Strategic partnerships between re/insurers and alternative investment managers, the use of offshore platforms, and a fourth consecutive record year of annuity sales led to continued reinsurance growth in the U.S. in 2024.
Fitch Ratings expects the prevalence of offshore reinsurance to persist over the near-to-intermediate term, with insurers leveraging reinsurance to support growth and optimize capital. U.S. life insurers’ reserves ceded, measured by reserve credit and modified coinsurance reserves, increased to $2.4 trillion in 2024, from $2.0 trillion in 2023.
Strategic Partnerships
Strategic partnerships between re/insurers and alternative investment managers (Alt IM) have led to an increase in asset intensive reinsurance, mainly to more economic regulatory regimes outside the U.S.
Fitch calculates about 40% of reserves ceded was to an insurer or reinsurer that has some form of Alt IM relationship. Alt IM partnerships have continued in 2025, with several recently announced partnerships, which include both publicly traded companies and mutual insurers.
Offshore Platforms
Offshore reinsurance growth has been substantial in the North American life insurance sector, mainly driven by the more economic and less prescriptive nature of the regimes.
Most offshore reinsurance reserves are ceded to Bermuda, which implemented various enhancements to its regime in 2024, increasing the capital, oversight, and granularity required to operate on the island. Fitch views Bermuda’s enhanced capital standards and regulatory robustness favorably, which further supports its Solvency II equivalence and NAIC reciprocal jurisdiction status.
Life insurers have been more active in structuring sidecars and creating offshore reinsurance platforms, often in partnership with Alt IMs to support growth and optimize capital. Reinsurance platforms and sidecars provide additional capital resources to re/insurers, allowing growth via inorganic reinsurance transactions or organic retail annuity sales.
Annuity Growth
Many factors have led to annuity sales growth in recent years, including the higher interest rate environment, aging population, and an increasing amount of capital from Alt IMs’ annuity sales in 2024 were $434 billion, per LIMRA’s Fact Tank, which was a fourth consecutive record year for retail sales. Fitch expects sales to be flat to down in 2025, with a view that the growth rates over recent years are unsustainable, along with macroeconomic volatility. (Editor’s note: LIMRA is the life insurance trade association, based in Windsor, Connecticut).
Reserves Ceded Offshore Continues to Rise
Life reinsurance increased materially year on year in 2024, driven by insurers looking to shed capital-intensive blocks of business, coupled with the rise in interest rates, leading to record annuity sales, and growth of offshore reinsurance entities and sidecar vehicles.
While Fitch expects moderation in sales in 2025, the large volumes of offshore reinsurance are expected to persist, given the more economic-based reserve regimes outside of the U.S.
Reserves ceded by U.S. entities have nearly doubled since 2020, increasing from $1.3 trillion to $2.4 trillion in 2024. Over the same period, reserves ceded to offshore jurisdictions increased 147% to over $1.1 trillion.
The main driver of this increase was reserves ceded to Bermuda, which accounted for 84% of all reserves ceded offshore. When including Barbados and the Cayman Islands, the three jurisdictions account for nearly 95% of ceded offshore reserves. While Bermuda’s regulatory regime is viewed as robust, other offshore jurisdictions are more flexible, which Fitch views cautiously and analyzes the implications of the reinsurance on a case-by-case basis, including the jurisdiction, reserving requirements, counterparty and structural protections.
Offshore Reinsurance Platform Growth Persists
Fitch expects insurers and Alt IM partnerships to continue to grow over the near term, particularly through minority stakes, sidecars and offshore reinsurance platforms. Insurers often create sidecars to optimize capital, support growth and enhance earnings while raising capital from third-party investors.
Sidecars assume all their business from the sponsoring insurer, whereas reinsurance platforms typically start through cessions from their sponsor and are expected to gradually incorporate third-party business. Both offshore reinsurance vehicles can optimize capital for the sponsoring insurer and enhance fee income for both the insurer and the Alt IM partner.
Increased formations of offshore reinsurance platforms and side-car vehicles, usually owned by Alt IMs, have led to increased reinsurance transactions as the life insurance industry sheds capital-intensive, legacy liabilities. Offshore reinsurance platforms provide insurers’ flexibility managing capital requirements, new business volumes, and reducing overall risk exposure.
However, transactions including large volumes of reserves can lead to cautionary levels of growth and counterparty credit exposure.
Large Block Deals and Record Annuity Sales Fuel Reinsurance Growth
Fitch views the block reinsurance transactions that have taken place over recent periods as mostly neutral to ratings. Cedents often experience improved business risk profile offset by reduced diversification while reinsurers increase scale and could mitigate risk by re-underwriting key assumptions of the liabilities.
Over recent periods, complex liabilities continue to be ceded, including universal life with secondary guarantees, variable annuities and long-term care insurance. Fitch expects this trend to persist, particularly with publicly traded companies looking to shed non-core liabilities with returns below their hurdle rate. They are able to free up capital to distribute to shareholders and consolidators, including those backed by Alt IMs, seeking to increase their scale and reposition the investments into less-liquid strategies, leveraging asset origination expertise.
The proportion of reserves ceded to Alt IM affiliated re/insurers has grown over the last five years. In 2020 about 11% or $0.3 trillion of reserves were ceded to reinsurers that have a relationship with an Alt IM. In 2024, these numbers jumped to 40% and just under $1.0 trillion. This trend is expected to continue in 2025 as Alt-IM partnerships and offshore reinsurance platform growth persists.
Fitch expects offshore reinsurance to continue to rise over the near-term supported by record levels of fixed annuity sales, with the associated capital strain resulting in insurers seeking to optimize capital through flow reinsurance. Overall reinsurance ceded has nearly doubled over the past five years, driven by offshore reinsurance.
Per LIMRA’s Fact Tank, annuity sales have reached consecutive record highs in each of the last four years, increasing from $255 billion in 2021 to $313 billion in 2022, $385 billion in 2023, and $434 billion in 2024. Fitch expects 2025 sales to decline modestly but remain strong when compared to historical averages. Sales as of Q1 2025 came to $106 billion, down from $107 billion in Q1 2024, but up sequentially from $102 billion in Q4 2024.
Topics
USA
Carriers
Reinsurance
