Show Notes
I believe the scandal building inside America's life insurance industry is bigger than Madoff and bigger than Enron, and it might approach the size of the 2008 financial crisis. I just sat down in New York with the man who's been warning about it for 41 years, and if you want to know what's really going on inside these companies, Tom Gober is THAT guy… Tom is a certified fraud examiner who started his career as an insurance examiner for the state of Mississippi. In his early 20s, he caught a company hiding a hole in its balance sheet with sham reinsurance and wrote it into his exam report, which he signed personally. A few weeks later he pulled the original from the state archives and found his findings had been RIPPED OUT and retyped clean, with his signature still on it.
So he went to the US Attorney's office and spent the next two and a half years working undercover with the FBI, with a recorder hidden behind Velcro in his briefcase that he switched on in every exam where the books were cooked. He only broke cover the morning he walked in and saw the accounting department stuffing envelopes that urged people with maturing CDs to buy annuities from a company he knew was broke. That night he drew a map of the building for 40 FBI agents, and the tapes he made put people in prison. He told me he doesn't know of a single other person who understands these schemes and isn't making money from them.
Here's what we're going over in Part 1 “The Whistleblower” of The Insurance Reckoning with Tom Gober:
* One of the biggest annuity companies in America moved $235 billion of liabilities offshore to its own affiliate, and Tom names it on camera. * The day your insurance company fails, your money gets frozen, and the fund that's supposed to protect you has $0 set aside. * 51 human beings stand between this entire industry and insolvency, and Tom believes some of them know exactly what's going on and are letting it happen. * Industry insiders are calling Tom from all over the world to tell him it's much worse than he thinks, and he expects something to break by the end of 2027.
Tom puts the size of the problem at roughly $2 trillion.
This is Episode 1 of a series, and in the coming episodes we go deeper into the offshore reinsurance machine and the private equity money sitting behind it.
I told Tom that The Big Short has nothing on his story, and I meant every word.
This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit georgenoble.substack.com/subscribe
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This is the final episode of our series with Tom Gober. Last episode ended with Tom challenging the offshore reinsurers to show us the $1.5 trillion, and in Episode 4, he shows you which companies are behind it. Just 40 companies account for 85% of it, and the biggest sends $235.7 billion to a single offshore affiliate while holding only $4 billion of surplus, which Tom describes as moving money from one pocket to another, like "trust me, bro, I got this."
Last episode, we left off with Tom Gober about to reveal a secret document he found in a company president’s personal files, and Episode 3 opens with what it said. A CFO in a criminal case was recorded calling these offshore deals “a little bit like morphine,” and Tom explains why: once you start, the hole gets bigger and you need a bigger dose. Here’s what we’re going over in Episode 3 “The Secret Side Letter”: * Tom tells you what was in the side letter hidden behind a reinsurance contract that looked perfect to an examiner, from a case that sent the man in control to prison for 18 and a half years, and you’ll hear what happened when the FBI knocked on his door in Del Mar. * Tom puts the cushion of the entire US life and annuity industry at about $650 billion, and he says more than that sits in secret captives alone, while more than $1 trillion has gone offshore, out of sight. * Tom shows what happened at a big insurance group after KKR took it over from Goldman Sachs, including a carrier with about $3.7 billion in affiliated investments sitting on roughly $200 million of surplus, where a 6% haircut would wipe out its entire surplus. * Big institutions hold more than $500 billion of short-term notes issued through these insurers, and at one of those companies, a legal opinion puts those investors on equal footing with policyholders like you, which Tom says means they’ll see trouble coming first and get to the exit before you do. Tom also names the two insurers he loves, so stay for that. In my world, if you sell a stock through one broker and buy it right back through another, that’s painting the tape, and you’re not allowed to do it because it kills true price discovery. When the same owner sits on both sides of an insurance company’s investments, it looks eerily similar to me. Tom ends this one with a simple message for the offshore reinsurers and secret captives: if the $1.5 trillion is really there, show us.
Our long/short spread widened to 67.4% today, with our longs up 25.9% on average and our shorts down 41.6%.