July 21, 2026

Regulators: ‘No firm conclusions’ from first offshore reinsurance filings

State insurance regulators have begun reviewing the first round of reserve adequacy reports required under a new actuarial guideline designed to increase oversight of offshore and captive reinsurance transactions.

It is too early to conclude whether reserves remain sufficient to protect policyholders, said Fred Andersen of the Minnesota Department of Commerce.

Andersen gave an update on Actuarial Guideline 55, adopted in 2025, during a Monday call of the Reinsurance Task Force. The National Association of Insurance Commissioners charged the task force with creating a guideline to help tighten oversight of offshore reinsurance reserves.

Specifically, regulators want to eliminate transactions that artificially reduce reserves without a real, transparent drop in underlying liabilities.

The initial proposal to tighten the reins on reinsurers was made in February 2024 by David Wolf, acting assistant commissioner for the New Jersey Department of Banking and Insurance, and Kevin Clark, chief accounting and reinsurance specialist with the Iowa Insurance Division.

The resulting guideline requires life insurers to submit reserve adequacy analyses for certain reinsurance agreements when the assuming reinsurer is not required to provide reserve adequacy reports to U.S. regulators. The requirement primarily affects offshore life and annuity reinsurers and some captive reinsurance arrangements.

Regulators received AG 55 filings from 80 life insurers during the second quarter of 2026, with some companies submitting multiple reports because they had more than one qualifying transaction, Andersen said.

The filings are being reviewed by the Valuation Analysis Working Group, which has completed an initial high-level review and has begun more detailed examinations of insurers considered higher priorities because they cede a large share of liabilities to offshore or captive reinsurers.

“These reviews are still in early stages,” Andersen said. “We’ve started interactions with some companies but have come to no firm conclusions yet regarding reserve adequacy.”

Reserve reductions common

Among the initial observations, regulators said many annuity blocks carry lower reserves after being transferred to offshore or captive reinsurers than they did under U.S. statutory accounting before the transactions occurred.

AG 55 is intended to determine whether those lower reserve levels remain sufficient to pay future claims, whether reserves can withstand moderately adverse conditions and whether adequate capital exists to absorb more severe stress.

Companies have offered several explanations for holding lower reserves after reinsurance, Andersen explained.

One common rationale is that insurers expect higher investment returns than those reflected under U.S. statutory reserve requirements, which are based on average corporate bond yields.

Another frequently cited reason involves policyholder behavior. For example, a consumer opts for a fixed indexed annuity with a guaranteed living withdrawal benefit, and the GLWB might have a higher present value than the cash value.

“You must assume that the policyholder elects the option with the highest value,” Andersen said. “But some companies were finding through their experience that there were some policyholders who would choose options with less value. In some cases, this is the cash value, which might have a lower present value than a stream of income.”

VM 22 impact

Regulators are also evaluating whether new reserve standards adopted under the Valuation Manual, known as VM-22, may reduce insurers’ incentives to use offshore or captive reinsurance.

VM-22, which applies to fixed annuity business issued in 2026 and later, is part of the industry’s broader transition to principle-based reserving.

Officials said the revised methodology may better reflect asset risk and policyholder behavior than previous reserve standards, potentially addressing some of the reasons insurers sought reserve reductions through reinsurance.

One question regulators plan to monitor is whether offshore and captive reinsurance activity declines as insurers begin using the new reserving framework.

‘Expected to have excess capital’

Regulators said another early finding is that many companies reported maintaining reserves at 100% of U.S. statutory levels despite transferring business offshore or to captives.

That has prompted regulators to examine whether sufficient excess capital also supports those liabilities.

“Companies are expected to have excess capital to cover more severe conditions, and we want to make sure those safeguards are going to remain in place after these offshore captive reinsurance treaties take place,” Andersen said.

If an insurer maintained reserves without dedicated excess capital supporting the reinsured business, the arrangement could resemble an insurer operating with an effective risk-based capital ratio near zero — a level that would normally trigger regulatory intervention, he added.

The working group has identified several areas for additional review as examinations continue, Andersen noted.

Among them are evaluating the reasonableness of actuarial assumptions used in reserve adequacy testing, reviewing valuations of assets that don’t have clear market values, assessing how asset values could affect claims-paying ability, and improving transparency into assets held by offshore reinsurers.

Regulators also said they have begun verifying offshore reinsurers’ balance sheets to confirm that reserve adequacy testing is based on reserves actually held by the reinsurer.

In addition, they plan to continue examining insurers’ motivations for using offshore and captive reinsurance, particularly in light of VM-22’s implementation, Andersen said.

“We’re going to continue reaching out to companies and hopefully gaining more understanding of the [reserving] issues,” he added.

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