Steve Eisman, the investor who predicted the 2008 mortgage crisis, says private credit’s grip on the life insurance industry is “a slow brewing scandal which could be one day a great financial crisis.”

On the Real Eisman Playbook podcast, Eisman and forensic accountant Tom Gober laid out a case that firms like Apollo Global Management Inc (NYSE:APO), KKR & Co Inc (NYSE:KKR) and Brookfield Asset Management Ltd (NYSE:BAM) are using captive insurance divisions to buy their own private credit paper.

At the same time, they offload billions in liabilities to offshore reinsurance subsidiaries that file no US financial statements.

Billions In Liabilities, Millions In Real Assets

Gober, who spent seven years as a state insurance examiner, says insurers are offloading liabilities to shell subsidiaries in Bermuda, Barbados and the Cayman Islands, then underfunding them.

In one case he reviewed, $7 billion in liabilities were backed by roughly $200 million in real assets.

The rest was filled with contingent instruments he compared to a lottery ticket before the drawing.

US-based captive reinsurance grew from $12 billion to $440 billion in a single decade, Gober said. When regulators started asking questions, the industry moved offshore.

Apollo’s insurance arm Athene saw affiliated investments grow from roughly $10 billion to $40 billion in five years, according to Gober.

Its short-term deposit-type contracts hit $37.9 billion, creating a duration mismatch that could become a problem if institutional investors demand their money back.

Private Credit Pressure Is Already Building

These comments come as investor sentiment across private credit continues to deteriorate.

Blue Owl Capital Inc (NYSE:OWL) halted regular quarterly redemptions last month and is liquidating $1.4 billion in assets to pay out investors.

Blackstone Inc (NYSE:BX) disclosed record redemptions from its $82 billion BCRED fund this week, with investors pulling $3.8 billion.

Apollo’s own MidCap Financial fund slashed its dividend and marked down assets last week. Apollo’s stock is down 30% this year.

Eisman noted that nothing has blown up yet because credit markets have been strong for over a decade. “You can lever yourself up to your eyeballs as long as nothing bad happens,” he said.

Polymarket’s U.S. recession contract currently prices roughly 24% odds of recession by the end of 2026 on $297,000 in volume.

The sell-side analysts covering these firms are alternative asset specialists who have likely never examined a statutory insurance filing, Eisman added. “The only thing I can guarantee is that it’s a hell of a lot more levered than it looks.”

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