At Deep Dive Analytics (DDA), we don’t look at the marketing brochures or the "A+" ratings from agencies that often miss the forest for the trees. Instead, we rely on the decades of experience of our founder, forensic accountant and CFE Tom Gober. Tom has spent four decades pulling back the curtain on the U.S. insurance industry, and today, he is sounding the alarm on a "jurisdictional hustler's shell game" that is putting policyholders at risk.
If you are a fiduciary-minded advisor, your reputation is only as good as the carriers you recommend. Based on Tom’s exhaustive research into statutory financial statements, here are the top three red flags we look for when vetting a Life and Annuity (L&A) carrier.
1. The "Black Hole" of Offshore Reinsurance
One of the most troubling trends Tom has identified is the "rise of the black hole." Carriers are increasingly offloading tens of billions of dollars in liabilities to affiliated reinsurance companies in Bermuda, the Cayman Islands, or other offshore locales. While the industry claims this is for "capital efficiency," the reality is much darker.
When this happens, the data essentially moves "outside the scope" of U.S. regulatory view. As Tom often says, "You can't figure out whether the money is even there because you can't see it." This creates a lack of transparency where neither the policyholder nor the regulator can verify if the reserves are actually backed by tangible assets. If a carrier’s financial health is hidden behind a veil of secretive offshore or captive deals, it is extremely difficult to gauge their true ability to fulfill a promise made decades in the future.
2. High Exposure to "Other" and Illiquid Assets
We are closely monitoring the influx of private equity firms into the insurance sector. These entities often use policyholder premiums to invest in "riskier and opaque" assets, such as private debt and structured credit. These are not the traditional government bonds or blue-chip corporate debt that once formed the backbone of the industry.
The danger here is liquidity. These assets don't trade on open markets; they are essentially "paper" that only has value as long as the market remains calm. In a period of financial stress, Tom warns of a potential "feeding frenzy" where everyone wants their money at once, but the carrier is stuck holding illiquid, "junk-rated" assets that cannot be sold to meet withdrawal demands. If a carrier’s balance sheet is loaded with these "other" assets, it’s a sign they are prioritizing immediate shareholder returns over long-term policyholder safety.
3. Rapidly Shrinking Surplus Margins
The surplus is the final line of defense—the rainy-day fund that protects policyholders during a downturn. However, our research indicates that many North American life insurers are facing a potential $150 billion capital shortfall in a severe economic shock. This systemic risk has nearly tripled in the last twenty years, yet many carriers continue to act as if the sun will always shine.
Tom looks for carriers that are "gaming the system" by using thin margins and opaque captives to create a "house of cards" appearance of stability. When a company’s surplus is artificially inflated through accounting sleight-of-hand or "sham" reinsurance, the margin for error disappears. A carrier with a shrinking surplus and high leverage is a carrier that may not be around when your client needs them most. As an advisor, you must look to the annual statement; it tells the story that the marketing department wants to hide
If you want to learn more about identifying red flags in the L&A industry, contact Tom Gober today.
