The Offshoring of America’s Retirement Savings

As Apollo reinvents how Wall Street handles insurance and pension funds, firms are shepherding hundreds of billions of dollars to Bermuda entities that lose US protections while making opaque, complex bets

By Tom SchoenbergAlexandre RajbhandariWeihua Li Illustrations by Félix Decombat

The heat and hiss of molten steel swirled around Bill Schoen as he worked almost four decades at the Allegheny Technologies Inc. mill near Pittsburgh. Under the glow of furnaces he swept floors, hauled slag and ran the roaring blast and pickle lines. He also fought for a pension, once striking for 69 days. His reward at retirement: a $2,000 monthly check for life.

Then a couple of years ago, he got a letter notifying him that his former employer was handing off its pension to Athene, the insurance arm of Apollo Global Management Inc.

Schoen, 76, and his former co-workers raced to figure out what that meant for the $1.5 billion backing their retirement. Soon they were hiring lawyers to unwind the transaction.

The 8,200 pension recipients from Allegheny — once the iconic supplier of cannonballs for the Revolutionary War and stainless steel used in Ford’s Model A and Manhattan’s Chrysler Building — had just become a tiny piece of one of Wall Street’s biggest trades.

Private equity firms and other alternative asset managers — including Ares Management Corp., Blackstone Inc., Brookfield Corp. and KKR & Co. — are reshaping the once-staid world of life insurance. Over the past decade, they’ve bought, built or partnered with insurers that sell policies and annuities, collectively commanding hundreds of billions of dollars.

In a previous era, life insurers parked their money in the safest corners of the market — mostly high-grade bonds and big-name stocks. But as Wall Street firms expanded into the business, they adopted bolder strategies to boost profits.

Many are shifting liabilities to offshore affiliates subject to less detailed disclosure requirements than in the US. Insurers and those overseas entities are also pursuing higher returns with more sophisticated and potentially less-liquid investments — such as exotic asset-backed securities and other bets tied to private credit or private equity.

Athene has become a trendsetter in other ways. It invests in deals and products from Apollo’s asset management division. It also taps cheap financing from a government-backed system designed to support home loans, which can be reinvested to amplify returns.

Its profits have set off a stampede of imitators, prompting experts — such as researchers at the Bank for International Settlements — to suggest they may be adding risks to the system.

“Athene’s top priority is policyholder protection, and we are highly secure, transparent and well-capitalized with $34 billion of regulatory capital,” the company said in a statement. “We operate in a heavily regulated industry and maintain the same policyholder benefit reserves for our Bermuda reinsurance subsidiaries as we do for our US insurance subsidiaries, where $1 billion of reserves in the US is equal to $1 billion of reserves in Bermuda.”

Rather than pool funds it gathers from pensions in its general account, Athene keeps them in a separate one.

The transformation of insurance under Wall Street firms in recent years has created a split screen:

On one side, Washington is debating whether to open private markets to ordinary savers — with President Donald Trump calling to loosen rules so that everyday Americans and their 401(k)s can invest in private credit and other non-public assets long reserved for investing professionals and the wealthy.

On the other, private equity-affiliated life insurers are already shepherding retirement savings into those same opaque markets — including for people who say they don’t want that.

For Schoen and his old co-workers it’s about risks: If Athene’s wagers ever go awry, much of the money he lives off of could be lost.

If the bets boost returns, Apollo will reap the extra profit. His monthly check won’t increase.

Athene alone has reached at least 49 deals with companies such as Alcoa Corp., AT&T Inc. and Lockheed Martin Corp. to convert almost $53 billion of pensions into annuities — covering about 535,000 people at the end of June. Several of those transactions are being challenged in lawsuits, crimping new deals. Athene has said it still aims to do more.

In recent weeks on Wall Street, a broad debate has erupted over the safety of credit markets after a spree of alleged frauds. That has prompted industry veterans to warn about where private credit risks may pile up, with UBS Group AG Chairman Colm Kelleher calling for more effective regulation of insurers.

Meanwhile in court, an official analyzing the Allegheny retirees’ complaint recommended rejecting it because their monthly checks are still being disbursed. The presiding judge is considering arguments from Schoen’s lawyers on why their case should continue.

In its statement, Athene brushed off the lawsuit and others like it.

“These are baseless complaints instigated by class-action attorneys who are attempting to enrich themselves at the expense of retirees,” the company said.

Schoen and his old co-workers packed into the only hearing held so far. One of them also created a Facebook group to share information after they lost access to the Allegheny office that helped them navigate their benefits.

“You got all these people who have questions,” Schoen said. “Their wives are dying or they themselves are sick. We try and help them through it because we can’t call Athene for them. Believe me, I tried.”

Private equity’s foray into life insurance is rooted in the aftermath of the 2008 financial crisis, when both sides were reeling.

Buyout firms needed fresh cash to fund deals. Insurers had just gotten bludgeoned in the markets, leaving portfolios anemic and their stocks cheap.

Apollo spotted an opportunity and in 2009 helped set up Athene, which started scooping up insurance obligations. Heads turned a year later when it reached a deal to buy Liberty Life Insurance Co., which had insurance licenses in 49 states and a $2.8 billion block of fixed annuities. Soon, Athene was one of the top providers of new annuities.

The moves upstaged Apollo’s rivals. Policymakers wrung their hands over whether to enact new rules. But watchdogs’ worries about a catastrophe subsided during the long bull market that followed. Apollo’s push into insurance fueled one of the great runs in Wall Street history. The firm’s net income last year was 27 times its 2014 profit. Its stock has returned more than 1,000% in the past decade. The strategies it honed along the way have become the industry’s playbook.

It starts with what’s called an affiliated reinsurer.

In plain terms, reinsurance is how insurance companies spread their risk. Rather than hold all the potential losses on their own books, they pay another firm that agrees to cover certain unlikely risks.

An affiliated reinsurer — sometimes called a “captive” reinsurer — takes that idea one step further. The US insurer sets up its own reinsurance company, often in a place like Bermuda, where taxes are lighter and rules looser but still well regarded by other countries. Another destination, the Cayman Islands, offers an even laxer regime.

In the end, the US insurer shifts some of its responsibilities to an entity connected to itself — seeking advantages that can be myriad and arcane, including more flexible capital requirements, alternative accounting standards and fewer disclosures.

For Athene, reinsurance has become a powerful financial lever, giving it more leeway to take on additional business in the US. But by routing policies through its own Bermuda-based reinsurer, lawyers for Schoen argue that policyholders aren’t getting the stronger backstop of a third-party reinsurer.

Many insurers also set up so-called modified co-insurance contracts with affiliated companies. Such transactions essentially let an insurer keep holding a pile of assets and reserves on its books while shifting some risk to a reinsurer, which promises to pay a share of liabilities.

Athene’s executives have vigorously defended the way Apollo has sought to improve returns in the insurance business, saying that it’s being unfairly criticized for leading a troubled industry out of a morass and to fresh capital. They note that its Bermuda-based operations also take in third-party money, adding to their strength.

“All capital coming into this industry is coming through private equity, and interestingly, Athene represents about 40% of the new capital that’s coming in,” Athene’s then-vice chairman, Bill Wheeler, told US Labor Department officials in mid-2023. “And a lot of that capital is coming in via reinsurance and via Bermuda.”

Indeed, other private equity-backed insurers have followed suit. Firms tied to KKR and Blackstone also own their offshore reinsurers, turning what started as a niche accounting strategy into a cornerstone of modern insurance.

Last year, US life and health insurers had $928 billion of reinsurance from entities in Bermuda, including modified co-insurance deals, according to data from AM Best. That’s up from $205 billion in 2014. Athene’s main US subsidiary in Iowa leads the trend with almost $200 billion — all with its own Bermuda affiliate.

The Bermuda Monetary Authority, the island’s main financial watchdog and issuer of its currency, said it has stepped up oversight of reinsurers in recent years. “Bermuda’s life market has paid $250 billion to policyholders within the last two years alone,” the BMA said in a statement, calling that an “important retirement safety net.”

When Athene started converting pensions into annuities in 2017, many companies were eager to unload those obligations. The 2008 crisis had chewed up portfolios. As markets gradually recovered, employers saw a chance to top up pension funds and hand them off, making them someone else’s headache.

Athene began by taking over $320 million of obligations for more than 10,000 retirees from an unidentified company, saying publicly that it was looking for deals of $200 million or more. Employers lined up.

“It’s a matter of how many of these transactions can you onboard at once,” Athene’s Wheeler said on a 2017 conference call. “And you know there’s a limit. I want to test that limit and see how many we can do.”

Allegheny, which changed its name to ATI in recent years and moved its headquarters to Dallas, said in a statement that when it sought to hand off its pension obligations, it hired an outside adviser that selected Athene. It declined to comment on the lawsuit filed by former employees.

“The pension annuitization is win-win for our retirees and our shareholders: By moving pension management to Athene, ATI met its obligations to retirees and made our pension contributions and expenses more predictable,” the steelmaker said. “This action put our retirees and their benefits in the hands of an industry leader in retirement benefits. Athene’s core competency is administering annuity payments.”

Jerry Schlichter, a lawyer representing retirees from Allegheny and several other companies, said the handoff sends former staff a different message: “We’re no longer going to be on the hook.”

In court, he argues that protections for retirees can be watered down if their pensions are turned into annuities — with balance sheets often invested in riskier assets, liabilities shifted to offshore entities, and — if things go wrong — payouts potentially reduced more severely.

So what’s reinsurance?

After decades at Company X, an employee starts collecting her monthly pension. She also gets:

• Updates on funding: Her former employer is responsible for closing gaps.
• Federal oversight: Pension plans are monitored by multiple US agencies.
• Federal insurance: If the pension fails, a US program can provide more than $7,000 a month for a 65-year-old retiree, potentially exceeding $1 million over her lifetime.

Company X wants to hand off its obligations, so it enters into an agreement with ABC Insurance, which takes over managing the funds. For the retiree, this means:

• Employer backing ends: Her benefits are now supported by the insurer’s pooled assets.
• Less federal oversight: Insurers are regulated by state watchdogs that vary widely in size and resources.
• No federal backstop: Instead, state programs typically guarantee up to $250,000 per person.

ABC Insurance obtains “insurance for insurers,” known as reinsurance, in an offshore firm. It lets ABC reduce the capital it must hold on its balance sheet. This means:

• Less transparency: Reinsurers’ offshore investments are less visible than in the US.
• Weaker oversight: Offshore reinsurance faces less stringent local rules than in the US.
• Potentially weaker funding: Some reinsurance deals are between an insurer and its own affiliate, which could be a problem in a downturn.

That’s because pensions and annuities are regulated very differently. Corporate pension plans in the US are monitored by multiple federal watchdogs and backed by the Pension Benefit Guaranty Corp. If a company fails, that agency is expected to make sure recipients keep getting much of their monthly benefits — potentially paying out well over $1 million to someone who lives for decades.

But when pensions are turned into annuities, the backstop is provided by state programs. If an annuity provider ever fails, most of those systems cap an individual’s payout at $250,000.

The Labor Department requires that pensions transfer only to the safest available annuity provider. The standard was prompted by hard lessons from the 1991 collapse of Executive Life Insurance Co., once one of the largest and highest-rated insurers in the country. Executive Life had invested annuity premiums and pension assets in junk bonds that failed in a market meltdown, leading to several billion dollars of damages to policyholders. A federal report found that the insurer had, for years, inflated its surplus through reinsurance transactions.

Over the past decade, insurers aiming to beat the returns offered by highly rated corporate bonds have moved in a different direction, buying more complex debt instruments.

Among life insurers with more than $10 billion of assets, Athene is at the forefront of that shift. By the end of last year, about 25% of its cash and investments were deployed into collateralized loan obligations and other asset-backed securities, up from 10% a decade earlier. The firm has stressed to investors that 97% of the asset-backed securities are investment grade.

Athene, like others, also invests in deals and products originated by its parent company’s asset management division. Apollo and Athene executives have described that as eating your own cooking.

In its statement, Athene said it maintains a “fortress balance sheet” and pointed to the investment-grade ratings awarded to its own long-term debt, including A1 — the fifth rung — by Moody’s Ratings.

In the waning days of the Biden administration, a group of top US regulators responsible for heading off financial crises gathered in Washington.

With Treasury Secretary Janet Yellen presiding, they got a private briefing on how the industry is changing rapidly and taking risks offshore. Presenters included the Treasury Department’s Federal Insurance Office, set up after the 2008 crisis to watch out for any trouble brewing in that sector.

Beyond offshoring, officials pointed out that certain insurers were borrowing to boost returns from their portfolios — tapping low-interest financing from the Federal Home Loan Bank system. No insurer borrows more from that system than Athene.

The FHLB system was created almost a century ago to help banks offer affordable mortgages and support American homeownership. Back then, many life insurers provided home loans, so they got membership. And once a company becomes an FHLB member, it stays one, even if it stops lending directly to homebuyers.

To tap financing, firms pledge certain assets as collateral, receiving cash “advances” that they can put to any use, including in investments. At midyear, Apollo reported that Athene had $21 billion in financing outstanding from the FHLB system. That’s more than any other insurer or even banks except Truist Financial Corp. and JPMorgan Chase & Co.

Seven weeks after the panel’s briefing, Trump was sworn in. His newly created Department of Government Efficiency fielded calls to disband the federal insurance regulator, ceding oversight completely to states. There’s now legislation in Congress looking to make that happen.

For the moment, the main thing standing in the way of Athene’s momentum is the slew of lawsuits by pension recipients. So far, the rulings have been mixed.

In August, about two dozen Allegheny retirees gathered inside an old union hall in Brackenridge, Pennsylvania, a block from their former mill. They said the Pledge of Allegiance then observed a moment of silence for steelworkers killed and injured at a nearby plant explosion the previous day.

Then Schoen, his voice raspy, addressed the audience, rallying them to keep up the fight to protect their retirement.

“This is just not for us, this is for every other union that’s out there that companies are going to start doing this to,” he said. “We’ve worked hard for all of this. We sacrificed for it.”