American insurance regulators are increasingly concerned about US life insurers’ reliance on offshore reinsurance, as revealed in a recent report by Moody’s Investors Service. The report followed the National Association of Insurance Commissioners’ (NAIC) March meeting, which focused heavily on the life and health insurance sectors’ regulatory strategies.
The NAIC, a pivotal entity comprising chief insurance regulators from all 50 states, the District of Columbia, and five US territories, flagged the issue as critical amid broader discussions about transparency and risk in the insurance industry.
According to Moody’s, “A common objective of the proposals is to increase transparency around US life insurers’ capital and investment risks.” The focus is not only on the transparency but also on how insurers utilize artificial intelligence, adapting to both state and federal regulations including a revised fiduciary standard from the US Department of Labor.
Notably, the regulators are scrutinizing the escalating trend of life insurance and annuity reserves being ceded offshore, which has surged to nearly $800 billion, approximately 40% of the $2 trillion in total reserves ceded since 2017. The scrutiny comes amid concerns that such practices, while legal, may lack sufficient regulatory oversight, especially when transactions do not involve the submission of a VM-30 actuarial memorandum to US state regulators.
The report highlights that although jurisdictions like Bermuda possess advanced regulatory frameworks, the broad shift of business offshore could pose a credit risk to the sector. This sentiment is echoed in the NAIC’s Life Actuarial (A) Task Force’s recent discussions, emphasizing the need for improved governance and transparency in offshore transactions.
Moody’s analysis also provided insights into major players in the offshore reinsurance arena, with Athene Holding Ltd topping the list. It had ceded reserves of $129.86 million for the fiscal year ending in December 2022. Despite relocating its holding company from Bermuda to Delaware in December, Athene continues to operate one of Bermuda’s largest annuity reinsurance companies, Athene Life Re, indicating the nuanced relationships these companies navigate between regulatory environments.
The list also included Global Atlantic Financial Group – in second position - with significant offshore ceded reserves at $66.40 million.
This deep dive into offshore reinsurance activities forms part of a broader regulatory review, with public comments on the proposals accepted through May 17. The outcomes could reshape the operational landscape for US life insurers, potentially steering them towards greater domestic compliance and oversight.
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