The October 2025 Bank for International Settlements (BIS) report, ‘The Transformation of the Life Insurance Industry: Systemic Risks and Policy Challenges,’ provides authoritative evidence that strengthens the arguments made in my recent article on Commonsense401kProject regarding offshore private credit causing increased risk in retirement products backed by Insurance Company General Accounts. The findings demonstrate how structural changes in the life insurance and private equity sectors reinforce ERISA prohibited-transaction concerns. ^{[BIS (2025), pp. 1–3] [Tobe, Commonsense401kProject (2025)]}

1. BIS Findings with ERISA Implications

The BIS report documents how life insurers, increasingly owned or partnered with private equity, are reshaping their balance sheets with higher allocations to opaque private credit and structured securities. Key findings include:

•  Private equity acquisitions of insurers have created conflicts of interest, with affiliated managers steering assets into their own private credit deals.
•  Offshore reinsurance has surged, with U.S. insurers ceding over $2 trillion of reserves by 2023, 40% to Bermuda and Cayman affiliates subject to lighter regulation.
•  U.S. insurers now allocate roughly 30% of general account assets to corporate debt and 18% to structured securities, many rated internally or opaquely.
•  Liquidity stresses are rising from surrender spikes and collateral calls on derivatives, forcing insurers into procyclical asset sales.
•  The Eurovita case shows how a private-equity-owned insurer collapsed in 2023, requiring a ‘surrender holiday’ and taxpayer-backed resolution. ^{[BIS (2025), Box B, p. 15; Reuters (2023)]}

3. Why This Reinforces Prohibited Transaction Risks

The BIS findings strengthen three ERISA prohibited transaction arguments:

1. Party-in-Interest Conflicts – Affiliated transactions between private equity sponsors, insurers, and offshore reinsurers constitute prohibited self-dealing.
2. Prudence and Reasonableness – Fiduciaries cannot verify valuations or spreads when private ratings and opaque fee structures dominate.
3. Offshore Arbitrage – By ceding assets to offshore affiliates, fiduciaries place plan money into regulatory regimes with weaker solvency and disclosure standards.

4. Systemic Risk as Fiduciary Breach

The BIS study shows insurers’ systemic risk contribution (measured by SRISK and ΔCoVaR) has risen relative to banks, particularly in North America. As insurers adopt riskier private credit portfolios, ERISA fiduciaries exposing plan participants to these structures cannot argue they are prudent or diversifiable. The systemic nature of the risk means it is embedded in the financial system, not isolated to one plan or product. ^{[BIS (2025), pp. 18–22]}

5. Policy and Litigation Implications

This evidence has three main uses:

• Litigation: BIS provides an independent, global authority confirming that PE-linked insurer structures create conflicts, opacity, and systemic risks, supporting claims under ERISA §406.
• Policy: BIS recommendations—standardized reporting, capital charges, macroprudential oversight—map directly onto ERISA fiduciary requirements for prudence and exclusive benefit.
• Advocacy: Regulators and courts should treat offshore PE-insurer structures as per se prohibited transactions unless they disclose spreads, risks, and conflicts transparently.

Conclusion

The BIS report validates and deepens the concerns outlined in our earlier article. Offshore private equity and private credit structures of life insurers are not just opaque—they are riddled with self-dealing, systemic risk, and regulatory arbitrage. These are exactly the types of arrangements that ERISA’s prohibited transaction rules were designed to prevent. For fiduciaries, the message is clear: reliance on these products is not only imprudent but may be per se unlawful.

UPDATE November 6 2025: Insurers use small ratings agencies to get favorable ratings on Private Credit.  The SEC is investigating Egan-Jones for this Practice.    Egan Jones has only 20 analysts rating over 5000 different issues.   https://www.bloomberg.com/news/articles/2025-11-06/egan-jones-probed-by-sec-over-its-credit-ratings-practices    Bloomberg Analysis of NAIC shows that capital charges for AA- rated issues is half of what an A rating is so the incentive in $billions is to inflate ratings.

References

Bank for International Settlements (2025). ‘The Transformation of the Life Insurance Industry: Systemic Risks and Policy Challenges.’ BIS Papers No. 161, October 2025. http://www.bis.org
Reuters (2023). ‘Italy close to securing industry safety net for Cinven owned Eurovita, sources say,’ March 30, 2023.
Tobe, C. (2025). ‘Why Offshore Private Equity and Private Credit Pose ERISA Prohibited Transaction Risks.’ Commonsense401kProject, October 24, 2025.  https://commonsense401kproject.com/2025/10/24/why-offshore-private-equity-and-private-credit-pose-erisa-prohibited-transaction-risks/

FED says in  November 2025 Life Insurers continue to hold a significant share of illiquid assets on their balance sheets and have increased leverage

www.federalreserve.gov/publications/files/financial-stability-report-20251107.pdf