Bermuda firms benefit from surge in annuity reinsurance

US life/annuity insurers have doubled their ceded reserves to $1.74 trillion between 2016 and 2023, with Bermuda reinsurers being the major beneficiary, according to a new AM Best report.

The Best’s Market Segment Report, “Strong Annuity Growth Continues Shift to Bermuda Reinsurers”, said nearly 47% of ceded L/A reserves were transferred offshore in 2023, after climbing steadily from the 26% level in 2016. 

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

“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,” said Jason Hopper, associate director, AM Best.

The report noted that the vast majority of $103.2 billion in ceded reserves stemming from the 10 largest transactions of 2023 involved offshore transactions. Bermuda accounted for over a third of all in-force business, as well as 60% of new business, in 2023. Many private equity-owned insurers have started creating offshore reinsurance entities in recent years; approximately two-thirds of reserves ceded offshore go to affiliates. Companies with asset manager/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, as well as access to talent (mainly legal and financial professionals). They 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.The growth in reserves has been fuelled by strong annuity growth on higher interest rates, the report said.   

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