Offshore reinsurance continues to be a major capital management strategy for US life and annuity insurers, with Bermuda maintaining a dominant position in the market, according to AM Best.
The report shows that 90% of insurance executives surveyed identified capital efficiency as the main driver for using offshore reinsurance. Bermuda accounted for over 40% of total ceded reserves from US life annuity writers in 2024, solidifying its position as a central hub in the sector.
AM Best's analysis also shows that Bermuda's influence goes beyond historical presence, with the territory capturing more than 60% of all new offshore reinsurance cessions in 2023 and 2024.
This continued momentum has helped push total offshore life reinsurance reserves above $1.1 trillion by the end of 2024, underscoring Bermuda’s role in handling a large share of reinsured liabilities.
Jacob Conner, criteria analyst at AM Best, pointed to the territory’s long-standing presence in reinsurance.
“Some of the key attributes to the region are a strong infrastructure of insurance professionals, a favorable regulatory environment with Solvency II equivalents and it being a reciprocal jurisdiction with the United States,” he said.
The report also noted that while total ceded reserves grew in 2024, the pace of growth was slower than during the 2021 to 2023 period. Conner explained that the prior three-year stretch was marked by double-digit increases, which he described as difficult to sustain.
“We have seen new capital enter the market, so the capacity is there from a reinsurance standpoint, and strong annuity growth, which has reached a record pace, has put capital strains on insurers, which has led to the increased use of reinsurance,” Conner said.
AM Best reported that ceded reserves grew 6.4% in 2024, a deceleration compared to the higher increases recorded in the preceding three years. Much of the ceded reinsurance activity remains driven by affiliated reinsurers, which accounted for nearly 70% of offshore reinsurance arrangements.
Of these, about 46% were linked to entities backed by asset managers or private equity firms, indicating the ongoing role of nontraditional capital in life insurance risk transfer.
Regarding transaction structures, Jason Hopper, associate director at AM Best, differentiated between modified coinsurance (ModCo) and funds withheld arrangements.
“Within a funds withheld transaction, the reserves are transferred to the reinsurer, but the assets are not. The cedent controls the assets and pays an investment income to the reinsurer. In a ModCo deal, the reserves and the assets both stay at the ceding company,” Hopper said.
Hopper said this structure introduces a shift in investment risk, which in turn supports RBC (risk-based capital) relief.
The report also addressed counterparty risk, particularly as new reinsurers and capital sources enter the market.
“How do primary insurers navigate that? Counterparty diversification is one avenue,” Hopper said. “The use of collateral as well as rating triggers are three risk mitigating strategies that primary insurers can use to head off any potential insolvencies from the counterparty if that may happen.”
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