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US life insurers have shifted greater than $1tn of liabilities offshore, offloading extra danger to international jurisdictions regardless of regulators’ issues about protections for retirement financial savings and broader monetary stability.
Non-public capital-owned teams resembling Apollo’s Athene and KKR’s International Atlantic, in addition to conventional insurers resembling Prudential and MassMutual, final yr moved greater than $130bn of liabilities to offshore reinsurers based in Bermuda, in response to new figures from S&P International Market Intelligence.
US life insurers’ and annuity suppliers’ whole reserves ceded overseas, together with liabilities moved to jurisdictions such because the Cayman Islands and Barbados, reached $1.1tn by the tip of 2024, S&P mentioned.
The reinsurance offers come regardless of regulators and credit standing businesses warning of rising dangers, with questions on whether or not the reinsurers have sufficient belongings to again up their guarantees to policyholders.
Scrutiny intensified final yr after the meltdown of 777 Re, a non-public equity-owned Bermudian reinsurer that had taken on vital publicity to belongings related to Josh Wander’s Miami-based funding firm, which collapsed final yr after a failed try to purchase soccer membership Everton.
The fallout hit US insurers that had ceded billions of {dollars} in belongings to 777 Re by means of risk-transfer offers, and Utah’s insurance coverage commissioner requested a choose to put an insurer and two reinsurers related with 777 Re into rehabilitation in March.
Life insurers have used the worldwide reinsurance sector for a few years to unfold their dangers, resembling prospects residing longer than anticipated.
However so-called asset-intensive or funded reinsurance, the place the dangers related to each liabilities and the belongings backing them are despatched offshore, is elevating issues amongst regulators.
Insurers’ rising ties with different funding managers may additionally create conflicts of curiosity, in response to Fitch Rankings.
Athene, acquired in 2022 by Apollo, had transferred the danger related to liabilities value $193bn to its offshore associates by the tip of 2024, in response to a Fitch evaluation of regulatory filings for the Monetary Occasions, in a method that helped to gasoline a record-breaking yr of US annuity gross sales for the insurer.
However conventional insurers resembling MassMutual, with asset supervisor Centerbridge, and Prudential, with non-public fairness group Warburg Pincus, have additionally made larger use of autos, in an indication of how non-public fairness teams have reshaped retirement financial savings.
Following the 777 scandal, Bermuda’s monetary watchdog mentioned that it could extra carefully monitor connected-party belongings. Each the Bermuda Financial Authority and the US Nationwide Affiliation of Insurance coverage Commissioners have additionally lately introduced new supervisory measures, resembling further reporting necessities on insurers’ funding portfolios, which analysts at Fitch advised the Monetary Occasions had helped to deal with their issues.
Suzanne Williams-Charles, chief govt of a commerce physique for Bermuda reinsurers, advised the Monetary Occasions: “We imagine that the Bermuda reinsurance market — particularly, the life sector — doesn’t pose a systemic danger.”
However recent issues have emerged in different offshore jurisdictions over capital necessities, with distinguished Bermuda reinsurers lately in search of to distance themselves from practices within the Cayman Islands.
Athene chief govt James Belardi warned traders earlier this yr of “unabated development” within the Cayman Islands, the place he mentioned that $150bn of insurance coverage reserves had been “supported by a fraction of the capital required by the US or Bermuda”.
The analysis from S&P discovered that whole reserves ceded by US life insurers and annuity suppliers to reinsurers, together with onshore teams, grew to greater than $2.4tn on the finish of final yr.
