Some insurers are strategically increasing their reinsurance operations in Bermuda, either through subsidiaries or independent ventures, according to a recent analysis in Best’s Review.
This move, AM Best explained, is primarily driven by life and annuity insurers looking for capital efficiency and the opportunity to manage risks associated with products like multi-year guaranteed annuities and spread-based offerings more effectively.
Edward Kohlberg, a director at AM Best, noted that “every company has a different reason” for turning to Bermuda, including capital efficiency, regulatory arbitrage, and favorable tax conditions.
“There is a lot of annuity growth to be had and if you can manage that growth in a more efficient manner, then it benefits the company — they can sell more,” he said.
Bermuda’s long-standing appeal to professional insurers seeking capital efficiency through reinsurance was highlighted by the report. This strategy might involve either an affiliated entity or an independent company backed by different investors, facilitating a diversification of the investor base.
AM Best also points out the significant role of private equity and asset management firms in providing capital to new entrants in the annuity and block reinsurance markets, not just in Bermuda but also in the United States and the Cayman Islands.
Data from the industry group LIMRA revealed that annuity sales in the first nine months of 2023 reached $269.6 billion, a 21% increase from the same period in 2022. LIMRA projects that total sales for the year could surpass $350 billion, setting a record.
A trend has emerged where carriers are reinsuring existing business blocks with Bermuda-based companies. A notable instance is the Lincoln Financial Group’s recent arrangement with Fortitude Reinsurance Co Ltd, where Lincoln National Life Insurance Corp reinsured a substantial portion of its universal life and fixed annuity business, amounting to a $28 billion agreement.
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