Long-term reinsurance looks set to continue to grow
Bermuda continues to be the prime beneficiary of the transfer of annuities to offshore reinsurers.
Bermuda’s long-term reinsurance sector continued to grow in 2024 and looks set for further expansion in 2025 as pension and annuity insurers continue to look for ways to improve returns for their customers.
Long-term reinsurance, which goes by a number of names, including life reinsurance and asset intensive reinsurance, has grown rapidly in the past 15 years, with Bermuda at the forefront.
A Moody’s Ratings report on May 6 said US life insurance annuity reserves ceded offshore had surged to $1 trillion since 2017, with “Bermuda the common destination for the offshore reinsured business”.
In 2024, the Bermuda Monetary Authority licensed 10 Class E reinsurance companies, which are required to have at least $500 million in total assets. To date in 2025, a further three Class E reinsurers were formed, bringing the total to more than 80 companies.
As of 2022, the long-term reinsurance sector had assets of more than $1.1 trillion, and that number is certain to have increased since then.
Last September, ratings agency AM Best reported that nearly 47% of ceded life/annuity reserves were transferred offshore in 2023, compared to 26% in 2016. Bermuda accounted for more than a third of all in-force business as well as 60% of new business in 2023, in part because many life insurers have created their own offshore affiliates – approximately two thirds of reserves ceded offshore go to affiliates.
The growth is being driven by rising interest rates which led to robust annuity sales and the need to bridge a protection gap which is widening as populations in western countries age.
“Bermuda, and to a lesser extent, the Cayman Islands, have gained popularity based on the stable economic environment and regulatory landscape, as well as political stability and access to legal and financial talent,” AM Best director Ed Kohlberg said. “They also have flexible accounting regimes and can choose which accounting system works best.”
With that growth has come increased scrutiny from international regulators, some ratings agencies and the media.
The concern is centred on three factors, said Moody’s, which has said offshore reinsurance increases counter-party risk, less transparent financial regulation compared with businesses that reside in the US and a lack of transparency around financial assumptions and disclosure on the reinsured business. Other ratings agencies such as AM Best have also raised concerns about counter-party risk but are more positive than Moody’s.
In response, the Bermuda Monetary Authority has moved to demonstrate that Bermuda’s asset-intensive reinsurance regime is robust and reliable.
A recent report, Insights and Reflections on Asset Intensive Reinsurance in Bermuda, said the sector’s solvency ratio as 259%, “which far exceeds the regulatory minimum solvency ratio of 100%”.
The report said: “In the last two years, for quantitative requirements, changes were made to the valuation regime, including technical, governance and disclosure changes, as well as prior approval of the use of the scenario-based approach and enhancements to our lapse and expense capital charges. These changes had a material impact on Total Asset Requirement (TAR) for asset-intensive reinsurers (AIR).
“Bermuda has gained popularity based on the stable economic environment and regulatory landscape, as well as political stability and access to legal and financial talent.” – AM Best director Ed Kohlberg
“Regarding qualitative requirements, since January 2023, all closed block life reinsurance transactions must be approved by the BMA. The Authority engages cedent regulators as part of the approval process and does not approve transactions with which regulators of the cedents are not comfortable.
“The BMA also uses targeted prudential measures such as requiring higher levels of solvency, capital add-ons, reserve add-ons, restricting dividends and imposing liquidity and capital maintenance arrangements to deal with any identified transaction-specific risks.
“Additionally, the BMA introduced the following changes: a high-bar approval process for affiliated and/or connected party assets, enhanced liquidity and stress testing requirements and the requirement of a large portion of the market to prepare recovery plans. Finally, the BMA has issued a consultation paper on the Application of the Prudent Person Principle, which is meant to address observed shifts in the investment landscape specifically.
“Regarding reporting and disclosure requirements, the Authority has introduced enhanced reporting for lapse, liquidity, and assets, requiring asset reporting at the CUSIP/position level.”
The report also noted that while Bermuda has seen rapid growth in the sector, it remains a small part of the global life provision market, at just 3.5% of all global life provisions, and 2.9% of the life sector’s total assets.
This was recognised in the Global Insurance Market Report which highlighted the International Association of insurance Supervisors’ (IAIS) annual global monitoring exercise which said: “Due to the limited size of current exposure to AIR in the global insurance sector, the risk to global financial stability is limited at present.”
In addition, about 80% of Bermuda’s reinsurance business is conducted on a collateralised basis, with assets in most cases being held on the balance sheet of the cedent insurers, the BMA said.
“This further significantly reduces any potential build-up of concentration and or systemic risk exposure within the jurisdiction. Overall, the BMA considers the potential for Bermuda AIR to pose financial stability risk as extremely remote, considering also that the insurance industry is generally unlikely to create systemic risk.”
The report also noted that Bermuda reinsurers’ asset allocations largely mirror their US counterparts and 77% of assets held by Bermuda long-term insurers are investment grade or higher.
The BMA still plans to enhance regulation further, requiring further public disclosure requirements on investments for long-term commercial insurers. It will provide further guidance on the application of the prudent person regime for investment management.
The scrutiny has not diminished international long-term reinsurers’ enthusiasm for Bermuda.
Global insurer Allianz formed Sconset Re in December which initially reinsured a $4 billion block of annuity liabilities and would enter into a forward flow agreement of $5-10 billion of new business.
That announcement came just one day after US life insurance giant MetLife said it had formed a Bermuda-based life insurer called Chariot Reinsurance in conjunction with private equity firm General Atlantic, which would have $1 billion in capital.
The sector received a further endorsement when Japanese life insurer Nippon Life said it would buy Bermuda-based Resolution Life for $8.2 billion. Nippon Life has been Resolution’s single largest investor since 2019. Resolution Life has $85 billion in assets with more than 4 million policies.
Japan is increasingly seen as a source of reinsurance cedants by life reinsurers, given its ageing population and high savings rates. In November, Bloomberg Wealth Solutions opened an office in Tokyo.
In November, Fed Re was formed by Federal Life Group, an affiliate of private equity firm Bain Capital.
Japanese reinsurance opportunities was also one of the major themes at BILTIR’s annual international life and annuity conference, which was attended by more than 450 people. The conference also focused on international regulation and how insurers can bridge the protection gap.
“As a leading jurisdiction for regulatory strength and growth, Bermuda is a perfect place to discuss important trends that highlight the industry’s innovation-led path forward,” said BILTIR chief executive officer Suzanne Williams-Charles.
“There is a clear appetite for the industry to come together and create conversations around the future of the industry – in fact we sold out this year’s event faster than ever before,” she said.
For more news on Bermuda Risk Review 2025, click here.
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