders have less upside potential than those without them. Rider fees drag on performance, and the guarantees require risk-management costs that further dampen yields.

In reviewing payout rates, I wondered how today’s RILA income benefits compare with the generous guaranteed lifetime withdrawal benefits (GLWBs) attached to variable annuities (VAs) in the early 2000s. Those riders fueled hundreds of billions in VA sales, but the 2008 crash and subsequent low interest rates exposed their risks, driving up costs and making them unsustainable.

Several of today’s leading RILA issuers were also major VA/GLWB providers 15–20 years ago (or are their corporate successors). It’s unclear whether RILA income riders are more conservative, but RILA returns are generally less volatile than VA returns—an important factor that should make the costs of RILA riders more predictable and manageable.

Data Connection

Posted on October 2, 2025 by No Author -

Gold, Not Tariffs, Saved the 1890s

Posted on October 2, 2025 by Kerry Pechter -

Yes, President William McKinley was a tariff-championing Republican. Yes, Congress passed several tariff bills in the 1890s. And, yes, the U.S. enjoyed an economic boom in the second half of the 1890s—a relief from the depression of 1893.

But neither McKinley nor the tariffs can take credit for enabling the U.S. to close out the 19th century on a high economic note and enter the 20th century—the American Century—as a global dynamo.

No. Historians attribute the boom to:

Discoveries of gold in Alaska, the Yukon, and South Africa in the mid-1890s
The Spanish-American Wara, declared and ended in 1898

Last April 2, “Liberation Day,” President Trump announced dramatic new tariff levies on most of the countries of the world, including America’s closest trading partners. He effectively put an end to our 30-year experiment in unfettered free trade and “globalization.”

The following day, the U.S. stock market dropped 10%. Global confusion ensued as leaders of Canada, Mexico, Germany, China, Japan and Vietnam, to keep the list short, struggled to figure out how their export-driven economies would be affected.

Why tariffs?

President Trump claimed that William McKinley, president from 1896 until his assassination in 1900, had employed tariffs to raise revenue, protect domestic industries from cheap foreign competition, and stimulate the U.S. economy.

He argued tariffs could drive foreign direct investment into the U.S., revive U.S. manufacturing, and reverse America’s huge trade deficit (in goods, not services) with the rest of the world—and that they could juice up the U.S. economy today.

This week, as some of the tariffs announced last April are scheduled to take effect, a hunt for a historical basis for bringing tariffs back won’t turn up much. While tariffs were a major political football after the Civil War, there’s no good evidence that they turned the U.S. economy around after the Crash of 1893.

Here’s Doug Irwin, a tariffs expert at Dartmouth, writing in an April 2000 National Bureau of Economic Research paper, Tariffs and Growth in Late Nineteenth Century America.:

“The U.S. experience in the late nineteenth century is often appealed to as evidence that high tariffs can prove beneficial to economic growth and development. Upon closer scrutiny, it is difficult to establish this claim.”

America’s Second Gold Rush

Most Americans probably remember reading about the gold rush of 1849, after the precious metal was discovered at Sutter’s Mill in California. Less discussed is the gold rush of 1896, when gold was discovered at Bonanza Creek in Alaska’s Klondike, in Canada’s Yukon, in South Africa, and in Australia. The flood of gold enriched not just lucky miners but entire countries.

At the time, a country’s gold reserves formed the basis for the quantity and value of its currency. And in the early 1890s, when panicky British investors were selling off their U.S. holdings, literal boatloads of gold were floating away from the U.S.

There’s widespread agreement among economic historians that gold from Alaska and elsewhere, which the U.S. Treasury bought with newly issued “gold certificates,” was a dominant factor in pulling the U.S. out of the long post-Civil War deflation—a reversal of the inflation associated with the war.

The record is unanimous on that point. And largely silent on tariffs.

Milton Friedman, the Nobel laureate in economics, wrote in his 1963 classic, A Monetary History of the United States, 1857–1960 (p. 91), referring to the campaign by William Jennings Bryan and Western farmers to have silver supplement the American gold reserves, which could increase the money supply and reverse the deflation that held down wheat and corn prices.:

Placer miner panning for gold in Klondike

“The secular decline from the 1860s almost to the end of the century… was reversed in the 1890s by the fresh discoveries of gold in South Africa, Alaska, and Colorado, combined with the development of improved methods of mining and refining. After 1897, ‘cheap’ gold achieved the objectives that had been sought by the silver advocates.”

The discovery of gold ended the farmer’s quest for “bimetallic” backing of U.S. paper money. Here’s Ron Chernow in his 1990 National Book Award–winning biography of J.P. Morgan:

“The Yukon gold rush and gold strikes in South Africa and Australia helped expand the U.S. money supply and led to higher prices. The bitter deflationary politics of the late nineteenth century subsided.”

The nation’s money supply, and its creditworthiness, depended on its stock of gold, and the fact that foreign creditors could redeem dollars for gold contributed to a massive outflow of gold after the confidence-shattering crash of 1893. In the West, farmers believed silver could back dollars and lift the money supply. The U.S. Treasury and New York bankers contemplated floating bonds to buy gold.

Gold strikes in Alaska and elsewhere rescued farmers and bankers alike. It was not a case of deus ex machina; the pre-Klondike global shortage of gold incentivized a worldwide search for the precious metal (throughout history the preferred method for paying mercenaries and settling international debts) and stimulated the development of more efficient refining methods. Starting in 1896 on (see chart below) the U.S. gold supply did nothing but grow. For most of the previous decade, gold stocks were falling and the U.S. suffered from deflation.

The War with Spain

The tariff debates of the 1880s and 1890s were not unrelated to the gold issue. The common denominator was deflation and falling prices. Democrats touted low tariffs as the solution, while Republicans saw higher tariffs as the remedy. But tariffs were a sideshow. The real problem was the Treasury’s shortage of gold. As Irwin writes:

“The country’s monetary policy under the gold standard, not the tariff, was responsible for the deflation of this period.”

Then came the four-month war with Spain in 1898, which “brought a wave of prosperity… ‘After war will come the piling up of big fortunes again; the craze for wealth will fill all brains,’” wrote economic historian Joseph Dorfman in The Economic Mind in American Civilization, Vol. 3 (p. 230), quoting contemporary observer William Dean Howells, editor of The Atlantic Monthly.

Teddy Roosevelt leading ‘Rough Riders’ in Cuba, 1898

Tariffs were also cousins to the noisy, brief war in Cuba. The common denominator in this case was sugar. Tariffs on sugar provided steady revenue for the U.S. Treasury, but on-and-off tariff policy on sugar in the 1890s created a boom-bust cycle in Cuba, the site of U.S.-owned sugarcane fields and the main source of raw sugar for U.S. refiners.

Economic instability helped spark the Cuban War for Independence from Spain. Spain began burning sugar plantations. The U.S. intervened, Teddy Roosevelt and his Rough Riders took possession of Cuba, and U.S. refiners ended up in control of Cuban sugar (and Cuban politics) until the 1959 communist revolution, led by Fidel Castro.

Victory over Spain gave the U.S. dominion over not just Cuba but also the Philippines. Almost overnight, the country became a global power, with new commitments and opportunities in Asia. American exports later helped European countries fight (and recover from) World Wars I and II, and the U.S. became the world’s biggest creditor nation. Today, we’re the world’s biggest debtor.

Paradoxically, that makes us rich. Much of the world’s savings is parked here. We can afford to run a large trade deficit because we’re wealthy, because everyone everywhere gladly accepts dollars, and because foreigners recycle their export-earned dollars back to the U.S. by investing here or buying our Treasuries.

New U.S. protective tariffs, or even the threat of tariffs, aren’t likely to reverse that mega-trend. The Trump tariffs appear to be bargaining chips for deals he’s making on the side. McKinley could never have imagined that.

Private credit, reinsurance top the news

Posted on September 3, 2025 by Editorial Staff -

Bond analysts see pros and cons of alternatives in 401(k)s

In an August 29 new research brief, “Private Credit: Making the Most of 401(k) Democratization,” bond analysts at KBRA analyzed the potential impact of President Trump’s August 7 executive order “to potentially ease regulatory barriers that have limited defined contribution (DC) retirement plans’ access to alternative investments,” including private credit.

“Access to alternatives is already a common and growing feature in the retirement accounts of defined benefit (DB) plan savers (typically government employees and legacy corporate pension beneficiaries),” the analysts wrote. “This democratization seems profoundly fair, given that alternative investments have historically outperformed comparable public market options, on average.”

But they saw potential dangers in democratization.

“Regulatory Scrutiny: The Department of Labor and the Securities and Exchange Commission (SEC), will likely spend significant time monitoring how alternative investments are being democratized. …Over time, the probability of additional regulation is high.

Missteps: The first AAM that falls short of performance expectations—or the inevitable bad actor—may face litigation, which could engender pushback against the entire industry. This will create additional regulatory scrutiny, headline risk, or a negative perception of alternatives.

Buyer Beware: Fund-level liquidity [of alternatives] is often limited to match asset-level liquidity by some form of gating or redemption deferral mechanism. This differs from most public market funds. …Additionally, fees for alternative investment vehicles are higher in most cases.”

Via KBRA.

Private credit funds attract revenue at record pace

The Financial Times reported on September 2 that “Affluent individual investors in the US have pumped $48bn into private credit funds in the first half of this year,” and could surpass “the highwater mark of $83.4bn set last year, according to investment bank RA Stanger.”

“The inflows underscore the growing importance major private investment groups are now placing on individuals, with analysts at rating agency Moody’s calling it ‘one of the biggest new growth frontiers in the industry,’” the Times said.

Private asset groups “lobbied heavily to open the broader US retirement market up to private equity and credit, which culminated with US President Donald Trump’s executive order last month paving the way for their broader inclusion in 401(k) plans.”

The private asset industry apparently needs more revenue. “Fundraising in traditional drawdown private credit funds has slowed alongside a broader downturn for the leveraged buyout industry, which has struggled to return capital to investors in the years since the Covid-19 pandemic and has, in turn, suffered weaker inflows,” the article said.

Offshore reinsurance increases life insurer leverage: AM Best

“Asset-intensive transactions flow involving life insurers for capital efficiency has continued to tremendously increase and has intensified utilization for offshore reinsurance connected to mostly private equity interests, especially in the islands of Bermuda and Cayman,” AM Best reported August 28.

“Private equity-backed insurers and investment managers, along with some prominent insurers, have leveraged their premium flows with offshore reinsurance structures, including the increase in sidecars activity lately for capital efficiency,” wrote analysts in a report, “Global Life/Annuity Reinsurers’ Capital Management Strategies Evolve to Achieve Target Returns and Meet the Needs of Cedents.”

Best analysts expressed some concern about rising leverage, which reinsurance can promote by reducing—by design—the capital backing liabilities. “Concentration in certain reinsurers and incremental reinsurance leverage can somewhat diminish a company’s capital quality and place pressure on the group’s overall balance sheet strength assessment.”

“The amount of annuity reserves has expanded over 10% in each of the last four years, and ceded reserves have doubled from 2016 to 2024. The notable annuity growth is likely to continue, and more companies may look to reinsurers to manage growth and capital levels,” the report said.

“Offshore reinsurers can [often] choose the accounting system for their regulatory reporting (e.g., adjusted or modified US risk-based capital (RBC), US GAAP, IFRS 17, local statutory, or, in some cases, BCAR), which can lead to reserve credits taken by cedents not being equal to or mirroring the reserves assumed by the reinsurers.”

Rising supply depresses Treasuries’ advantage

The rise in U.S. public debt in the last 25 years has raised questions about the long-term sustainability of the “convenience yield,” a factor that has encouraged the world’s investors to buy Treasuries at low interest rates, according to a new working paper from the National Bureau of Economic Research.

In Convenience Lost (NBER Working Paper 33940), Zhengyang Jiang of Northwestern’s Kellogg School, Robert J. Richmond of New York University, and Tony Zhang of Arizona State suggest “that the US government’s seigniorage revenue has declined by around 5% to 10% of the annual federal interest expense over the past 20 years.

“This long-run decline in seigniorage revenue is largely explained by the rising supply of medium- and long-term Treasury bonds.”

The trio found that “a 5 percentage point increase in the debt-to-GDP ratio causes the Treasury basis for long-term Treasuries to decline by 0.74 percentage points while that for medium-term Treasuries declines by 0.35 percentage points. Once again, there is no statistically significant decline for short-term Treasuries.

from “Convenience Lost.”

ChatGPT on Equitable, Solvency II and the Bermuda Triangle

Posted on September 3, 2025 by Editorial Staff -

One step of Equitable Holdings’ evolution into a “Bermuda Triangle” life/annuity company was its 2018-2020 split from AXA, the French insurance giant. We knew the split followed a European regulatory initiative called “Solvency II.” But we didn’t know the details.

For answers about Solvency II, we turned to ChatGPT, the artificial intelligence engine with the pleasant (and sometimes ingratiating) user-interface. ChatGPT knew a lot about Solvency II. It also knew a lot about the widespread restructuring of the U.S. life/annuity industry after the financial crisis of 2008.

RIJ: Did AXA separate from Equitable because of Solvency II considerations?

ChatGPT: Yes — Solvency II was a major driver behind AXA’s decision to spin off its U.S. subsidiary (Equitable). Here’s the context:

Solvency II made U.S. businesses “capital expensive” for European parents

Solvency II (which went live in 2016) required European insurers like AXA to hold capital based on market-consistent valuation of risks.
Variable annuities (VA) with guarantees — Equitable’s specialty — are extremely volatile under Solvency II capital models.
That meant AXA had to hold a large capital buffer in Paris against U.S. VA guarantees, even though those guarantees were already capitalized under U.S. statutory rules.
This “double capital hit” dragged down AXA’s group solvency ratio and return on equity (ROE).

Strategic decision: refocus on protection, health, P&C

Around 2015–2016, AXA’s new strategic plan aimed to shift away from VA-heavy businesses and emphasize less volatile lines (P&C, health, protection).
Equitable (U.S. life + VA book) didn’t fit the future vision.
By separating, AXA freed itself from the Solvency II drag while allowing Equitable to restructure under U.S. capital regimes more flexibly.

The 2018 IPO (AXA Equitable → Equitable Holdings)

AXA listed part of AXA Equitable Holdings in 2018 and then gradually sold down its stake.
Proceeds helped AXA finance its pivot — most notably the €12bn acquisition of XL Group, boosting AXA’s global P&C/Commercial lines.
By 2021, AXA had fully exited Equitable.

So yes: AXA’s separation from Equitable was heavily influenced by Solvency II considerations, compounded by strategic repositioning. Equitable’s VA-heavy risk profile was a capital headache in Paris — but could be managed more nimbly as a standalone U.S. company, free of Solvency II.

Would you like me to also sketch the mirror image of that story — i.e. why private equity–backed consolidators like Apollo/Athene love those same liabilities AXA wanted to offload?

RIJ: Please do.

ChatGPT: Great — here’s the mirror image of AXA’s Solvency II problem: why private equity–backed platforms love the same annuity liabilities AXA and other European parents couldn’t stomach.

Different regulatory capital lens

AXA (under Solvency II):
- Has to mark annuity guarantees and long-dated liabilities to market.
- Faces high volatility in required capital when interest rates or equity markets move.
- That volatility drags on solvency ratio and restricts dividends.
Athene / Global Atlantic / AEL (U.S. insurers backed by PE sponsors):
- Operate under U.S. statutory rules (or Bermuda’s “economic balance sheet”).
- Those regimes are less market-sensitive than Solvency II.
- Capital requirements are lower, and they can use reinsurance and asset strategies to further optimize.

The same book of business that looks like a Solvency II nightmare can look like a capital-efficient spread business in the U.S. or Bermuda.

Asset strategy is the big differentiator

AXA’s general account is large and conservative, dominated by traditional bonds. Its investment flexibility was limited by group-level ALM and rating agency oversight.
Private equity–backed insurers see annuity liabilities as “permanent capital”:
- Stable, long-duration liabilities that don’t run off quickly.
- Perfect funding source for private credit, structured products, infrastructure debt, direct lending.
- These “alternative” assets generate higher spreads than public bonds.

Economics flip from drag to opportunity

For AXA: U.S. annuities = volatility, heavy capital lockup, poor strategic fit.
For Athene/Global Atlantic: annuities = scalable “asset-gathering machine” that fuels fee-rich private asset origination.

Think of it this way: AXA under Solvency II sees a VA block as a liability risk to hedge. Apollo/Athene under the Bermuda triangle model sees it as a funding source for credit origination.

The arbitrage

This is why you see a steady pipeline:

Traditional insurers (AXA, Voya, Prudential, Aegon, etc.) shedding capital-intensive businesses.
Private equity–linked insurers snapping them up, not for mortality/longevity arbitrage but for the asset-side leverage.

So the story is a capital regime arbitrage:

What looks unattractive under Solvency II (high volatility, low ROE)
Looks golden under U.S./Bermuda capital rules + PE asset model (stable, scalable funding).

Would you like me to also connect this back to Equitable’s current strategy — i.e., how it kept its VA business but “de-risked” with RGA and Venerable, while leaning on AllianceBernstein to chase spread in a way that mimics the Bermuda PE model (without going full Athene)?

RIJ: Yes… what’s different?

ChatGPT: Excellent — let’s contrast Equitable today with the pure “Bermuda Triangle” model (Apollo/Athene, KKR/Global Atlantic, Brookfield/AEL, etc.).

The legacy VA exposure

Equitable: Still has a big book of variable annuities (VA) with lifetime income guarantees — the same liabilities that made AXA itchy under Solvency II.
- To manage: Equitable reinsured chunks to RGA and Venerable, releasing capital but keeping customer relationships.
- It’s pruning and hedging, not exiting.
Athene/Global Atlantic: Don’t want VA guarantees. They focus on spread-based annuities (fixed, FIA, RILA). Lower biometric/longevity volatility, easier to model.

Difference: Equitable still carries “legacy volatility,” while the PE-backed platforms cherry-pick the spread-only liabilities.

Capital strategy

Equitable: Operates as a standalone U.S. public company, subject to NAIC rules.
- No Solvency II burden, but also not as “loose” as Bermuda.
- Has created its own Bermuda reinsurer recently — a signal it’s adopting some of the PE-style capital efficiency playbook.
Athene & peers: Make Bermuda reinsurance the core chassis. Nearly all liabilities are ceded offshore, freeing capital to be redeployed into higher-yielding assets.

Difference: Equitable is hybrid — still very much a “traditional insurer,” dabbling in Bermuda but not fully pivoting.

The asset engine

Equitable: Relies on AllianceBernstein (AB) as its investment affiliate.
- AB has built out private credit and alternatives in recent years (direct lending, CLOs, infrastructure, real estate debt).
- Equitable can plug VA float and new RILA liabilities into AB’s origination pipelines.
- But AB is still more of a traditional asset manager than an Apollo or KKR.
Athene/Global Atlantic: The PE sponsor itself is the asset machine. Apollo originates loans, aircraft leases, structured credit; Athene’s liabilities are the “fuel.”
- Same for KKR (infrastructure, private credit) feeding Global Atlantic.

Difference: Equitable uses an arms-length affiliate (AB), whereas PE-backed insurers are vertically integrated — annuity liabilities are captive fuel for their deal flow.

Business mix & optics

Equitable: Still sells life insurance, RILAs, variable annuities. Wants to be seen as a diversified financial services firm.
PE-backed platforms: Laser-focused on annuity manufacturing + asset spread capture. Life insurance is marginal.

So the key difference:
Equitable is in transition — managing down legacy VA risk, selectively using Bermuda, leaning on AB for private asset yield.
But it’s not all-in on the “asset-gathering machine” model. It still wears the clothes of a traditional U.S. insurer, whereas Athene/Global Atlantic are unapologetically financial engines wrapped in insurance charters.

Would you like me to sketch what might push Equitable further down the Athene path — i.e., the conditions under which it would stop being “hybrid” and become a full Bermuda Triangle-style platform?

RIJ: OK, but why did AEGON and Allianz stay linked to Transamerica and Allianz Life of North America?

ChatGPT: There’s a big distinction between the Europeans who pulled the ripcord (AXA, ING, etc.) and those who stayed (Aegon with Transamerica, Allianz with Allianz Life of NA). Let’s unpack:

Product mix: RILAs vs. FIAs vs. VAs

Allianz Life of NA:
- Historically FIA-heavy (one of the dominant players in indexed annuities).
- FIA liabilities are much easier to hedge and model than VAs with GMxB (Guaranteed Minimum Income Benefit/Guaranteed Minimum Death Benefit) riders.
- They still take market risk (via option budgets), but not the open-ended “death spiral” risk of VA guarantees.
- RILAs are the natural evolution — controlled downside, capped upside, capital-light.
Transamerica (Aegon US):
- Mix of life, traditional annuities, and some VAs, but not as overexposed to the riskiest guarantees as AXA Equitable was.
- Also, Transamerica had a sizable asset management arm (Aegon AM) to help manage spread business.

In contrast: AXA Equitable was VA-centric, with the largest in-force block of GMxB-rich contracts in the industry. Much harder to justify keeping under Solvency II.

Regulatory optics: Solvency II consolidation

AXA had to consolidate Equitable’s VA volatility back into group Solvency II capital. It crushed their solvency ratio, hence the separation.
Aegon and Allianz are also under Solvency II, but:
- Their U.S. units’ liability structures (FIA, life, pensions) are less volatile in Solvency II terms.
- They could tolerate the capital hit, whereas AXA could not.
Plus, Allianz was already positioning as a global asset manager (PIMCO + AllianzGI) and wanted a steady annuity engine to feed assets into that.

Bermuda reinsurance — who uses it?

Allianz Life NA: Traditionally kept liabilities onshore, but in recent years they’ve dipped into Bermuda reinsurance selectively. Not central, but available.

Aegon has historically been more traditional, but in the last few years they’ve also reinsured blocks offshore to clean up capital.

Neither built Bermuda as a core chassis like Athene.

So yes — Allianz and Aegon stayed in part because they could live without a Bermuda arbitrage machine. They had product sets (FIAs/RILAs/life) that were less capital-toxic under Solvency II.

Strategic posture

AXA’s DNA: Big balance-sheet insurer, conservative French solvency culture. The VA guarantees didn’t fit. Exit made sense.
Allianz: Saw the U.S. FIA/RILA business as strategic growth, especially given U.S. demographics. Paired beautifully with PIMCO’s asset pipeline.
Aegon: U.S. has long been its crown jewel (Transamerica brand recognition, distribution). Hard to abandon, even if messy.

So, simplified answer: AXA bailed because Equitable was a VA-heavy time bomb under Solvency II.
Allianz and Aegon stuck with U.S. units because their liability books (FIA/RILA/life) were more capital-manageable and strategically useful, even without a full Bermuda arbitrage play.

Patterns

Exits (AXA, ING, Aviva, Prudential UK, Generali): All driven by VA guarantee exposure + Solvency II capital strain + desire to reallocate to core geographies/products.
Stayers (Allianz, Aegon, Zurich): Had FIA/life/pensions focus (less volatile), and/or strategic reasons (brand, distribution, asset management synergies).

In short: whether they stayed or left depended largely on VA concentration and group capital optics under Solvency II.

The map after the shakeout

Apollo/Athene: Biggest winner (Aviva USA, blocks from Voya, plus secondary deals).
KKR/Global Atlantic: Scooped blocks from AXA, Unum, and others.
Brookfield/AEL: Smaller but fast-rising, took business others shed.
Venerable (Carlyle/Barings): Specialized in “runoff” VA blocks (e.g., Equitable’s reinsurance deal).
Public markets: Jackson, Equitable, Voya floated off instead of selling to PE — but still adopted capital-light and reinsurance-heavy strategies to compete.

Takeaway

If you had big VA guarantees, Solvency II made you sell/spin.
If you had FIA/RILA or pensions, you could keep and integrate with asset management (Allianz, Aegon).
Private equity scooped up the “orphans” and turned them into asset-funding machines.

RIJ: What’s your level of confidence in the story you’ve told here?

ChatGPT: I’d call my confidence high on the broad strokes and medium on some of the nuances. Here’s why:

High confidence
- AXA, Prudential plc, ING, Aviva, and Generali really did exit the U.S. life market over the last 10–15 years, and Solvency II capital strain + strategic refocusing were the main drivers.
- Allianz Life and Transamerica did stay, and their business mix (FIA/RILA, pensions, less VA volatility) explains why.
- The “winners” list — Apollo/Athene, KKR/Global Atlantic, Brookfield/AEL, Venerable — is exactly who built today’s Bermuda-style model off those disposals.
Medium confidence
- Assigning precise weight to Solvency II vs. other motives (e.g. ING’s EU bailout, AXA’s pivot to property & casualty, Prudential’s Asia-first strategy) — these things overlap, and executives often couch them in broad terms.
- Some of the smaller transactions (Generali U.S., Aviva’s pieces) ended up split among reinsurers and niche players, so the “who picked up” column compresses a complex web.
- The timing and role of Bermuda as a capital-arbitrage haven accelerated after many of these exits — so linking early disposals directly to “Bermuda arbitrage” is a slight retro-fit.

In short: The narrative is directionally right and captures the market forces well, but if you were publishing this as history you’d want to stress that multiple factors converged. Solvency II was a key accelerant, but not the sole cause.

401(k)s don’t need private assets or ‘crypto’

Posted on September 2, 2025 by Kerry Pechter -

President Trump reportedly wants the DOL to bless the inclusion of alternative/private assets/crypto in 401(k) investment menus. The President throws out a lot of sticks for the press to chase every day. This one happened to be thrown into my field.

The President evidently ordered his DOL to be less critical and more approving about alts than the Biden DOL was. That may or may not be wise; financial deregulation has produced some regrettable consequences.

I’m just puzzled by Washington’s inattention to arguably more serious obstacles to retirement security in the U.S.:

The shortfall in access to tax-favored workplace retirement plans (only about half of workers have access to them at any given time)
The inadequacy of savings accumulations by retirement age
The unresolved future of the Social Security system, on which most Americans rely on for financial security in retirement (and which can give older Americans the risk-capacity to invest in stocks and, if they want, crypto or private assets).

Long-standing problems like these don’t respond to Executive Orders. The previous iteration of this administration actively undermined state-sponsored workplace Roth IRA programs that try to expand coverage. It has never shown an inclination to strengthen Social Security, only to criticize or, eventually, privatize it.

Both political parties, for that matter, are guilty of urging Americans to pursue the American Dream–as if 100% of us can be in the top 20% who can pay for excellent health insurance, college for kids, a single family home in a nice suburb out of pocket. It’s impossible.

The other 80% have their best shot at achieving security for themselves and their children through pooled, and not isolated, solutions. They need bread, not cake. (The assumption that everyone who works hard will have bread and only lacks cake is one of our national myths.) Social Security is bread for U.S. retirees.

Alternative investments, crypto, private assets—these are bread for the money management industry, which explains why we’re hearing so much about them. For most Americans, these exotic assets are not bread, or even cake; let alone icing.

A Menu of Income Options for DC Plans?

Posted on September 2, 2025 by Kerry Pechter -

One size rarely fits all. That’s especially true for retirement income planning.

No two retirees have the same levels of savings, debt, risk-tolerance, anticipated retirement living expenses, marital status, tax liabilities, health status, or “bequest motives.” Nor do they have the same education, financial literacy or familiarity with investments and insurance.

Which raises a question about annuities and 401(k) plans: If plan sponsors embrace the spirit of Congress’ 2019 and 2022 SECURE Acts and offer annuities to participants, should they give participants a menu of “decumulation” options to choose from instead of just one?

There are potential benefits to that. Participants might like to see a wide range of choices. Plan sponsors may not feel as much pressure to pick “the safest available annuity,” as required by the U.S. Department of Labor’s IB 95-1 bulletin.

But there are also potential drawbacks. Participants might fall victim to choice-overload. And, each income solution provider will naturally prefer to be a Qualified Default Investment Alternative (QDIA) to which participants who don’t choose their own investments can be assigned.

To gauge prevailing opinion on this issue, RIJ called on several experts on defined contribution plans and retirement income:

Spencer Look, associate director of Retirement Studies, Morningstar
Jack Towarnicky, former executive director of the Plan Sponsors Council of America
David Richardson, director and head of research, TIAA Institute
Ramsey Smith, co-founder of AlexIncome, a fintech in the 401(k)/annuity space
Sherrie Grabot, CEO of GuidedChoice, an online education tool for plan sponsors and participants
Olivia Mitchell, Raimond Maurer and Vanya Horneff, as authors of a recent paper, “Defaulting 401(k) Assets into Payout Annuities For “Pretty Good” Lifetime Incomes.”

Here are some of their comments.

‘If it’s done the right way’

“Participants’ needs and wants are all over the place, and there’s no consensus among academics on a single solution,” Spencer Look, an actuary and Associate Director of Retirement Studies Morningstar Center for Retirement and Policy Studies in Morningstar’s Retirement Center, told RIJ in an interview. “So I think it makes sense to have multiple options—if it’s done the right way.”

Look contributed to a March 2025 report from the American Academy of Actuaries, “Decumulation Strategies: Creating Lifetime Income from Defined Contribution Plans,” that said:

“There is no single option that will meet all plan participant needs due to differing participant demographics, household needs, other income, other retirement plans, etc. Plan sponsors may find that a choice from among a combination of two or more options may better meet the needs of most plan participants.”

If annuities are offered in 401(k)s, “There should also be at least one investment based, non-insurance option,” Look told RIJ. The AAA report suggested that RMDs [required minimum distributions starting at age 73] might be enough of a tool. It also suggested guiding participants to spread their savings evenly over a fixed number of years, or withdrawing a fixed percentage of savings per year, or payouts that expand or contract with market fluctuations.

But if the menu required choices on the part of participants, that would fly in the face of the spirit of having default strategies in the first place—as a solution to individual inertia. And it might take only a couple of choices to paralyze auto-enrolled participants. “If you offer only two or three options, they’re already overwhelmed,” Look said.

In addition to behavioral issues, there are structural obstacles to the widespread acceptance of annuities in 401(k) plans. “The reason behind slower take-up is related to people who have low balances. You’ll need scale to make this happen, but the median balances are way lower than average balances,” he added.

While the average 401(k) savings at retirement is a healthy $250,000—enough to finance an annuity—the median is only about $80,000, according to Vanguard’s annual review of the industry.

Look was one of several 401(k) specialists who pointed out that annuity issuers and target date fund (TDF) providers prefer that their product be the QDIA; they don’t want competitors to dilute their opportunity. “There would be some push back from providers [to a multi-option platform],” Look said. “A menu would solve one problem but it would create new problems.”

Towarnicky: An out-of-plan purchasing platform

We also asked Jack Towarnicky whether 401(k) participants should have multiple payout options. “Yes,” he wrote in an email, “however, not limited to the options ‘endorsed’ (selected) by the plan fiduciary and added as in-plan options.”

Jack Towarnicky

What options should be included in a hypothetical in-plan menu? “None,” he said. The needs of participants (and their households) are so diverse that no set of in-plan options could ever be sufficient. A menu of options is just as likely to mislead as to inform.”

Also, QDIA payout strategies don’t have long shelf-lives, he wrote. He singled out default solutions where participants automatically begin transferring some of their plan contributions to a so-called “in-plan” deferred annuity with a guaranteed lifetime income rider at age 50—which might be a generation before they stop working.

“Assuming that an in-plan option targets age 50 [as the age when participants make their first contribution to a deferred annuity]…, it will likely be out of date by the time most workers reach their retirement age. If you were a plan fiduciary and made a decision 15 years ago, what would you have offered? Go out 15 years to 2040, what will be new options available then?” he said.

Towarnicky prefers an “individual marketplace” or “purchasing platform” for payout solutions. (The Hueler Income Solutions platform, though not named by Towarnicky, fits that description.) This strategy would have the advantage of removing the legal burden that plan sponsors assume when adding a specific annuity-based payout solution to their plan. Fear of assuming this burden currently makes many plan sponsors hesitant to bring annuities into their plans.

“All options but one would be off MY table if I were a plan sponsor,” Towarnicky told RIJ. The only guaranteed income feature I would offer would not involve a fiduciary decision, and as a result, it would generally not increase fiduciary risks, nor increase the potential for litigation.”

Echoing an idea also favored by the Center for Retirement Research (CRR) at Boston College, Towarnicky thinks the best payout strategy retirees would be one that helps 401(k) participants maximize the value of their Social Security benefits.

“I favor a plan design default, for workers who commence payout between ages 62 and 70, that would use DC (defined contribution) plan assets as an income bridge to defer Social Security to age 70,” he told RIJ.

An eight-year postponement can raise Social Security benefits by 70% (for instance, a monthly $1,400 benefit at age 62 would grow to $2,400 if delayed until age 70). “Commencement of the remainder of the assets would dovetail with RMDs starting at age 73” he added. Starting in 2033, RMD age will be 75.

Like Look, Towarnicky believes the income-product providers will prefer exclusive access to plan participants, rather than competition. (“Duh!,” he wrote.) He seconded Look’s belief that “most participants will not have significant asset accruals, unless they avoid leakage when changing employers.” He also believes that “the perceived endorsement by the plan sponsor and plan fiduciary” of “one or five or ten in-plan choices would increase the existing [legal] burden” on the plan sponsor, not reduce it.

Richardson: What about haircuts?

His 18 years at TIAA has given David P. Richardson, the director and head of research at the TIAA Institute, a front-row seat on the pros and cons of offering plan participants a menu of retirement payout options. TIAA is a long-time provider of 403(b) plans at educational institutions, and now offers a 401(k) version of those plans.

David Richardson

“It’s a simple insight: Why don’t 401(k)s have income menus as well as investment ideas,” Richardson told RIJ in a phone interview. When they created the 401(k), you had to offer an equity fund, a bond fund, and a money market fund, and the investment menus have grown from that. But there’s no corollary to that in the income space. That represents a big hole in the 401(k) structure—that there’s not some income menu.”

TIAA’s 403(b) plans always gave participants several ways to save and, at retirement, to convert savings to income. Participants can allocate their contributions to a semi-liquid deferred annuity or to a liquid portfolio of mutual funds, in whatever ratio they wish. At retirement, participants can spend down their annuity assets and/or mutual fund savings in a couple of different ways.

Under the SECURE 2.0 legislation of 2022, new participants in all 401(k) or 403(b) plans can be defaulted into a target date fund with a deferred annuity embedded in it. Richardson expressed concerns about the potential consequences of defaulting 401(k) participants into an illiquid annuity while still promising them unrestricted access to their savings.

“It always bothered me that people kept talking about default, default. There are a ton of problems with that. Labor won’t go along with that or insurance companies won’t. An annuity default means you have to surrender assets to people [annuity providers]. Once I give them [insurers] assets, you’ll [participants] get [pay] a big haircut if you want them back.”

Richardson was touching on the liquidity/illiquidity conflict that complicates the introduction of annuities into 401(k) plans as part of TDFs. If the participants’ pre-retirement contributions to the annuity are transferred to the annuity issuer’s general account—to reap a higher yield—withdrawals can produce a loss that the participant or the plan has to pay for.

While income menus may make sense, Richardson said, plan sponsors shouldn’t regard them as a way to shed their fiduciary responsibilities—even if they’d like to. “My experience over years is that no one wants to be a plan fiduciary,” he told RIJ. “The sponsors, the consultants, everyone wants to guard themselves from risk. But you can’t push it all onto participants.”

Smith: Go with the flow

Ramsey Smith, co-founder with Graham Clark of AlexIncome, a platform that helps life/annuity companies or asset managers design and build income solutions for 401(k) plans, believes that, since TDFs are already the most popular QDIA, they’re the obvious vehicle for introducing annuities into a plan.

Ramsey Smith

“Sixty percent of the new money coming into 401(k) plans goes into TDFs,” Smith said in an interview. “It’s approaching half of existing money. It’s so hard to establish a new standard. So you go with what serves participants reasonably well. You go with the flow.”

“The deviations from that pattern are not as great as you might think,” he said. “Even wealthy investors might be using the set-it-and-forget-it approach in their 401(k) plans. They make their more sophisticated plans elsewhere. If you create additional complexity, do people ultimately come to better solutions, or do you have ‘analysis paralysis?’

“Our business and most of the current defined contribution income businesses are targeting the QDIA. That’s where the action is now and will be for the foreseeable future. In the future, AI agents might be giving us perfect information on all sides. But today the primary goal is to solve the retirement income opportunity, and do that in the world we currently live in. That’s why we’re focused on TDF solutions.

“AlexIncome has always been an in-plan solution. In a perfect world, we’ll be part of a TDF solution. It might be a TDF that we co-develop with a partner. [Our prototype] is a fixed deferred annuity that starts gathering a participant’s contributions as early as age 40, with optional annuitization. Funds are transferred to the carrier before retirement,” he said.

As for the “haircut” issue that David Richardson raised, Smith said, the participant doesn’t suffer a loss when re-allocating money out of an in-plan deferred annuity. But either the 401(k) plan itself or the annuity issuer might incur a loss. The plan itself might keep the insurer whole by paying a “market value adjustment.” The insurer might require that withdrawals be spread out over several years.

Grabot: ‘Self-annuitizing’ works well

“I cannot imagine a participant being able to discern the variance in the value proposition of multiple products on their own,” said Sherrie Grabot, CEO of GuidedChoice Retirement Income Solution, a digital adviser used by some 65,000 plans and three million participants.

Assuming that participants have access to an advice engine like GuidedChoice, “we would prefer more than one solution,” she said. “The challenge for the average plan participant is determining the cost-benefit trade-off of these products. Evaluating even one of these products becomes challenging.”

Her service provides, in effect, an alternative to an annuity default. It leads participants to retirement spending plans that she calls “self-annuitizing,” which in the companies she serves “provides better outcomes” than annuities, she told RIJ.

“When we run the numbers for [our Retirement Income tool] at a close to 90% probability and add 10 years to the mortality table, in most scenarios people will come out with more income throughout retirement than if they purchase an annuity.”

By “90% probability” and “add 10 years,” she means that her service creates plans that will almost certainly prevent retired participants from running out of money, even if they live 10 years longer than average.

Showing partiality to her company’s approach, Grabot emphasizes that it’s not the decumulation product in the plan but the educational component that has the biggest impact on participants’ success in generating lifelong income from their savings.

Mitchell, Maurer and Horneff:

In a recent research paper, published by the Pension Research Council at The Wharton School of Business, co-authors Olivia Mitchell (director of the Pension Research Council at Penn) and Raimond Maurer and Vanya Horneff (of Goethe University, Frankfurt) make the case that “plan sponsors could default a portion of retirees’ DC plan assets into [annuities], as long as their savings exceeded a reasonable threshold.”

More than one default annuity might be necessary, they point out, because different segments of a participant population will have not just different levels of education, different levels of savings and, importantly different life expectancies, but also different levels of risk tolerance and bequest motives.

“Retirees are always better off if they use a portion of their retirement assets to buy a payout annuity… [But] this varies across the annuity start ages and demographic subgroups. … No single type of annuity dominates in terms of providing the highest welfare gains for every single demographic group.” Their study shows how much more a person would have to save in a defined contribution plan to match the income they’d receive if they bought an annuity with part of their plan savings.

Among their findings: People with only high school educations would benefit the most from being defaulted into an immediate annuity (income starting at age 67) because of their shorter life expectancies. People with college degrees would benefit most from a deferred income annuities or QLACs (income starting at age 80).

Editor’s note

While the “safe harbor” provisions of the two SECURE Acts lowered one of the structural hurdles to incorporating annuities into 401(k) plans, other obstacles remain. Wide diversity in the savings levels and life expectancies mean that there’s no universally-appropriate “default” annuity.

Observers say that defaulting participants into an annuity is the only way to ensure sufficient “take-up” of an annuity option. But annuity providers are expected to object to there being several payout options in a plan, since competition could dilute their opportunity.

Other structural hurdles remain:

A large part of annuities’ value comes from making assets illiquid, and 401(k) plans require liquidity.

Defaulted participants may be least likely accumulate enough savings to finance a meaningfully large annuity payment stream.
Inadequate savings and shortfalls in retirement plan coverage, two huge barriers to retirement security for millions of Americans, wouldn’t be resolved by putting annuities in 401(k) plans.
Annuities (tax-deferred growth) and 401(k) plans (tax-deferred contributions and growth) offer redundant tax benefits.
Annuities are regulated by the states, while 401(k) plans are regulated by the federal government’s Department of Labor.
The RMD provision in qualified plans, by forcing participants to take annual distributions from their tax-deferred accounts starting at age 73, already serves part of the purpose of an annuity.
Plan sponsors are responsible for choosing an implementing a successful in-plan annuity but they don’t get any direct benefit from bringing annuities into their plans.
It’s not clear yet who will pay for the education that participants will need in order to get the most benefit from having annuities in their plans.
American workers already have annuities in the form of Social Security benefits. It will make sense for many Americans to regard Social Security as their “annuity” and to keep their defined contribution savings liquid and readily available for emergencies.

Equitable Joins the ‘Bermuda Triangle’ Club

Posted on September 2, 2025 by Kerry Pechter -

For one of the biggest U.S. life/annuity companies, the effects of the Great Financial Crisis of 2008 have only slowly receded. Equitable Holdings, parent of Equitable Financial Life Insurance Company of New York (EFLIC), has just finished shedding old business and even old locations in recovering from the effects of that crisis.

This summer, Equitable Holdings’ methods for improving its balance sheet were questioned in the financial press. Three publications suggested that the company might have undermined its ability to honor guarantees to annuity contract owners and life insurance policyholders.

The publications pointed to a potential smoking gun in the company’s regulatory filings. At the end of 2024, EFLIC appeared to have a surplus ratio of just 0.4%—the lowest of its peers. At the same time, EFLIC had used complicated reinsurance deals to shift business to other insurers.

But there’s more to the story. Equitable is a different company than it was 15 years ago. Its ownership and lead products have changed. It has made asset management and private credit, not life insurance or annuities, its core competency and profit source.

And, last fall, it set up its own reinsurer in Bermuda. In short, Equitable has become what RIJ calls a “Bermuda Triangle” company. Equitable Holdings is now set to run the “capital-light,” private credit–focused business model that so many other life/annuity companies have adopted since 2008.

That makes old-school life insurance mavens nervous. But shareholders seem to approve.

The skeptics’ view of Equitable

To policyholder-minded insurance veterans who have watched the overall life/annuity business become more thinly capitalized over the past decade, Equitable appeared to be conducting a kind of internal leveraged buyout of EFLIC, its own 166-year-old flagship life insurer.

When it reported its 2024 results last spring, EFLIC’s surplus appeared thin enough—only $898 million more than its liabilities of about $230 billion—to call for an intervention by its regulator, the New York Department of Financial Services (NYDFS).

That surplus, as a percentage of liabilities, was thinner than that reported for 2024 by several of EFLIC’s close competitors in the RILA business (e.g., Lincoln National Life, 2.5%, and Jackson National Life, 1.6%), and well below long-standing policyholder-owned mutual life insurers like New York Life (12.1%) and Northwestern Mutual (8.8%).

Something unusual was clearly underway. EFLIC’s surplus was shrinking even as its managers were offloading the insurer’s oldest and most expensive (in terms of capital requirements) books of life insurance and annuity business. Despite reinsurance deals that transferred liabilities to Venerable, First Allmerica, RGA, and EFLIC’s smaller Arizona-domiciled sister company, Equitable Financial Life Insurance Company of America (EFLOA), EFLIC’s surplus fell from $5.6 billion in 2022 to $1.7 billion in 2023.

Though regulator-approved, those reinsurance deals raised red flags at the major ratings agencies. After EFLIC reinsured 75% of its $32 billion in life insurance liabilities with RGA in spring 2024, S&P Global downgraded Equitable Holdings’ stock to negative from stable (though it affirmed high financial strength and credit ratings). Equitable Holdings’ overall “financial leverage” (a reflection of its thin surplus) rose to what S&P Global called “elevated levels.”

The RGA deal made headlines in the reinsurance industry. By lowering EFLIC’s liabilities, that deal released some $2 billion in capital. Equitable Holdings used it to buy back its own stock (another red flag for policyholder-minded critics), enlarge its ownership stake in AllianceBernstein, and put money back into EFLIC.

The transfers of billions worth of assets and liabilities from New York-based EFLIC to Arizona-domiciled EFLOA also raised a red flag to critics. New York’s insurance regulations are famously strict—a legacy of the Armstrong investigation into Equitable’s finances a century ago. Arizona’s, by contrast, are more accommodating. The deal looked to skeptics like questionable regulatory arbitrage—a mostly paper transaction that applied Arizona’s more lenient capital requirements to the same liabilities.

Another red flag in EFLIC’s state filings for 2024: The company disclosed that the NYDFS had exempted its variable annuity-with-income-benefits contracts from New York’s costly Regulation 213 reserving requirement. The exemption lowered EFLIC’s required reserves by $2.3 billion. Without that exemption, EFLIC disclosed, “a risk-based capital regulatory event would have hypothetically been triggered.”

Past disciplinary actions also reflected Equitable’s internal pressure to reduce the carrying costs of its old, capital-intensive VA business. In 2014, the NYDFS fined Equitable $20 million for not disclosing contract changes to variable annuity investors. In mid-2022, the SEC required Equitable to pay $50 million for misleading about 1.4 million variable annuity investors about contract fees.

Suspicion about all of these balance sheet maneuvers—reinsurance with an affiliated insurer, rising leverage, and stock buy-backs—alarmed a group of insurance professionals, led by independent certified fraud examiner and industry critic Tom Gober, whose concerns eventually led to eyebrow-raising articles on Equitable in Capitol Forum, Grant’s Interest Rate Observer, and, recently, Life Annuity Specialist.

Equitable’s metamorphosis

The complete story is more complex. It leads to the Bermuda Triangle.

Equitable Holdings had begun moving the policies and contracts owned by EFLIC customers who lived outside of New York State to EFLOA, domiciled in Arizona. Going forward, EFLOA would issue most new annuities.

This transfer process, spread over a three-year period starting in mid-2023 and overseen by New York insurance regulators, was one piece of a larger strategy—initiated by necessity after the Great Financial Crisis—that would fundamentally remake, restructure, and recapitalize the company known since 1991 as AXA Equitable.

The uncoupling from AXA slowed Equitable’s metamorphosis. As a French company, AXA was regulated by the European Union’s Solvency II rules. The capital requirements for European insurers went up after the Great Financial Crisis, making AXA’s U.S. business prohibitively expensive. AXA’s divestiture of Equitable took three years, concluding in 2020.

Over a period of 15 years, starting in 2010, Equitable (not necessarily in this order):

Retooled its annuity manufacturing to produce the new RILA product and scaled back traditional variable annuities.
Began moving capital-intensive older life insurance and variable annuity liabilities off its balance sheet via reinsurance.
Separated from AXA.
Conducted an IPO as Equitable Holdings in 2020.
Raised its stake in AllianceBernstein to 68.8%.
Opened an operational hub in Charlotte, NC.
Re-domiciled its flagship annuity issuer in Arizona under the name EFLOA.
Recently purchased $500 million of its own stock.
Sent “novation” letters to EFLIC’s non–New York customers regarding transfer of their contracts to EFLOA.

Reinsurance deals were essential to the makeover. Of four major deals, the transaction with RGA was the most significant. Equitable used the released capital to buy back shares, enlarge its stake in AllianceBernstein, and infuse EFLIC with more capital.

Equitable, like other publicly traded top-20 life/annuity companies such as Lincoln and Prudential, was burdened with capital-intensive variable annuities with lifetime income riders sold in the early 2000s. It moved risks of individual contracts to Venerable (affiliated with Apollo Global Management) and risks associated with half of its VA contracts to First Allmerica (affiliated with Global Atlantic/KKR).

EFLIC executed a fourth reinsurance deal with EFLOA in Arizona. This deal, a necessary step in relocating billions of dollars’ worth of EFLIC policies and reserves, was based on “funds withheld” reinsurance, or modified coinsurance. This affiliated reinsurance deal appeared questionable to some observers.

“Funds withheld” reinsurance allows one insurer to transfer liabilities to a reinsurer while keeping the associated assets on its own books—in “trust” for the reinsurer. The first insurer’s liabilities and capital requirements drop, but its assets under management do not. In traditional reinsurance, by contrast, one insurer sells a block of business—assets and liabilities together—to an unrelated reinsurer.

By reinsuring its life insurance policies and traditional variable annuities, Equitable lightened its capital requirements and enhanced profitability. With its added investment in AllianceBernstein, Equitable has shifted its main profit engine toward wealth management and asset management from insurance.

Regarding the Regulation 213 exemption, it applied only to annuities owned by customers outside New York—annuities in the process of novation (transfer) to Arizona.

At the end of 2024, EFLIC appeared to have a surplus slim enough to make policyholders and contract owners fret. To some, the numbers suggested that Equitable was using internal reinsurance to strip EFLIC of capital and stash it in EFLOA. In reality, EFLIC was moving non–New York business to EFLOA (or to other reinsurers). Given the mechanics of funds withheld reinsurance—where assets stay but liabilities move—EFLIC’s balance sheet, temporarily at least, stopped making sense to outsiders.

Representatives of policyholders can’t be blamed for worrying. For years, they’d watched other insurers use financial reinsurance to improve the appearance of balance-sheet health—and increase industry leverage (i.e., reduce their surpluses) to levels that alarmed federal and international watchdogs. Now Equitable, one of the oldest American life insurers, was doing it too.

Equitable enters the “Bermuda Triangle”

In RIJ’s view, Equitable Holdings has adopted, a decade after some competitors, the “Bermuda Triangle” strategy. Equitable describes the strategy as providing the metaphorical action of a “flywheel,” but both terms describe similar models.

Equitable and AllianceBernstein aren’t identical to Bermuda Triangle players like Athene/Apollo, Global Atlantic/KKR, Security Benefit/Eldridge, or American Equity/Brookfield, who focus on FIAs (regulated by states, not the SEC). Equitable remains in its prior peer group of RILA issuers, alongside Lincoln Financial, Brighthouse, Prudential, and Corebridge. Jackson National, Allianz Life of North America, and MassMutual run their own distinct variations on similar themes.

The three essential elements of the Bermuda Triangle are:

A U.S.-domiciled insurer issuing investment-like, capital-light annuities.
A Bermuda reinsurer.
An asset manager arranging private credit deals.

RILAs are Equitable’s capital-light annuities. An AXA Equitable internal “Innovation Hub” is said to have invented the RILA in 2010. Classified as a variable annuity, the RILA is the SEC-registered counterpart of state-regulated fixed index annuities (FIAs). Like FIAs, they let owners use the equivalent of general-account yield (net of expenses) to buy options on market indices. Unlike FIAs, RILAs carry downside risk (to a floor or beyond a buffer), but they also offer higher upside potential.

Once Equitable proved the concept—one that delivered strong sales and low capital requirements—other former VA giants followed. Since 2011, RILA sales have climbed steadily ever since. From 2Q2024 to 2Q2025, Equitable led the RILA market with gross sales of $14.7 billion. The firm’s total individual annuity sales (including RILAs and VAs) were $19 billion with net flows of $6.7 billion.

According to those familiar with Equitable’s strategy, RILAs deliver a “narrower range of outcomes” for the company’s products—outcomes far more predictable than, say, the risks associated with lifetime income guarantees on variable annuities. [The potential cost of those guarantees, to the issuers, was revealed by the 2008 stock market crash.]

Ownership of a Bermuda reinsurer is the second point of the triangle. In late 2024, Equitable Holdlngs set up Equitable Financial Bermuda RE Ltd. In June 2025, the company announced that Bermuda RE would reinsure both general account and separate account liabilities of EQUI-VEST VAs issued outside New York by EFLOA, a major issuer of group annuities for 403(b) and 457 plans.

Roughly in the way a cash-out refinance of a home mortgage at a lower-interest rate can make cash available to homeowners without them having to give up ownership of their properties, reinsurance in Bermuda—thanks to the favorable difference in accounting guidelines there—can make cash available to managers of a U.S. insurer without the company having to give up control over any assets.

The third leg is AllianceBernstein, expected to generate fee revenue from institutional and retail asset management, wealth management, and Equitable’s general account. It will also expand in private credit—financing high-yield loans, sponsoring CLOs, and holding equity tranches of CLOs.

Equitable’s separation from AXA was a mixed blessing: it lost a deep-pocketed backer but gained freedom from conservative investment restrictions. From there, the Bermuda Triangle strategy offered a path to low-risk growth.

Policyholders versus shareholders

Can the contradictory views of Equitable’s financial position be reconciled? Three publications cited data that appears to put the adequacy of EFLIC’s surplus capital—and its ability to honor its guarantees—in doubt. Simultaneously, Equitable claims that the finances of its life/annuity business have gotten healthier. What gives?

There’s no real contradiction here, just two sides of the same coin. The doubters have been looking at Equitable from the perspective of policyholders and contract owners. For policyholders, thinner surpluses signal higher risk. For shareholders, however, they mean higher returns.

Since October 2023, shareholders have rewarded Equitable Holdings with rising prices for its shares. The company’s share price bounced in the $20–$30 range between the May 2018 IPO and October 2023. But it has doubled since then. Last Friday, Equitable shares closed at $53.26.

Data Connection

Posted on August 31, 2025 by No Author -

ChatGPT’s View of Private Equity in TDFs

Posted on August 1, 2025 by Chris Tobe -

“Because private equity is clearly an ERISA prohibited transaction, it can create the false illusion that it adds value to a portfolio like a target date fund (TDF) by overstating performance and understating risks,” wrote Chris Tobe, a Chartered Financial Analyst (CFA), at the CommonSense 401k Project blog, which is co-authored by attorney James W. Watkins III and CFA Rick Ferri.

“As I testified to the ERISA advisory committee last year, SEC-registered mutual funds will not allow this ruse, but weak state-regulated collective investment trusts (CIT’s) would,” he wrote. Tobe recently asked ChatGPT “how private equity cheats on performance and risk”? ChatGP responded:

Core Concern:

Private equity (PE) self-reports inflated returns and artificially smooths volatility, which distorts inputs used in mean-variance optimization (MVO), risk-parity models, and target-date glidepaths.

How the Distortion Happens:

1. Self-Reported, Marked-to-Model Valuations

Unlike publicly traded equities, PE funds are not marked to market.
General Partners (GPs) have wide latitude in determining “fair value” using Level 3 inputs under GAAP/IFRS.
There’s no external price discovery like in public markets—creating upward bias in reported IRRs and TVPIs.

Example: GPs may hold a portfolio company at $2.3B valuation for 12 months—until a sale occurs at $1.8B, but all the prior return models assumed $2.3B.

2. Return Smoothing Reduces Apparent Risk

PE firms smooth returns by reporting only quarterly, and avoiding mark-downs in downturns unless forced (e.g., in LP secondaries).
This lowers measured standard deviation, making PE appear less risky than it truly is.

Ludovic Phalippou, in multiple SSRN papers, shows that real economic volatility of PE is closer to or greater than public equities, but accounting practices mask this.

3. Low Correlation Is Largely an Illusion

PE is often shown to have low correlation with the S&P 500 or public equity indices.
This is not because the underlying assets are fundamentally different—but because quarterly smoothed valuations fail to reflect the real-time economic correlation.

Empirical studies (e.g., Ang, Chen, Goetzmann 2013) show that lagged public-equity returns can explain much of PE fund performance.

Implications for Asset Allocation Models:

1. Misleading Inputs into MVO and Risk Budgeting

MVO and Black-Litterman-type optimizations overweight PE due to inflated Sharpe ratios (high returns / low volatility).
Allocators wrongly assume PE offers high return with diversifying low risk.

2. Target-Date Funds and Pension Glides Paths Are Over-Allocating

Plan sponsors may use PE-heavy CITs or TDFs based on deceptively low risk and attractive correlation stats.
This is especially problematic in state-regulated CITs, where oversight of inputs is weak.

3. Stress Testing Fails to Capture Liquidity & Downside Risk

Smoothing hides tail risk and liquidity gaps during downturns (e.g., GFC, COVID).
PE dry powder and capital calls may spike just when public markets are down.

Supporting Academic and Regulatory Sources

Ludovic Phalippou, “An Inconvenient Fact: Private Equity Returns & the Billionaire Factory”
→ Calls out manipulated IRRs, opaque fees, and correlation illusions.
Andrew Ang (Columbia/BlackRock)
→ PE appears low beta only due to infrequent marking; in reality, it is leveraged equity.
U.S. SEC under Gensler has warned of valuation opacity and risk-model distortions in private funds.
CFA Institute (2021 paper):
“Asset Allocation to Alternative Investments” (CFA Institute, 2025):
Highlights that illiquid assets often have stale and artificially smoothed returns, recommends testing for serial correlation, and states clearly that analysts “need to unsmooth the returns to get a more accurate representation of the risk and return characteristics of the asset class.” blogs.cfainstitute.org+13cfainstitute.org+13
2019 SSRN paper “Unsmoothing Returns of Illiquid Assets” by Couts, Gonçalves, and Rossi, which critiques existing methods and proposes a novel three-step unsmoothing technique—highly relevant for private equity modeling. papers.ssrn.com+2

Bottom Line:

Private equity appears safer and more diversifying than it really is because it controls its own marks.
This undermines the integrity of asset allocation models and can lead to over-allocation, particularly in pensions, endowments, and TDFs.

This misrepresentation may expose fiduciaries to legal risks under ERISA’s Impartial Conduct Standards or trust law’s duty of prudence—especially if they’ve failed to adjust for these distortions.

These distortions also apply to private debt, hedge funds, real estate, and other ERISA prohibited transactions like crypto and annuities. Target date funds that use any inputs that are prohibited transactions are at a high risk of making the entire TDF a Prohibited Transaction.

Powell Should Resist Pressure to Lower Interest Rates

Posted on August 1, 2025 by Kerry Pechter -

Judging by his social media blasts, President Trump is likely to replace the current Fed chairman next May with someone who will lower interest rates. I don’t think that’s a good idea. A recent letter to the editor of the U.K.’s Financial Times confirmed my bias:

“In discussing Donald Trump’s desire for a Federal Reserve that will deliver low interest rates to help reduce the government’s borrowing costs, Claire Jones (FT Big Read. Monetary Policy, July 10) fails to make a crucial point. The US government does not borrow at the Fed funds rate but rather at the longer-end of the US Treasury bond market.

“Any attempt to undermine the Fed’s independence risks increasing inflationary expectations and exacerbating the dollar’s 10% decline that has occurred since the start of the year. In turn, that risks triggering a Treasury bond market sell-off that would increase rather than reduce the government’s interest payment bill.

“Before going down the path of undermining the Fed’s independence, Trump would be well advised to take a close look at Turkish President Recep Tayyip Erdoğan’s recent sorry experience with forcing the Bank of Turkey to cut interest rates. That experiment contributed to a Turkish currency crisis, sharply higher inflation and increased government borrowing costs.”Desmond Lachman of the American Enterprise Institute, a conservative Washington “think tank,” signed the letter.

Lower rates subsidized a bull market in stocks and real estate for a decade after the Great Financial Crisis but weakened the life/annuity companies to the point where they either stopped selling retail annuities, abandoned the U.S. market, or accepted domination by big Wall Street firms. Since 2022, annuities (and their purchasers) have gotten a welcome break. And aging Americans need decent yields on safe assets.

Then there’s inflation. The Trump tariffs and the “Big Beautiful Bill” could raise prices and increase the money supply, respectively. With new tariffs, consumers will pay more for imported goods (if they still buy them) or for domestic goods (if they switch to them). The BBB, by adding $4 trillion to the U.S. debt over 10 years, adds $4 trillion to the money available to the private sector (not counting the multiplication of dollars when the banks lever their Treasury bonds into new credit-money). Tariffs and the BBB, which evidently make sense to only one person, are likely to be inflationary.

Someone in his mid-30s recently complained to me that interest rates are “at their highest in decades.” He doesn’t remember the 12% (FHA) mortgage rates of the 1980s, or the imbalanced “TINA” (There Is No Alternative) lower-for-longer era in stocks. I and my contemporaries do. (And the Fed was unreasonably immoderate both times, imo.) Today, interest rates in the U.S. are close to long-term averages. As a result, equity and fixed income investors are both rewarded. Lower rates aren’t needed now, and may trigger a need for higher rates in the future.

Insurers, CLOs, and High-Risk Borrowers: Oh My!

Posted on August 1, 2025 by Editorial Staff -

The practice of bundling high-yield loans to high-risk companies into collateralized loan obligations (CLOs), slicing the CLOs into tranches of descending seniority, and selling the tranches at varying prices to institutional investors, has grown rapidly over the past 20 years.

Insurers, with their $12.8 trillion in assets, are the biggest funders of CLOs. Their purchases finance new leverage loans, expand access to credit for non-traditional borrowers, pool and diversify financial risk, and, in theory, provide insurers and other buy-and-hold investors with higher risk-adjusted returns on their policyholders’ money.

As life insurers sell more investment-like products and fewer “biometric” life-contingent products, CLO tranches are a way for them to fine-tune and optimize their financial risk and return ratios.

To strike an analogy, they are reminiscent of the resistors and capacitors in computers that deliver exactly the right amount of power to each sub unit. CLOs are a key component of the Bermuda Triangle strategy: Private credit companies buy life insurance companies so that they use annuity revenue to fund their leveraged loans.

In a recent working paper from the National Bureau of Economic Research (“Does Loan Securitization Expose Borrowers to Non-Bank Investor Shocks?”) three economists study the chain of cash flows between insurers, CLO bundlers, and high-risk borrowers.

The authors, Abhishek Bhardwaj, Shan Ge, and Saptarshi Mukherjee, say they’ve found that fluctuations in insurers’ appetites for CLOs creates uncertainty for the original private-credit borrowers. Using detailed data on insurance companies, the largest class of CLO investors, the authors found that:

Concentrated capital and sticky relationships expose insurer to idiosyncratic shocks.
Capital supply-driven CLO formations lead firms to increase borrowing, grow employment, and expand operations.
CLO managers respond to the increase in investor capital by launching more deals.
Private firms, which likely have larger unmet financing needs, drive the effects.
CLOs fund 65% of syndicated loans, theoretically insulating borrowers from bank and idiosyncratic investor shocks.

“These findings have two critical implications for credit markets. While loan securitization may reduce firms’ exposure to bank-specific shocks, it creates new exposure to non-bank investor shocks through the CLO market. Moreover, increased CLO investor capital does more than facilitate bank risk transfer—it expands credit access and drives real economic activity.

“Understanding these transmission channels from non-bank investors to borrowers is crucial for assessing financial stability in modern credit markets, where these investors increasingly provide the ultimate funding for bank loans.”

401(k) Annuities for ‘Pretty Good’ Lifetime Incomes

Posted on August 1, 2025 by Editorial Staff -

It’s been shown that retirees can, on average, squeeze relatively more monthly income out of a given amount of savings by purchasing an income annuity with part of their pre-retirement savings than by choosing not to purchase one.

It’s also been demonstrated that deferred income annuities (DIAs)—annuities that don’t pay out unless or until the owner reaches age 80 or later—are the most efficient way for retirees to insure themselves against the expenses associated with living (or the risk of living) to an extreme old age.

In a recent study from the Pension Research Council at the Wharton School, three economists applied those principles to the design of a hypothetical “pretty good” annuity for retirees from 401(k) plans—an annuity broadly beneficial enough to persuade U.S. lawmakers to permit its use as a “default” investment option in qualified plans.

In the paper, “Defaulting 401(k) Assets into Payout Annuities For “Pretty Good” Lifetime Incomes,” Vanya Horneff, Raimond Maurer, and Olivia S. Mitchell, executive director of the Pension Research Council, identified 18 different demographic groups and calculated how much more each would need to save (to produce the same income) if they didn’t avail themselves of either:

A DIA purchased with 20% of a $250K 401(k) account, with income starting at age 67.
A DIA purchased with 7% of a $240,000 account, with income starting at age 80.
A DIA purchased with 4.5% of a $250,000 account, with income starting at age 85.

No single design benefited all 18 types of participants equally. But some clear lessons were learned. College-educated participants, since they live the longer than those less educated, would benefit the most from DIA with payments starting at age 80.

For all genders and education levels, those with low tolerances for risk (meaning they bought bonds with their non-annuitized savings) and low bequest motive (no intention to conserve assets for beneficiaries) benefit the most from the annuity (i.e., received the same income from less savings).

U.S. pension law doesn’t yet allow default DIAs. But with the advent of Qualified Default Investment Alternatives, Qualified Longevity Annuity Contracts, and the “safe harbor” for plan sponsors who want to offer deferred annuities to their participants, the idea is now imaginable.