Offshore reinsurance has increased significantly in the North American life insurance sector, with most reserves ceded to Bermuda, says a new report from credit ratings agency Fitch.

Fitch said Bermuda implemented various enhancements to its regime in 2024, increasing the capital, oversight and granularity required to operate on the island.

“Life insurers are increasingly structuring sidecars and creating offshore reinsurance platforms, driven by more economic and less capital-intensive regulatory regimes, often with alternative investment managers, to support growth and optimise capital,” Fitch found. “These structures provide additional capital resources for reinsurers, enabling expansion through inorganic transactions or organic retail annuity sales.”

Reserves ceded by United States entities nearly doubled from $1.3 trillion in 2020 to $2.4 trillion in 2024.

During the same period, reserves ceded to offshore jurisdictions increased 147 per cent to more than $1.1 trillion.

The main driver of this growth was reserves ceded to Bermuda, which represented 84 per cent of all reserves ceded offshore.

While Bermuda’s regulatory regime is considered robust, other offshore jurisdictions are more flexible, which Fitch views cautiously.

Fitch analyses the implications of reinsurance on a case-by-case basis, considering factors such as the jurisdiction, reserving requirements and structural protections.

The agency expects strong reinsurance growth to continue in the intermediate term as insurers and reinsurers leverage reinsurance to support top-line growth and optimise capital.

“Offshore reinsurance adoption is broadly motivated by efforts to enhance reported capital and earnings, though it can also increase counterparty credit risk,” the firm said.

Partnerships between reinsurers and alternative investment managers increased use of offshore reinsurance platforms. A fourth consecutive record year of annuity sales drove reinsurance growth last year.

Reserves ceded, measured by reserve credit and modified coinsurance reserves disclosed in insurers’ Schedule S, Part 3, Section 1 of US statutory financials, increased to $2.4 trillion in 2024 from $2 trillion in 2023.

Strategic partnerships between reinsurers and alternative investment managers have driven growth in asset-intensive reinsurance, mainly to offshore and more economic regulatory regimes.

At year-end 2024, Fitch estimated that about 40 per cent of ceded reserves involved entities with an alternative investment manager relationship.

These partnerships continued to grow this year and are expected to continue over the next 12 to 24 months.

Recently announced relationships include Lincoln National Corporation and Bain Capital Speciality Finance, Guardian Life Insurance Company of America and Janus Henderson Group. JAB Holdings has announced the purchase of Prosperity Life Group from Elliot Investment Management.

Higher interest rates, an ageing population and increased capital have driven annuity sales to $434 billion in 2024, per Life Insurance Marketing and Research Association’s Fact Tank, marking a fourth consecutive record year for retail sales.

Sales remained robust in the first quarter of this year, although Fitch expects sales growth to decelerate year-over-year. Fitch’s Global Economic Outlook forecasts rates to be about 4.50 per cent at the end of 2025.