Bermuda’s life reinsurance business grew to $539bn in 2021
US life insurers cede more than a half a trillion dollars in annual premiums to Bermuda’s long-term reinsurers, and a new study claims it has become a source of industry concern.
In fact, Bermuda was 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, the report has revealed.
Total L&A reserves ceded to Bermuda companies grew from more than $424 billion in 2020 to nearly $539 billion in 2021.
The expectation that it will continue its significant growth trajectory, raises some concerns among industry participants, according to the new study.
Alirt Insurance Research, which models and analyses the relative financial performance trends of insurance companies, has just published US Life Insurers’ Bermuda Reinsurance Exposure (see Related Media).
The report acknowledges the rapid growth in the use of Bermuda by the life industry over the past five years as a core strategy to support new business writings, particularly with respect to individual annuities.
It cites the use of the strategy by privately owned insurers (asset managers, private investment firms, etc), although now other companies such as MassMutual and Prudential Financial Inc have also established their own Bermuda reinsurers.
The report said ceded life insurance and annuity reserves to Bermuda was still growing from one third of total business ceded by US life insurers at year end 2021. And some insurance groups use it to a much greater degree than average.
The ceded life and annuity reserves to Bermuda at year end 2021 had grown to 33.62 per cent of the total, up from 26.19 per cent the year before.
And as the Bermuda portion grew, the US portion fell from 68.15 per cent in 2020 to 59.35 per cent in 2021.
No other country was close. The next was Cayman Islands, which took in just less than three per cent of total US ceded life and annuity reserves.
The report states: “Many Bermuda reinsurers are sizeable 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 (Bermuda Monetary Authority’s) capital requirements are equivalent to European regulatory level (Solvency II).
“It appears that many life insurers that use Bermuda reinsurers benefit from incremental gains in the differences between GAAP/SAP and BMA/US regulatory regimes, and any extra earnings and/or reserve/capital can prove important, especially amid the prolonged and continued low interest rate environment.”
The report concludes: “With a sizeable and growing volume of business ceded outside the purview of US regulators, there is increasing concern among some industry participants regarding this practice.
“At the present time, there do not appear to be any major initiatives from [US regulators the National Association of Insurance Commissioners] or state regulators to blunt the use of Bermuda/offshore reinsurance, though this could change if this trend becomes more ubiquitous throughout the life insurance and annuity industry.”
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