Bermuda continues to play a central role in offshore reinsurance for US life and annuity insurers, accounting for more than 40% of total ceded reserves in force in 2024, according to a new report by AM Best.
The growth rate in ceded reserves – including modified coinsurance (modco) arrangements – from US life and annuity insurers slowed to 6.4% in 2024. This marked a decline from the double-digit growth levels seen each year between 2021 and 2023.
However, Bermuda remained a dominant jurisdiction, accounting for over 60% of the reserves ceded for transactions that became effective in 2023 and 2024.
Nearly 70% of offshore reserves were ceded to affiliated reinsurers, with firms backed by asset managers or private equity sponsors responsible for 46% of those affiliated offshore transactions. Less than 15% of reserves were ceded to unaffiliated reinsurers that do not have an existing rating relationship with AM Best.
In a poll conducted by AM Best, 90% of insurance executives cited capital efficiency as the main reason for using offshore reinsurance. Strategies to improve capital efficiency vary, including holding reserves on an economic basis to reduce reserve requirements or locating assets in jurisdictions with lower charges.
Annuity reserve growth remained strong over the past two years due to higher interest rates and demographic trends. While the pace of growth slowed in 2024, demand for reinsurance solutions is expected to continue as insurers seek to manage capital levels and balance sheet expansion.
Affiliated offshore reinsurance arrangements offer capital efficiency and may also provide accounting and tax benefits. However, these transactions add operational complexity and reduce transparency. Cross-border activity introduces geopolitical risk and can complicate financial reporting.
According to recent industry data, total offshore life reinsurance reserves transferred by US insurers surpassed US$1.1 trillion by the end of 2024, with Bermuda capturing the majority share.
The increased use of offshore structures has drawn greater regulatory scrutiny. The National Association of Insurance Commissioners (NAIC) has raised concerns regarding transparency and asset adequacy in offshore reinsurance transactions.
State regulators are evaluating tools to strengthen oversight, including updates to asset adequacy testing protocols and enhanced disclosures to ensure policyholder protection is not compromised by complex cross-border arrangements.
Meanwhile, Bermuda and other offshore markets are seeing continued growth in the use of sidecar structures, which allow reinsurers to access third-party capital to support underwriting.
The expansion of these models in Bermuda and the Cayman Islands reflects a shift toward more flexible capital structures, although it introduces added complexity for managing counterparty and investment risk.
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