Higher interest rates and more favourable mortality trends have led to improved conditions for life/annuity reinsurance companies as well as more competition — with Bermuda benefiting, according to a new report.

The Best’s Market Segment Report, Life/Annuity Reinsurers Face Growing Competition as Conditions Improve, is part of AM Best’s look at the global reinsurance industry ahead of the insurance and reinsurance conference Rendez-Vous de Septembre, in Monte Carlo.

According to the report, new capital continues to flow into the life/annuity segment, primarily via reinsurers owned by investment managers focused on annuity business.

These newer entrants have sought to coinsure assets that can be rolled into high-yielding positions, mainly in public, private or alternative fixed income products.

Overall, life/annuity reinsurers are well-capitalised and their risk-adjusted capitalisation is expected to remain healthy through 2025, despite risks that remain in investment portfolios and elevated mortality for some, said the report.

Reinsurers owned by asset managers are more comfortable taking on investment risks utilising investment experience from their parent companies in structured products, mortgages, private credit or other alternatives.

Ed Kohlberg, director, AM Best, said: “How newer entrants will alter their strategies over the long-term depending on macroeconomic trends, availability of deals and regulatory changes remains to be seen, but by all indications, this ‘new capital’ is here to stay, with billions more committed but on the sidelines waiting for the next opportunity.”

Historically, the US life reinsurance market had been pressured as primary insurers transferred less risk to third-party reinsurers, which led to a long decline in cession rates.

More recently, rising interest rates led to robust annuity sales, which has motivated some primary carriers to reinsure incremental business.

While annuities are a very capital-intensive product, asset managers have supported rapid growth by providing the needed capital and not constraining growth with material dividends, according to AM Best.

Bermuda, and to a lesser extent, the Cayman Islands, have gained popularity based on the stable economic environment and regulatory landscape, as well as political stability and access to legal and financial talent.

They also have flexible accounting regimes and can choose which accounting system works best, the report said.

Stratos Laskarides, senior financial analyst, AM Best, added: “The notable annuity growth is likely to continue, and more companies may look to reinsurers to manage growth and capital levels.

“With new company formations, partnerships and private capital entering the market, the reinsurance market remains competitive with a larger share of business ceded to affiliates and third-party reinsurers.”

• To read the full report, see Related Media