Offshore and unaffiliated reinsurance fuel asset-intensive growth
With an ageing population and favourable crediting rates on annuity products compared to other banking financial products, demand for annuities has been a driver of growth over the past few years, although 2025 and 2026 experienced deceleration.
The amount of annuity reserves ceded continued to increase in 2025 as companies manage risk-based capitalisation in tandem with the notable annuity growth, which is a capital-intensive product (See Exhibit 1). Amid new company formations, partnerships and private capital continuing to enter both the primary annuity market and the asset-intensive reinsurance market (AIR) seeking these annuity liabilities as growth slows, the reinsurance market for these dollars remains competitive.
As a result, reinsurance leverage for the industry has been steadily increasing since 2019, largely driven by private equity/asset manager-owned insurers (PE/AM) and publicly traded companies and the use of reinsurance, and particularly to offshore domiciles (See Exhibit 2).
In an attendee poll at AM Best’s annual review and preview conference in March, 38% of industry executives cited collateral monitoring as the most important risk to manage related to the use of offshore reinsurance. Another 31% named effective and integrated enterprise risk management (ERM) programmes, and nearly 20% focused on counterparty diversification. Strong ERM can help protect against regulatory, balance sheet and counterparty risks. While the use of reinsurance helps manage risk-based capitalisation, reinsurance dependence, reinsurance quality and the appropriateness of reinsurance programmes can all have negative impacts on the overall balance sheet strength assessment (See Exhibit 3).
Bermuda sheds some market share
Continuing its upswing, offshore reinsurance accounts for almost 48% of ceded reserves (including modified coinsurance [modco] reserves) in 2025, and to some degree, the use of offshore reinsurance has become necessary for market competitiveness, particularly for large companies in the pension risk transfer market. However, cross-border reinsurance introduces operational complexity and opaqueness, while lessening oversight owing to the use of multiple global regulators. While Bermuda continues to be the dominant offshore domicile, the Cayman Islands increased their share of the market in 2025, heavily driven by a few recently established sidecars (See Exhibit 4).
Cayman, already a well-known domicile to investment management firms seeking to enter the reinsurance market, offers a platform that combines capital markets familiarity, sophisticated service providers and proportionate supervision. Cayman also just submitted its application to receive Qualified Jurisdiction Status from the NAIC, which would allow insurers to get credit for reinsurance from a non-US domiciled company, as well as lower reinsurance collateral requirements.
Although reinsurance deals with offshore entities often complicate accounting, AM Best captures these risks at the consolidated level by looking at the ceding and affiliated captive reinsurance company in our global Best’s Capital Adequacy Ratio (BCAR) calculations. Reinsurance recapture risk is a scenario that should be stress tested, as greater shocks would occur at cedants when liabilities are suddenly recaptured.
Affiliated and offshore reinsurance overlaps
The share of ceded reserves going to affiliates that are offshore has risen dramatically in the past five years, to more than 61% in 2025 compared to 40% in 2020 and prior. PE/AM companies have been steadily growing the amount of reserves ceded to offshore affiliates since 2020, surpassing the amount ceded offshore by public companies in 2022, causing a reaction from those companies to further lean in to the strategy in attempts to remain competitive (See Exhibit 5). Further, seven of the 10 companies with more than an 80% share of ceded reserves going to offshore affiliates are PE/AM insurers (See Exhibit 6). However, we do note that only half of the PE/AM companies use affiliated offshore reinsurance.
Offshore domiciles often use assumptions for discount rates based on actual company portfolio yields, which results in lower reserves required than the more conservative US statutory accounting. Additionally, offshore domiciles also allow for a larger asset universe to back the reserves. As annuities grew over the past few years, more US statutory reserves could be shifted to Bermuda, requiring less reserves if your portfolio yield was higher than the US stat benchmark.
As such, PE/AM firms or other companies that can originate and/or have the investment expertise in structured or other higher-yielding assets will continue to view these domiciles as an attractive strategy to gain a competitive advantage as a result of the greater discount rate on reserves generated by these higher-yielding assets.
Large transactions drive 2025 unaffiliated deals
Unaffiliated reinsurance deals outpaced affiliated deals in 2025 for the first time in three years. The 10 largest unaffiliated reinsurance transactions in 2025 totalled more than $107 billion, greatly surpassing the $35 billion in 2024 (See Exhibit 7). These 10 deals accounted for more than 70% of the ceded reserves to unaffiliated reinsurers and are largely modco structures, led by two variable annuity block deals between subsidiaries of Venerable Holdings, Inc. and Corebridge Financial. Four of these top 10 deals are also ceded to sidecars. (For an in-depth look: Big Year of Growth for Life/Annuity Sidecar-like Activity in 2025.1) Two thirds of ceded reserves to unaffiliated companies in 2025 deals were ceded to companies not rated by AM Best, with the remaining evenly split with a Best’s financial strength category of superior or excellent. The largest reinsurers by in-force reserves aggregated by ultimate parent are listed in Exhibit 8.
With counterparty risk and diversification being focal points, collateral monitoring and recapture provisions within reinsurance contracts can help manage operational risk. For example, the contract can embed provisions addressing what happens in various scenarios, such as if there is a rating downgrade, a change in control or ownership or a material decline in capital ratios, helping provide greater operational risk control.
Tightening the investment guidelines that back liabilities is another avenue for risk mitigation. Additionally, NAIC introduced AG-55, which went into effect on December 31, 2025, designed to include asset-intensive reinsurance in the scope of asset adequacy testing. These changes add additional operating expenses as companies build out their organisations to meet regulatory requirements.
This article is an excerpt from the Best’s market segment report, ‘Global reinsurance at an inflection point: Can discipline survive the temptation of record capital?’ which looks at the global reinsurance industry ahead of the Rendez-Vous de Septembre in Monte Carlo.
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Jason Hopper is an associate director and part of the industry research and analytics team at AM Best. He can be reached at jason.hopper@ambest.com. To find out more about AM Best, visit web.ambest.com.
Read the full Bermuda:Re+ILS Annual 2026 here.
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