The global life and annuity (L/A) reinsurance market remains well capitalised and positioned for sustained expansion, driven by increased dedicated capital for traditional life coverage and a surge in third-party backing for asset-intensive annuity business, according to a new report by AM Best.
The report, titled “Global Life/Annuity Reinsurers Remained Poised for Steady Growth,” comes ahead of the annual Rendez-Vous de Septembre in Monte Carlo, as primary carriers lean heavily on reinsurers to navigate higher interest rates, strong annuity product growth, and further offshore transactions as a result of differing capital regimes.
Offshore transactions have served as the primary driver of this expansion, with offshore L/A reinsurance averaged 31% annual growth over the past 10 years.
By comparison, pure life side 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.
Bermuda and, to a lesser extent, the Cayman Islands, have gained popularity among ceding companies amid increased demand for retirement solutions, as well as the need for reinsurance to serve as a capital and risk management tool.
These factors have been underpinned by a stable economic environment and regulatory landscape, as well as political stability, access to legal and financial talent, and flexible accounting regimes.
“The treatment of required capital and reserves is often less stringent than for reinsurers domiciled onshore in the United States,” said Edward Kohlberg, director, AM Best. “There is increased recoverability risk in some cases due to a lack of collateralization in some jurisdictions.”
According to the report, this reliance has substantially reshaped balance sheets across the sector, the amount of reserve credit taken and funds withheld on US cedents’ balance sheets has been steadily increasing, with reinsurer accounting for 41% of approximately USD 1.61 trillion in reserve credits taken at year-end 2016, up from about 21%.
AM Best notes pockets of concern that the level of excess capitalisation may be insufficient to support claims in stress scenarios.
To support larger transactions, alternative capital structures are increasingly stepping in. Lou Silvers, senior financial analyst, AM Best, commented: “Sidecars have also gained prominence in the L/A space.
“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-intensive reinsurance, along with capital relief solutions, are supported by the rising private credit investment strategies within the market.
Persistent and intensifying competition, especially from the private equity/asset manager entrants, has added to the rising pressure to grow returns.
Finally, the report indicated that traditional reinsurers grew their total volume of in-force individual life business in 2025, reflecting carriers’ reliance on biometric risk transfer solutions and reinsurer expertise to optimise capital and manage risks.
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