The National Association of Insurance Commissioners’ (NAIC) Life Actuarial Task Force is developing new rules to assess the accuracy of offshore reinsurance agreements. This effort responds to a growing trend of life insurers turning to reinsurers based in Bermuda and the Cayman Islands.
In February 2024, the task force began reviewing a proposal to examine life insurers’ asset reserves tied to reinsurance deals.
The proposal addresses concerns that domestic insurers might enter agreements that reduce asset requirements significantly, allowing capital releases that could harm policyholders. The task force expressed these concerns in a March 23 exposure of the proposed regulations.
Fred Andersen, a member of the NAIC task force and chief life actuary for the Minnesota Department of Commerce, noted a surge in reinsurance activity since 2020. He estimated that these transactions have reached hundreds of millions of dollars.
This trend has led to reduced transparency regarding reserves held after these transactions and the assets supporting them.
The American Council of Life Insurers (ACLI) has expressed support for the new guidelines but proposed changes to increase flexibility for appointed actuaries.
In a February 28 letter, the trade group suggested that actuaries should have more freedom to assess reinsurance risks while maintaining regulators’ authority to require additional analysis.
The ACLI recommended limiting the guidelines to transactions initiated in 2020 or later to better align financial information with the assuming company’s jurisdiction.
As regulators evaluate these guidelines, life insurers continue shifting reserves offshore. A September 2024 report noted that nearly 47% of ceded reserves moved offshore in 2023, up from 26% in 2016.
The trend shows no sign of slowing. The report also noted that offshore reinsurance deals often complicate accounting practices.
Most offshore cessions involve affiliates, with asset manager and private equity-backed insurers accounting for 44% of these transactions.
Insurers that move more than half of their ceded reserves offshore are typically sponsored by private equity or asset managers.
Private equity and asset manager-owned insurers have grown significantly, now holding nearly 10% of the life and annuity sector’s admitted assets.
Bermuda and the Cayman Islands remain the most popular destinations for offshore reserves due to their stable political and regulatory environments.
In 2023, Bermuda handled over one-third of in-force business and 60% of new business. The Bermuda Monetary Authority registered 67 insurers in 2023 and 26 more through June 2024. Meanwhile, the Cayman Islands approved 41 new international insurers in 2023.
A survey from 2024 found that 70% of industry executives cited tax efficiency as the primary reason for choosing offshore reinsurance, while 22% cited competitiveness.
The NAIC Life Insurance and Annuities Committee is expected to vote on the new rules in June or July. Final approval would then come from a committee of insurance commissioners during the NAIC’s summer meeting.
