The growth in the US life/annuity offshore sidecar market in recent years has been quite remarkable, from $87bn in 2022 to $311bn in Bermuda alone in 2024, according to data collected by S&P Capital IQ.
A few trends have contributed to that growth. Rising interest rates have driven significant increases in individual annuity sales in the US which, thanks to the capital requirements necessary to back these liabilities, has had the knock-on effect of accelerating the use of reinsurance structures to free up capacity so the insurers can keep writing this business.
Another has been the increasing participation of alternative asset managers in the life/annuity sidecar space as they can steer the insurance premiums into higher-yielding, private credit assets, something in which these firms have significant expertise.
But last year saw a decline in the number of class C, D and E registrations (the categories where life and annuity reinsurers are mostly heavily concentrated) in Bermuda. Is this a sign of market saturation already?
“From the perspective of saturation, it’s true that there have been a lot of registrations in recent years, but I think it fell last year because I don’t think all of those sidecars that have been registered have been fully built out or have fully executed their business plan yet,” said Tim Zawacki, Principal Research Analyst at S&P Global Market Intelligence.
“There are a number of entities with significant capacity to grow. I think the pullback is just as likely to be because existing platforms need to build out. I don’t think it’s a commentary on supply and demand.”
Bermuda has made a recent change to its disclosure rules this year that, arguably, could support more activity. Under the Insurance (Prudential Standards) Amendment Rules 2025, insurers must now file a standardised “Asset and Liability Statement” which includes granular, position-level data, designed to provide transparency into the private credit and asset-intensive holdings of Class C, D and E insurers.
Far from being a deterrent to new business growth, the change could be a tailwind.
“Bermuda has done a few things in the past two years to significantly enhance disclosure requirements and tighten the reins on certain types of investments. The BMA wants to reinforce confidence in its role as a regulator but also in Bermuda as an insurance and reinsurance market in terms of policyholder obligations. This level of disclosure already happens in the US anyway and the increased transparency that Bermuda now requires is likely to be supportive of activity as opposed to being a drag,” said Zawacki.
What might throw the space off course a little is that the US has also implemented a change recently with regards to disclosure. Actuarial Guideline 55 now requires US life insurers to perform asset adequacy testing on certain asset-intensive reinsurance treaties, and this could have an impact, particularly in the short term.
“It’s premature to make a definitive statement on whether AG 55 will have a meaningful effect on the flow of business from the US to Bermuda. This year is the first year of AG 55, and it’s almost a foundation year, where the results will determine if further rule making will need to occur. You have to take all of these things – enhanced transparency and prudential supervision in Bermuda, and a greater focus on ceded assets in the US – together to get a feel for which companies are thinking about where, what and how much business they are ceding offshore,” said Zawacki.
Where registrations of sidecars have accelerated is in the Cayman Islands. Long the preferred destination of offshore pooled investment funds for the US alternative investment industry, Cayman is making a play in the offshore life/annuity sidecar market as well.
S&P Global says that in 2025, registration growth (44, up from 37, 19%) outpaced asset growth ($73.2bn, up from $70bn, or 4.6%) in Cayman, but AG 55 applies to any offshore jurisdiction, not just Bermuda, so there may be an impact here, too.
But the main driver of increased activity – or a pullback – in the coming years is less likely to be due to regulatory change, and more likely to be due to macroeconomics.
Despite a handful of interest rate reductions in the US in the past 18 months, individual annuity sales have continued to break records. Add to that a good $50bn or so of annual bulk purchase annuity premium and you have a situation where US life/annuity insurers will still need balance sheet solutions in order to continue to write more new business.
One of those roads leads them back to the offshore reinsurance sidecar market.
“The macro picture is one that underpins everything. While I think that the credit cycle might place scrutiny on the space, given the perception of reinsurer’s exposure to private credit instruments, the supply and demand dynamics in terms of annuity issuance and the need for reinsurance solutions remains strong and I think that, assuming current economic conditions hold up, is likely to be more influential in terms of market growth,” said Zawacki.