AM Best identifies strength, weakness and growth of offshore reinsurance

Strong annuity product growth, higher interest rates, and offshore transactions that take advantage of differing capital regimes is driving U.S. life/annuity companies to cede out business and increase their level of reinsurance leverage, according to the latest Best’s Market Segment Report.

The report, “Global Life/Annuity Reinsurers Remained Poised for Steady Growth,” is part of AM Best’s look at the global reinsurance industry ahead of the Rendez-Vous de Septembre in Monte Carlo.

“Persistent and intensifying competition” is pressuring asset-manager-led life/annuity companies in particular to grow returns, AM Best said. “Asset-intensive reinsurance” (protection from asset underperformance, not from liability shocks) can enhance profitability by providing surplus relief.

Bermuda and, to a lesser extent, the Cayman Islands, offer opportunities for surplus relief through regulatory arbitrage. Offshore L/A reinsurance has averaged 31% annual growth over the past 10 years. Pure life-side product reinsurance is a more mature marketplace but still sees a steady growth rate of about 4% a year. Many companies have placed their focus on counterparty risk.

“The treatment of required capital and reserves is often less stringent than for reinsurers domiciled onshore in the United States. There is increased recoverability risk in some cases due to a lack of collateralization in some jurisdictions,” said Edward Kohlberg, director, AM Best, in a release.

AM Best noted “pockets of concern that the level of excess capitalization may be insufficient to support claims in stress scenarios”—meaning that the reinsurers, having provided surplus relief to the ceding companies, might turn out not have enough capital to cover the ceding companies’ losses in a big asset price crash.

The amount of reserve credit taken and funds withheld on U.S. cedents’ balance sheets has been steadily increasing as a percentage of gross reserve credits taken, the release said. At year-end 2025, 41% of ~$1.61 trillion in reserve credits taken belonged to reinsurers, up from about 21% at year-end 2016.

Sidecars can help. “Sidecars have also gained prominence in the L/A space,” said Lou Silvers, senior financial analyst, AM Best. “These are reinsurance affiliated or non-affiliated entities that draw on capital from third-party limited investors and can provide incremental just-in-time capital to execute larger deals when opportunity arises and earn additional fees for the general partner.”

Asset manager-led insurers drive offshore reinsurance growth: AM Best

The amount of annuity reserves ceded offshore continued to increase in 2025 and now represent more than half of ceded annuity reserves as companies manage risk-based capitalization levels amid increased market competitiveness, according to a new AM Best report.

The Best’s Special Report, “Unaffiliated Offshore Reinsurance Deals Drive Asset-Intensive Reinsurance Market in 2025,” is a part of AM Best’s look at the global reinsurance industry ahead of the Rendez-Vous de Septembre in Monte Carlo.

Takeaways from the report include:

• Unaffiliated reinsurance deals outpaced affiliated deals in 2025 for the first time in three years, with the 10 largest unaffiliated reinsurance transactions in 2025 totaling over $107 billion, greatly surpassing the $35 billion in 2024.
• AM Best notes that cross-border reinsurance introduces operational complexity and opacity. While the use of offshore reinsurance helps manage risk-based capitalization, reinsurance dependence, quality and the appropriateness of reinsurance programs can have negative impacts to the overall balance sheet strength assessment in AM Best’s rating analysis.
• 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 its global Best’s Capital Adequacy Ratio (BCAR) calculations.

The asset-intensive reinsurance market remains competitive as annuity growth slows at primary insurers, leading to steadily increasing reinsurance leverage for the life/annuity segment. In this report, AM Best states that offshore reinsurance accounted for nearly 56% of ceded annuity reserves, including modified coinsurance (modco) reserves.

While Bermuda continues to be the dominant offshore domicile, the Cayman Islands increased its share of the market in 2025, heavily driven by a few recently established sidecars.

The dramatic increase in ceded reserves to offshore affiliates has been driven largely by private equity/asset manager-owned companies.

“Private equity/asset manager-owned insurers generally lean more into this strategy, as these companies account for nearly half of reserves ceded to offshore affiliates, but account for only one-quarter of total reserves ceded,” said Jason Hopper, associate director, Industry Research and Analytics, AM Best.