Strong annuity growth continues as reinsurers shift business offshore to Bermuda: AM Best

US life/annuity (L/A) insurers have doubled their ceded reserves to $1.74 trillion between 2016 and 2023 driven by strong annuity growth on higher interest rates with an increasingly larger portion headed offshore, an AM Best report has disclosed.

Recently, several private equity-owned insurers have started creating offshore reinsurance entities, resulting in approximately two-thirds of reserves ceded offshore go to affiliates.

Nearly 47% of ceded L/A reserves were transferred offshore in 2023, up from  26% in 2016.

AM Best believes this growth may continue, as more companies may look to reinsurance to manage growth and capital levels.

Jason Hopper, Associate Director, AM Best, commented, “With new company formations, partnerships, and private capital entering the market, the reinsurance market remains competitive and a larger share of business is being ceded to affiliates.”

Stemming from just the 10 largest transactions of 2023, involving offshore transactions, the report added that this made up for a vast majority of $103.2 billion in ceded reserves.

With Bermuda accounting for over a third of all in-force business and 60% of new business, in 2023.

Companies with asset managers or private equity sponsors account for almost 44% of reserves ceded to offshore affiliates.

Bermuda and the Cayman Islands have gained in popularity due to their stable political and economic environments and regulatory landscapes, along with access to talent mainly legal and financial professionals.

The two countries also have flexible accounting regimes and can choose which system works best, whether that involves IFRS 17, GAAP, modified GAAP, or even a statutory approach.

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