Bermuda’s life reinsurance reaches $539bn in 2021
US life insurers cede more than a half a trillion dollars in annual premiums to Bermuda’s long-term reinsurers, according to a new study by Alirt Insurance Research.
Alirt, which models and analyses the relative financial performance trends of insurance companies, showed that Bermuda is by far the largest foreign reinsurance destination for US life insurers and accounted for just over a third of total ceded life and annuity reserves at year end 2021.
In its report, “US Life Insurers’ Bermuda Reinsurance Exposure”, Alirt calculates that total L&A reserves ceded to Bermuda companies rose from more than $424 billion in 2020 to nearly $539 billion in 2021.
The ceded life and annuity reserves to Bermuda at year end 2021 had increased to 33.62 percent of the total, up from 26.19 percent in 2020. The US part decreased to 59.35 per cent from 68.15 percent. The next biggest share was held by the Cayman Islands, but with just less than 3 percent of total US ceded life and annuity reserves.
Some reasons for the recent growth in the use of Bermuda reinsurance include:
- the National Association of Insurance Commissioners’ decision to permit Bermuda as a qualified jurisdiction for 2015 and as a reciprocal jurisdiction in 2020;
- the impact of low interest rates on insurers’ existing life insurance and annuity business;
- the use of Bermuda reinsurance by insurers acquired by private investment firms and asset managers;
- the adoption of this strategy by “traditional” insurers owing to its perceived benefits;
- competitive pressures to gain/maintain market share, especially in individual annuities.
The largest Bermuda life reinsurance operations belong to Apollo (which owns Athene Holding), with total ceded reserves (across two companies) that equalled $156 billion at year-end 2021, almost all of which is ceded via modified coinsurance or funds withheld coinsurance.
“The use of Bermuda reinsurance has grown significantly over the last five years and has become a core strategy for many insurers to support their new business writings, particularly with respect to individual annuities,” the report says. This trend is “poised to grow”, it adds, as more companies adopt this strategy.
It continues: “Additionally, many Bermuda reinsurers are sizable entities and many carry one or more financial strength ratings from major US rating agencies (which is usually reflective of a highly-rated parent company). Also, Bermuda’s regulatory regime is not drastically different from the US and the BMA’s capital requirements are equivalent to European regulatory level (Solvency II).”
It concludes, however, that the principal cause of financial difficulties for annuity companies is investment portfolio losses and concentrations in higher risk assets, and this is independent of whether investments are housed in US direct writing entities or reinsurers (domestic or foreign).
The report is here.
