Life and annuity sidecar reserves top $90bn
U.S. life and annuity insurers transferred over $90 billion in reserves to reinsurance sidecars in 2025, up from $64 billion last year and $55 billion in 2023, according to AM Best data.
The increase stems from strong annuity sales, which have pushed insurers to secure more reinsurance capacity to meet capital requirements. Individual annuities saw rapid growth in recent years, though the pace moderated slightly this year.
Sidecars move from property/casualty to life and annuities
Sidecars—special purpose vehicles that let insurers shift risk to outside investors—were once mostly used in property and casualty insurance. Since 2021, they have gained traction in life and annuity reinsurance, the rating agency reported.
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Jason Hopper, associate director of industry research at AM Best, explained that property/casualty sidecars typically cover short-term risks with liquid assets. Life and annuity sidecars, however, can remain in place for decades. “A fixed-indexed annuity block reinsured to a sidecar might stay active for 20 years or more,” he said.
Some insurers use these vehicles to reinsure existing policies, while others restrict deals to new business. A small number have expanded further, taking on third-party blocks, including both new and older policies.
Prismic Life Re, a subsidiary of a Bermuda-based company, recently agreed to reinsure a yen-denominated block of whole life and annuity contracts from Japan’s Dai-ichi Life. The transaction shows rising interest among Japanese insurers, who have turned to asset-heavy reinsurers to adjust to new capital rules. Bermuda remains the leading location for these arrangements due to its favorable regulatory framework for Special Purpose Insurers and collateralized structures.
New locations gain ground
The Bermuda Monetary Authority’s streamlined process makes it simple for insurers to establish these vehicles. Despite this, other regions are starting to compete.
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AM Best noted that three sidecars formed in the past two years are based in the Cayman Islands. These structures help insurers strengthen risk-based capital positions while retaining assets on their balance sheets. Many use funds-withheld modco agreements—a type of coinsurance—to limit counterparty risk.
Sidecars currently represent only 4% of industry reserve credit but account for 10% of funds withheld. The setup works well for both parties: primary insurers reduce liabilities and boost capital ratios, while asset managers or sponsors collect fees for overseeing the transferred assets. AM Best imposes higher risk charges on unrated reinsurance partners, though those charges decrease when funds stay on the insurer’s books.
The approach has become a useful option for companies dealing with expansion and capital demands. Because life and annuity contracts often span decades, these arrangements will likely persist, altering how the sector handles risk. While most deals still go through Bermuda, the Cayman Islands’ emergence indicates the market is evolving.
