Life insurers and their actuaries are preparing for a new regulatory requirement that will change how they test and disclose reserves tied to offshore life reinsurance, according to AM Best.
The National Association of Insurance Commissioners (NAIC) adopted Actuarial Guideline 55 (AG 55) earlier this year to address reserve adequacy when life and annuity portfolios are ceded offshore, said Jason Kehrberg, vice chairperson of the American Academy of Actuaries.
The NAIC said the “goal of this guideline is to enhance reserve adequacy requirements for life insurance companies by requiring that asset adequacy analysis use a cash flow testing methodology that evaluates ceded reinsurance as an integral component of asset-intensive business.”
AG 55 will apply to asset adequacy analyses supporting reserves reported in 2025 financial statements and going forward. AM Best noted that the new guideline is intended to align reserves more closely with the risk profile of offshore reinsured blocks, where past treatment may have diverged from US statutory rules.
The focus on offshore business reflects the size of exposures now sitting outside US domiciles. Total US offshore life and annuity reserves surpassed US$1.1 trillion by year-end 2024, underscoring why regulators want asset adequacy testing to capture the economic backing of those liabilities more clearly under AG 55.
That offshore reserve volume is concentrated in a handful of hubs, with Bermuda accounting for over 60% of new offshore reinsurance cessions in the past two years. For life writers, that concentration has supported capital and growth strategies, but it has also reinforced supervisory questions about how reserve and capital standards compare across jurisdictions.
Poojan Shah, director, insurance consulting and technology at WTW and co-author of a recent paper on AG 55, said the premise is to make sure certain reinsured annuity and life risks, particularly those ceded offshore, are captured within asset adequacy testing.
“AG 55 is designed to bring greater transparency to how insurers determine asset reserve adequacy,” Shah said, adding that it requires ceding insurers to disclose testing results on in-scope treaties so regulators can better understand the support backing those liabilities.
According to AM Best’s coverage, regulators can then use the disclosures to decide whether additional inquiry or supervisory action is needed if testing points to possible reserve shortfalls. Shah said the sensitivity of results and any need for extra asset adequacy reserves will depend on the specific block of business and each company’s testing framework and actuarial judgment.
Kehrberg told AM Best that a lower interest rate environment can affect guarantees embedded in new life and annuity products. However, he said asset managers have operated through long stretches of low rates, often using more complex assets to align yields and cash flows with insurance liabilities.
The American Academy of Actuaries has also highlighted changes under Section 22 of the NAIC’s Valuation Manual (VM-22), which introduces a principle-based reserving framework for nonvariable annuities issued from Jan. 1, 2026, with optional early adoption through Jan. 1, 2029.
VM-22 covers products such as immediate annuities, deferred income annuities and structured settlements, and sets updated approaches to statutory reserves, including revised interest rate requirements for certain payout contracts.
“Its introduction reflects a broader shift toward a more principles-based framework that integrates actuarial judgment and asset liability modeling with enhanced transparency and governance,” Shah said.
He noted that early adopters are likely to be companies that anticipate a reserve benefit, such as a reduction, but he stressed that all projections must be grounded in prudent assumptions about investment performance and expected claims over the life of the contracts.
