NAIC Actuarial Guideline 55 Tightens Oversight on Offshore Life Reinsurance

The National Association of Insurance Commissioners (NAIC) has introduced Actuarial Guideline 55 (AG 55) to enhance regulatory oversight of asset-intensive life reinsurance transactions, particularly those involving offshore arrangements such as with Bermudian reinsurers. This guideline requires US cedants to perform rigorous asset adequacy testing under moderately adverse conditions, ensuring that transferred liabilities remain fully backed by assets. It marks a significant regulatory advancement as asset adequacy testing is now formally applied to reinsured blocks, mandating detailed disclosures in year-end statutory filings. AG 55 aims to make reserve movements tied to offshore reinsurance arrangements more transparent and traceable, providing regulators and market participants clearer insight into how these transactions impact insurers' balance sheets. This increased scrutiny is expected to influence the structuring and documentation of future reinsurance deals, especially those that have driven reserve relief for US life insurers. Bermuda remains the primary hub for offshore life and annuity reinsurance, with over $900 billion in US liabilities ceded to Bermudian reinsurers, representing more than 80% of offshore reserves. Industry analysis highlights that a significant portion of US life insurer reserves—estimated at 38% of the $2.4 trillion total—has been ceded offshore, with considerable new capital inflows into Bermuda’s market since 2016. These shifts reflect a growing alignment between offshore reinsurance strategies and alternative asset management objectives. Under AG 55, US cedants must now provide granular data regarding asset portfolios, stress-testing methodologies, liquidity profiles, and projected cash flows to substantiate reserve adequacy post-reinsurance. Although Bermuda is recognized as a reciprocal jurisdiction by NAIC—thus waiving collateral requirements—cedants remain responsible for proving the economic and statutory soundness of ceded liabilities. This positions treaty negotiations to incorporate enhanced data sharing and stress-testing collaboration between US insurers and Bermudian reinsurers. The guideline’s introduction parallels broader market trends reported by Moody’s and Morningstar DBRS, underscoring Bermuda’s dominant role in the offshore life and annuity reinsurance sector. The development reflects a regulatory emphasis on reinforcing transparency, compliance, and risk management in complex reinsurance structures that materially affect the US life insurance industry’s capital and reserve frameworks.