More than $1 trillion of American insurers’ holdings are “parked in Bermuda”, according to The Wall Street Journal, as regulators struggle to keep pace with the growing use of complex debt investments.

The newspaper reported that life insurers in the United States have shifted towards new kinds of structured securities while regulators spent four years developing tougher capital rules for collateralised loan obligations, known as CLOs.

The new rules, approved this month by the National Association of Insurance Commissioners, are to make sure insurers hold enough capital to absorb potential losses on about $314 billion of CLO investments.

However, insurers are investing in other structured products that are not covered by the changes. These include securities backed by assets ranging from student loans and car payments to music royalties.

“People feared a major crackdown in CLOs and so they created other forms of oftentimes similar structured securities to invest in,” Aaron Sarfatti, a former chief risk officer at insurer Equitable, told the newspaper.

The report has relevance for Bermuda, whose long-term insurance and reinsurance sector held about $1.52 trillion in assets at the end of 2024, up 19 per cent from a year earlier.

The sector has expanded rapidly as US insurers transfer blocks of annuity and life insurance business, along with the assets supporting those obligations, to reinsurers based on the island.

Several large Bermudian-based life reinsurers are owned by or affiliated with alternative asset managers, including Apollo, KKR, Brookfield, Carlyle and Sixth Street.

The Journal said the growth of these investments showed the difficulty facing state insurance regulators, as money can move into newly designed securities before rules on older products take effect.

The Bermuda Monetary Authority has tightened its supervision of the long-term sector in recent years. Measures have included stronger investment and liquidity reporting, enhanced public disclosures and changes to capital requirements.

The BMA’s latest market report said mortgage-backed and asset-backed securities accounted for 21.1 per cent of the sector’s assets at the end of 2024. The BMA also found that most insurers retained capital above regulatory requirements under a severe financial-crisis stress test.