Rising risks in the global annuity sector are increasingly being transferred to offshore reinsurance markets like Bermuda, according to two new industry reports discussing a shift in both credit quality and cross-border activity.

A report released this week by AM Best found that the credit quality of annuity reserves has declined greatly since the global financial crisis, with the average rating falling by nearly two notches compared with 2007.

At the same time, the agency warned about less transparency as more liabilities are moved outside traditional reporting frameworks.

“Granular information has decreased as more reserves are ceded offshore,” AM Best said.

Bermuda is a central offshore hub for more complex and asset-intensive transactions. Separate analysis by Milliman said momentum in the island’s market had continued in 2025, with “new types of complex liabilities being ceded to Bermuda”.

Together, the reports point to a structural shift in the life and annuity sector. Insurers are seeking to transfer long-duration liabilities to reinsurers with higher-yield investment strategies, often backed by private capital.

Bermuda sits at the centre of that trend. Reinsurers on the island now hold more than $900 billion in American life and annuity liabilities, accounting for more than 80 per cent of offshore business.

The growth has drawn more and more scrutiny from global regulators, including the International Monetary Fund and the United States-based National Association of Insurance Commissioners, particularly around asset quality, liquidity and the use of private credit. In recent years the IMF has warned of potential contagion from offshore reinsurance, while NAIC has made the investment practices of life reinsurers a priority.

However, industry figures say Bermuda has strengthened its regulatory framework in response. Andrew Mais, a former president of the NAIC, said this week that oversight in Bermuda is increasingly ‘aligned’ with US and European standards, who share a focus on transparency and accountability.

The Bermuda Monetary Authority has also introduced enhanced disclosure requirements, stress testing and closer supervision of large transactions, measures that Suzanne Williams, chief executive of Bermuda International Long-Term Insurers and Reinsurers, says are intended to address concerns as the sector expands.

The growth may not last, AM Best found.

“Interest rates have begun to decline, and new growth may begin to taper off,” said Jason Hopper, associate director, AM Best. “The [multi-year guarantee annuity] space is already very competitive, market share is tighter and we may be approaching a time when it may be too late for new entrants to capitalise.”