OLDWICK — Flourishing annuity sales, using reinsurance as a capital management strategy and rising competition from new market entrants continue to drive activity in the global life/annuity reinsurance segment, according to a new AM Best report.

The Best’s Market Segment Report, “Global Life/Annuity Reinsurers’ Capital Management Strategies Evolve to Achieve Target Returns and Meet the Needs of Cedents,” is part of AM Best’s look at the global reinsurance industry ahead of the Rendez-Vous de Septembre in Monte Carlo. Other reports, including AM Best’s ranking of top global reinsurance groups and in-depth looks at the insurance-linked securities, Lloyd’s, health and regional reinsurance markets, will be available during August and September.

According to this report, AM Best continues to observe an increase in reinsurance leverage by U.S. cedents, which is partly driven by offshore transactions. 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 reinsurance leverage ratio for the U.S. life/annuity industry ended 2024 at 328%, compared with nearly 200% a decade earlier, a trend pointing to the growing use of third-party reinsurance by U.S.-domiciled carriers relative to their capital and surplus.

“With higher interest rates driving robust annuity growth in the past few years, the amount of annuity reserves has expanded by more than 10% in each of the last four years, and ceded reserves have doubled from 2016 to 2024,” said Edward Kohlberg, director, AM Best. “The notable annuity growth is likely to continue, and more companies may look to reinsurers to manage growth and capital levels.”

The report notes that reinsurers face several investment risks, as their perception of managing these risks is always evolving, especially with increased immersion of private equity-backed reinsurers and asset managers. Reinsurers owned by asset managers are more comfortable taking investment risks, utilizing investment experience from their parent companies in structured products, mortgages, private credit or other alternatives.

“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, AM Best. “At the same time, and despite annuities being a very capital-intensive product, asset managers have thus far supported the rapid growth by providing the needed capital and not constraining growth with material dividends.”

AM Best expects the growing competition for capital solutions, the increased complexity of products and the use of reinsurance as a strategic capital management tool to persist.