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The reinsurance craze has put annuities and life policies at risk, advisors warn.

By Ben Mattlin

That dire warning comes from Larry Rybka, chairman and CEO of Valmark Financial Group in Akron, Ohio, and other advisors who are alarmed at the way U. S. insurance companies are farming out risk.“ It is no longer just theoretical,” he says, adding that the life insurance and annuities industry has become“ like the Wild West.”

The root of the problem is reinsurance companies helping insurers offset their liabilities. Reinsurance allows insurers to remain solvent in the event of an unexpected degree of losses. With reinsurance, insurers can underwrite more policies or cover more risk without raising their rates, since the insurance companies are required to maintain sufficient reserves to pay all potential claims. In short, reinsurance enables insurers to transfer some of their risk.

But lately they’ ve been transferring more and more of it. Between 2020 and 2024, the dollar amount of obligations that carriers ceded to reinsurance companies soared 86 %, which is more than double the increase in the previous four years, according to Rybka.“ Carriers are abusing reinsurance,” he says.

Worse still, he says, many of these reinsurance companies are based in Bermuda or the Cayman Islands— British territories with less restrictive regulations and lower reserve requirements than the U. S. has. He cites an early February report from Moody’ s Ratings that says U. S. insurers had ceded roughly

$ 800 billion in life insurance and annuity reserves to offshore reinsurers between 2017 and the end of 2023.

In 2024, the report said, the Caymans issued 29 new reinsurance licenses in the first three quarters alone, and Bermuda licensed 10 new reinsurers by year’ s end, up from four a year earlier.“ Insurance regulators are increasingly concerned about life insurers’ reliance on offshore reinsurance and have emphasized a need for improved governance and transparency in these transactions,” the report concluded.

“ None of these transactions are transparent,” says Rybka.

‘ A Shell Game’

Another factor is that many reinsurance companies are spun off from established insurance carriers, says Thomas Gober, a forensic accountant and fraud examiner with Deep Dive Analytics in Beaver, Pa. For example, in December 2024, MetLife and General Atlantic, both headquartered in New York City, formed Chariot Reinsurance in Bermuda and then reinsured $ 10 billion in annuity liabilities. In January 2025, Prudential Financial of Newark, N. J., announced it was reinsuring $ 7 billion in whole life policies with Prismic Life Insurance, which it had

50 | FINANCIAL ADVISOR MAGAZINE | MAY 2025 WWW. FA-MAG. COM