US life insurers are increasingly turning to the Cayman Islands for reinsurance; however, Moody’s Ratings considers this trend a net credit negative for the sector due to heightened counterparty risk, reduced international recognition, and less transparent financial regulation.
US life insurers strategically reinsure their business across various jurisdictions to optimise reserves, capital levels, and free up capital.
The Cayman Islands currently holds about 10% of the offshore US life reinsurance market, as primary life re/insurers seek to generate top-line growth and manage capital.
The Cayman Islands is a key market for US life insurers, with approximately $87 billion of reserves reinsured as of December 31, 2023. This outbound reinsurance includes both affiliated and non-affiliated transactions, with around 54% of reserve credits involving private capital-backed reinsurers.
While offshore reinsurance can support growth by enabling cedents to manage reserves and capital more efficiently, it also introduces risks, particularly counterparty exposure.
Bob Garofalo, lead author and senior credit officer at Moody’s Ratings, noted, “The overall movement of business offshore is a net credit negative for the life insurance sector because of increased counterparty risk, less international recognition and less transparent financial regulation compared with businesses that resides onshore in the US, as well as a lack of transparency around financial assumptions and disclosure on the reinsured business.”
Moody’s assesses the credit impact of companies ceding offshore by evaluating the specifics of a treaty and the strength of the affiliated or non-affiliated counterparty. An important part of this analysis is understanding the materiality of exposure to different counterparties, some of which may be weaker than the cedent.
Moody’s stated, “Cayman Islands will need to receive recognition from other regulatory regimes before it can become a major destination for the US life industry, something we believe CIMA is focused on achieving over the long run.”
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Publish date : 2024-09-09 02:30:00
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