Reading a life insurer's soundness: capital, reinsurance and opaque assets

A life insurer promises to pay in ten, twenty or forty years. Its soundness is therefore not judged by its quarterly profit, but by the certainty that the assets it holds today will still be worth, when the time comes, what its commitments are worth. That certainty has blurred. Since a growing share of American annuities is backed by private credit, housed in Bermuda-affiliated reinsurers and rated by private agencies, reading an insurer means looking beyond the headline capital ratio. This guide lays out the dials to watch, from RBC to the liability, with 777 Re as the thread, and extends our article on retirement savings in private credit.

Regulatory capital: the RBC ratio and its levels

The first measure is capital, and its yardstick in the United States is RBC, for Risk-Based Capital. It is the insurance equivalent of bank CET1: a minimum capital calculated not on the gross size of the balance sheet, but on the risk of the assets and commitments. A portfolio loaded with equities or speculative credit requires more capital than a portfolio of government bonds.

The RBC ratio divides the insurer’s total adjusted capital by the authorized control level. What matters is less the absolute figure than the threshold it crosses. According to the NAIC, the association of state insurance regulators, regulatory actions kick in by stages: above 250%, no intervention; between 200 and 250% with a failed trend test, or between 150 and 200%, the insurer must submit a recovery plan; between 100 and 150%, a corrective plan is required; between 70 and 100%, the regulator is authorized to place the insurer under control, up to liquidation.

One caveat applies, which the NAIC underlines itself: RBC is a detection tool, not a league table. An insurer at 600% is not mechanically sounder than one at 400%. Above the thresholds, the ratio stops discriminating; it becomes informative only near the levels. Reading RBC therefore means watching the distance to the threshold, not admiring a big number.

The statutory balance sheet: where the risk hides

RBC is only worth as much as the quality of the assets it weights, and that is where reading becomes technical. The American insurer publishes statutory accounts, distinct from GAAP, of which two schedules concentrate most of the information. Schedule D lists bonds and equities, the classic core of the portfolio. Schedule BA, titled “other long-term invested assets”, houses the rest: private credit funds, holdings, joint ventures, and above all affiliated and alternative assets. It is Schedule BA that should be opened first when looking for displaced risk.

Two signals read there. The share of illiquid assets, first, harder to sell under stress. The IMF, in its April 2026 financial stability report, notes that insurers backed by private-equity firms hold nearly twice as many illiquid assets as the others. The share of affiliated assets, next: when an insurer invests in the own funds of the group that controls it, the valuation and soundness of those assets become circular. It is this concentration in affiliated assets that precipitated the fall of 777 Re.

NAIC designations and private ratings

Each security in the portfolio receives an NAIC designation, from 1 to 6, that sets its capital treatment: 1 and 2 correspond roughly to investment grade, 3 to 6 to rising risk up to default. The better the designation, the less capital the insurer must set aside. The stake is therefore to fit risky assets into the best boxes.

That is the function of rated feeder notes: a feeder vehicle invests in a private credit fund and issues debt securities carrying a rating, most often a private one, disclosed only to the subscriber. The economic exposure is that of a fund interest; the capital treatment is that of a rated bond. The problem is the quality of those grades. The research relayed by the specialist press shows that, when a security moves from the in-house assessment of the NAIC’s securities valuation office to a private rating, it is upgraded more than four times as often as it is downgraded, while the same move to a public rating produces as many upgrades as downgrades. The choice of rating channel then looks like an optimisation of capital, more than a measure of risk. To judge what a rating is worth, our guide dedicated to reading a credit rating details the difference between a public and a private grade.

Reinsurance: reading the leverage and the destination

The third dial is the most specific to insurance. An insurer can cede part of its commitments to a reinsurer, which takes them on in exchange for a commission and reinvests the corresponding assets. This asset-intensive reinsurance is legitimate in itself, but two parameters change its reach: the reinsurance leverage, the share of commitments ceded relative to capital, and the destination of the cession.

The destination has become the subject. According to Bloomberg’s investigation of the sector, US life insurers ceded $2.4 trillion of reserves in 2024, of which more than $1.1 trillion went to offshore jurisdictions, Bermuda first, where the prudential and accounting regime is more accommodating. When the Bermuda reinsurer belongs to the same group as the ceding insurer, the cession does not really transfer the risk: it moves it onto a less-regulated balance sheet, under the same shareholder’s control. Reading an insurer therefore means checking not only how much it cedes, but to whom.

The liability: the long-liability test

The first four dials are on the asset side; the fifth is on the liability side, and it is the model’s defence. An annuity is not a bank deposit: the liability is long, predictable, and early surrenders are curbed by contractual and tax penalties. A holder of twenty-year commitments is therefore, in principle, best placed to carry illiquid assets, far better than a semi-liquid fund open to quarterly redemptions, whose repeated gating we have documented.

The strength of that argument depends on one condition: that the liability stays genuinely long. And it does so only as long as surrenders remain discouraged. A sharp rise in rates, which makes old annuities uncompetitive against new ones, can accelerate exits at the precise moment illiquid assets are hardest to sell. The IMF described this run scenario as early as its 2023 work on private equity and life insurers. Reading the liability therefore means estimating the sensitivity of surrenders to a rate shock, and comparing this potential liability liquidity with the real liquidity of the assets.

777 Re, the case study

All these dials read together in a concrete case. 777 Re, the Bermuda reinsurer of the 777 Partners group, had accumulated on its balance sheet affiliated assets, invested in its shareholder’s own businesses. On 8 October 2024, the Bermuda Monetary Authority cancelled its registration, finding an excess of affiliated assets, deficient governance and insufficient capital contributions. Upstream, the American insurer A-CAP, which had ceded $1.7 billion of reserves to it, saw its rating cut by AM Best in February 2024, the agency citing high reinsurance leverage and the deteriorating quality of its counterparties.

The pattern condenses the guide’s signals: reinsurance ceded offshore, to an affiliate, loaded with illiquid assets tied to the shareholder, discovered by the regulator from the end of the chain. The difference between 777 Re and the sector’s large players is one of scale and asset quality, not of structure. That is why reading these dials one by one, on a sound insurer as on a fragile one, is the only way to tell a robust model from one that has simply been lucky.

The reading grid

Five questions sum up the guide. Is the RBC ratio at a comfortable distance from its thresholds, and how is it moving? Does Schedule BA reveal a high share of illiquid or affiliated assets? Are the ratings that carry the capital public or private, and does the private channel dominate? Is the reinsurance leverage high, and does the cession go to an offshore affiliate? Would the liability withstand a rate shock, or would surrenders accelerate?

None of these dials is enough on its own, and none is visible in the financial-strength rating the insurer puts forward. A life insurer’s soundness is not read in a single figure, but in the coherence between its capital, its assets, its ratings, its reinsurance and its liability. The day one of the five gives way, the other four reveal at once what they were hiding, and the story of 777 Re starts again, at another scale.

Sources

• NAIC, “Risk-Based Capital” (RBC definition, regulatory action levels, caveat on comparing high ratios): https://content.naic.org/insurance-topics/risk-based-capital
• NAIC, Schedule BA and the bond-definition project (reclassification of assets not qualifying as bonds, share of affiliated assets in “other long-term invested assets”): https://content.naic.org/insurance-topics/private-credit
• IMF, Global Financial Stability Report, April 2026 (private credit ~35% of North American insurers’ portfolios; private-equity-backed insurers ~2x more illiquid assets): https://www.imf.org/en/publications/gfsr/issues/2026/04/14/global-financial-stability-report-april-2026
• Bloomberg, “Apollo and Wall Street Private Equity Firms Bet on America’s Life Insurance” ($2.4tn of reserves ceded in 2024, of which more than $1.1tn offshore): https://www.bloomberg.com/graphics/2025-america-insurance-part-1/
• American Academy of Actuaries, “Asset-Intensive Reinsurance Ceded Offshore” (reinsurance leverage, affiliated assets, risks of offshore cession): https://actuary.org/wp-content/uploads/2024/02/risk-brief-bermuda-reinsurance_0.pdf
• Alternative Credit Investor, “Insurers and private credit: Ratings under the microscope” (asymmetry of revisions: more than four upgrades per downgrade on moving to a private rating), December 2025: https://alternativecreditinvestor.com/2025/12/04/ratings-under-the-microscope/
• Bermuda Monetary Authority, notice of cancellation of 777 Re Ltd’s registration, 8 October 2024: https://www.bma.bm/viewPDF/documents/2024-10-08-12-44-33-Notice---Cancellation-of-Registration---777-Re-Ltd.pdf
• Retirement Income Journal, “Double Trouble in the Bermuda Triangle” (A-CAP: $1.7bn of reserves ceded to 777 Re, rating cut by AM Best): https://retirementincomejournal.com/article/double-trouble-in-the-bermuda-triangle/

This guide is educational analysis and does not constitute investment advice. Regulatory data is cited as of the date of its sources.