The US asset-intensive life reinsurance (AILR) market has been growing significantly in recent years. Annuity sales have set record after record and that, coupled with the desire to offload legacy blocks of business, such as universal life with secondary guarantees, have seen US carriers look to alternative capital management solutions as their balance sheets evolve.
And they now have a significant regulatory change to deal with. The new Actuarial Guideline 55 (AG 55) is designed to provide regulators with much more transparency into the asset adequacy of offshore AILR structures, in turn forcing a fundamental shift in how cedants report risk.
The new rules were signed off last August and are effective for asset adequacy analysis of the reserves reported in the 31st December, 2025, annual statement.
“AG 55 largely bubbled up from concerns about whether the increase in cross-border reinsurance activity could pose an increased risk to policyholders,” said Jason Kehrberg, Immediate Past Vice President of Life at the American Academy of Actuaries.
“The regulators found that reserves backing some of the liabilities were lower – sometimes, materially lower – which fuelled the concern. AG 55 is designed to provide more information to the regulators so they can address any concerns that lower reserves could put policyholders at risk.”
The first reports for carriers with treaties in scope of the new rules are due on 1st April, but despite the deadline, this is no joke.
“The operational impacts of AG 55 should not be overlooked. The guideline requires detailed asset and assumption support, so it increases data, modelling, and documentation friction for in-scope deals,” said Yan Fridman, Consulting Actuary at Milliman in New York.
“This isn’t a blanket stop sign for offshore AILR, but it will likely mean increased infrastructure development for certain companies.”
One of the features of AG 55 is the new attribution analysis, a mandatory disclosure designed to bridge the gap between US statutory reserves and offshore levels. It provides a step-by-step breakdown of reserve decreases that attributes changes to specific factors like discount rates, mortality assumptions, and policyholder behaviour to ensure transparency in cross-border capital relief.
“It’s less about transparency between two frameworks and more about why statutory reserves decrease after ceding to a foreign jurisdiction. It’s only transparent for that specific treaty because it provides insights into why the reserves decreased after the deal was done – it could have been due to different mortality assumptions, lapse assumptions or investment returns,” said Kehrberg.
“It’s going to help the regulators distinguish between what they see as legitimate deficiencies where there are justifiably lower reserves, and the ones that may be due to risky assumptions.”
Following on from that is the requirement to ensure that ceded obligations are supported under ‘moderately adverse conditions.’
A popular model for actuaries to use to model ‘moderately adverse conditions’ is the New York 7 – a set of standardized, deterministic interest rate scenarios that subjects a portfolio to seven distinct paths (a baseline level rate, plus three ‘up’ scenarios and three ‘down’ scenarios) but ultimately, the model used is at the appointed actuary’s discretion.
That might sound subjective on the surface but that’s not the case.
“AG 55 introduces targeted prescriptions on breakouts which will provide the regulators with insight into the modelling used for specific components like discount rates, differences in yield expectations and policyholder behaviour, for example,” said Kehrberg.
“But there isn’t a standard, fixed definition of moderately adverse because life insurers in the US and their reinsurance counterparts vary significantly in risk profile. Actuaries need the flexibility to use models that accurately reflect the business that is ceded.”
AG 55 is, then, a significant development which imposes a degree of additional administration – and therefore, cost – onto the cedant. But that doesn’t mean that it is necessarily detrimental to the market overall.
In this initial phase of reporting, there are ‘materiality thresholds’ related to specific treaties, including the ceded reserves being greater than $5bn, or more than $1bn of ceded reserves that also exceeds 5% of the ceding company’s life and annuity reserves, to give two examples.
That is not the entire market, of course; indeed, the NAIC estimates that only 100 treaties will be in scope for this initial wave.
But even if the scope of AG 55 were to expand in an attempt to catch a greater share of the market in its net, that doesn’t mean that it will be a drag on the market overall.
“AG 55 effectively makes the rules of engagement clearer – rewarding strong governance, credible stress testing, and transparency. These are all traits that tend to sustain capacity over time,” said Fridman.
“So, we could see AG 55 result in more AILR opportunities onshore, since the additional requirements put the US AILR market on more equal footing because AG 55, when reviewed in conjunction with VM-22, could be seen as part of a larger effort by regulators encouraging cedants to do more business in the US as opposed to ceding certain blocks overseas,”
In the meantime, the 1st April deadline looms large for the appointed actuaries, who will have been working on their reporting and modelling since the autumn of last year.
But, thanks to the way AG 55 is written, there is still plenty to do in the next two months, which may pave the way for adjustments later in the year.
“While the spirit of the guideline is clear, the current text leaves areas for interpretation. Cedants should consider working with their regulators and advisors to ensure their interpretation of the guideline is aligned before the initial filing deadline of April 1, 2026,” said Fridman.
“On the regulatory end, departments of insurance may find themselves with a flood of inconsistent information, and so we may see more defined instructions before the 2027 filing deadline.”
