Japanese life insurers are increasingly setting up reinsurance structures in Bermuda as they seek different and better ways to deploy their capital amid shifting global rules, according to a new report by AM Best.

The report, released ahead of the Rendez-Vous de Septembre in Monte Carlo, notes an “uptick in Japanese insurers ceding business directly to Bermudian reinsurers or through existing Bermudian-based affiliates, whichever is viewed as cost-effective”.

The move comes as Japan implements a new capital framework based on the International Capital Standard and grapples with low interest rates and an ageing population.

Bermuda’s role in the global life and annuity reinsurance market is growing, driven by offshore activity from American cedants and international players alike.

“Bermuda, and to a lesser extent the Cayman Islands, have gained popularity amid increased demand for retirement solutions and reinsurance as a capital and risk management tool,” the report stated.

Reinsurance leverage in the American life/annuity sector has climbed steadily, ending 2024 at 328 per cent, up from just under 200 per cent a decade ago.

“With higher interest rates driving robust annuity growth in the past few years, the amount of annuity reserves has expanded by more than 10 per cent in each of the last four years, and ceded reserves have doubled from 2016 to 2024,” said Edward Kohlberg, director at AM Best.

Private equity-backed reinsurers and asset managers continue to play a larger role in the sector, which brings both opportunity and risk, according to the report. “As the offshore reinsurance model continues to be profitable, there remain concerns due to the rapid growth and evolving regulatory scrutiny,” said Stratos Laskarides, senior financial analyst.

The full report, Global Life/Annuity Reinsurers’ Capital Management Strategies Evolve to Achieve Target Returns and Meet the Needs of Cedants, is part of AM Best’s global reinsurance market series available throughout August and September.