(Reuters) -U.S. life insurers moved nearly $800 billion in reserves to offshore affiliates between 2019 and 2024, as the growth of private credit has transformed the sector and presented several risks along with it, according to a new Moody's Ratings report.

As interest rates fell to near-zero between 2015 and early 2020, public life insurers took multiple approaches to maximize returns and stay competitive with their growing private credit counterparts, Moody's analysts said in a report published on Monday.

These included partnering and merging with private equity firms, or alternative asset managers, in a trend that has continued in spite of now higher interest rates.

Roughly $75 billion worth of life insurer-private equity M&A deals took place between 2019 and 2024, Moody's said. These included Allstate's ( ALL ) 2021 sale of its life and annuity businesses, known now as Everlake, to entities managed by Blackstone for $2.8 billion, and Brookfield Reinsurance's acquisition of American National in 2022 for $5.1 billion.

The trend has led life insurers and alternative asset managers to move billions of dollars from their U.S. businesses into offshore accounts in Bermuda or the Cayman Islands at a record-setting pace.

They do so to free up capital to "support growth, offer more competitive pricing and returns in products such as annuities ... (and) pursue shareholder-friendly activities such as share repurchases," Moody's analysts said in the report.

The U.S. life insurance industry held around $6 trillion in cash and invested assets at year-end 2024, an estimated one-third of which was allocated to private credit, according to Moody's.

That follows U.S. life insurers gradually shifting larger percentages of their investment portfolios to private credit - specifically, fund finance, or credit extended to alternative asset managers to capitalize their funds.

While fixed income assets such as corporate bonds and commercial real estate compose the largest share of insurers' portfolios, fund finance "will likely grow in the next three to five years based on our survey," the analysts said.

Moody's pointed out several risks this evolving business model carries. A lack of transparency around the details and structure of these private credit assets makes them hard to value, the analysts said.

The illiquid nature of such products also makes them riskier in a downside scenario if a company is forced to liquidate, they said.