American insurance regulators have expressed concern about the use of offshore reinsurance by US life insurers, and are likely to follow up with more scrutiny, according to a report by Moody’s Investors Service.

Moody’s, a global provider of credit ratings, research, and risk analysis, attended the March meeting of the National Association of Insurance Commissioners, where discussions included regulatory priorities for the life and health insurance sector.

The NAIC is the US standard-setting and regulatory support organisation created and governed by the chief insurance regulators from the 50 states, the District of Columbia and five US territories.

Moody’s said: “A common objective of the proposals is to increase transparency around US life insurers' capital and investment risks.

“The regulator also cited monitoring insurers' use of artificial intelligence as a priority this year.

“In addition, US life insurers may need to adapt to state rules governing use of AI, and to a revised US Department of Labor fiduciary standard at the federal level.

“Changes to individual tax rates and the estate tax exemption are also set to take effect in 2025, which could have positive implications for insurers' sales.”

But under a section entitled “Offshore reinsurance takes centre stage”, Moody’s reported: “The proliferation of life insurers' use of offshore reinsurance, both nonaffiliated and affiliated, especially for transactions with asset-intensive businesses ceded offshore, has raised concerns among regulators.

“Since 2017, the amount of life insurance and annuity reserves ceded offshore has surged to almost $0.8 trillion, or around 40 per cent of the $2 trillion of total reserves ceded.

“Although the regulatory reaction is at a preliminary stage and changes before a final rule are likely, it is possible that regulators will more closely scrutinise deals in which the assuming reinsurer does not submit a VM-30 (NAIC's actuarial opinion and supporting actuarial memorandum requirements), actuarial memorandum to a US state regulator.

“Although some offshore jurisdictions such as Bermuda have well developed and sophisticated regulatory regimes, we view the overall movement of business offshore as a credit negative for the life insurance sector and believe the (NAIC’s) Life Actuarial (A) Task Force highlights an important issue relating to the transparency and governance surrounding offshore transactions.

“The proposal has been posted for public comment through May 17.”

The Moody’s report charts the top 10 life insurers ceding business to offshore jurisdictions, including at the very top, Athene Holding, which moved its holding company from Bermuda to Delaware in December.

The decision to move was not expected to affect operations in Bermuda, including that of one of Bermuda’s largest annuity reinsurance companies, Athene Life Re.

The Moody’s chart lists Athene Holding Ltd with an Insurer Financial Strength rating of A1, with a stable outlook.

The chart uses figures from US statutory filing as of fiscal year end December 2022 to put Athene’s statutory reserves ceded offshore at $129,864 million.

Global Atlantic Financial Group (A2/Stable) was second on the list with ceded reserves of $66,404 million.