New rules in the United States are changing how insurers assess asset-intensive reinsurance as offshore markets continue to take on more life and annuity business.
Actuarial Guideline 55 took effect in the US on 31 December 2025. The measure brings asset-intensive reinsurance within the scope of asset adequacy testing, according to the latest report from AM Best.
The change comes as US insurers use reinsurance to support growing annuity books while managing capital and risk.
AM Best said reinsurance leverage among US life and annuity insurers has increased as annuity sales have grown.
Bermuda and, to a lesser extent, the Cayman Islands have become more widely used for retirement solutions and reinsurance.
AM Best pointed to their economic and regulatory environments, political stability, access to legal and financial expertise and flexible accounting regimes.
Offshore life and annuity reinsurance has grown by an average of 31% annually over the past 10 years. That compares with about 4% for traditional life reinsurance.
The increase has coincided with faster growth in annuity reserves. Annuity reserves have grown 14% annually in each of the past five years, while ceded life and annuity reserves more than doubled between 2018 and 2025.
The way those reserves are reported can vary between jurisdictions.
AM Best said offshore reinsurers can, in some cases, choose among modified US risk-based capital, US GAAP, IFRS 17, local statutory accounting and, in some cases, BCAR for regulatory reporting.
As a result, the reserve credit taken by an insurer ceding business does not match the reserves assumed by its reinsurer.
AM Best also flagged potentially less stringent treatment of required capital and reserves, as well as increased recoverability risk when collateralisation is limited.
More capital is also entering the reinsurance market from outside traditional reinsurers.
Guy Carpenter estimates third-party capital accounted for about one-third of total reinsurance capacity in 2025, double its share in 2022.
Sidecars have become a source of additional capital for larger transactions. Reinsurers have also increasingly used retrocession to manage or enhance their capital.
Investment strategies are another area of focus.
AM Best said private credit and other alternative investments are becoming more prominent as reinsurers seek higher returns and assets that match long-duration annuity liabilities.
The agency warned that private structures, illiquid assets and Level 3 bonds could create additional challenges during adverse market conditions.
It said insurers should carry out counterparty and collateral due diligence as more reserves are ceded offshore.
AM Best said it is also monitoring the transparency of capital adequacy, investment composition, financial stability and liquidity as the market evolves.
