In its latest US Life & Health Insurance update, Moody’s analysts have highlighted improving capital risks transparency as regulators top priority as well as their concern regarding the increase in the use of offshore reinsurance by life insurers.
“This year will be another active one on the regulatory front for US life insurers. At its meeting last month, the National Association of Insurance Commissioners (NAIC) cited five main regulatory priorities for the sector. A common objective of the proposals is to increase transparency around US life insurers’ capital and investment risks,” Moody’s stated.
The rating agency also noted that monitoring insurers’ use of artificial intelligence (AI) was also cited by the NAIC as a priority this year.
“In addition, US life insurers may need to adapt to state rules governing use of AI, and to a revised US Department of Labor fiduciary standard at the federal level. Changes to individual tax rates and the estate tax exemption are also set to take effect in 2025, which could have positive implications for insurers’ sales.” analysts explained.
Moody’s has also expressed its concern regarding the proliferation of life insurers’ use of offshore reinsurance, both nonaffiliated and affiliated.
Particularly its use for transactions with asset- intensive businesses ceded offshore.
Analysts highlighted that since 2017 2017, the amount of life insurance and annuity reserves ceded offshore has surged to almost $0.8 trillion, or around 40% of the $2 trillion of total reserves ceded.
Moody’s said: “Although the regulatory reaction is at a preliminary stage and changes before a final rule are likely, it is possible that regulators will more closely scrutinise deals in which the assuming reinsurer does not submit a VM-30 actuarial memorandum to a US state regulator. “
Analysts highlighted: “Although some offshore jurisdictions such as Bermuda have well developed and sophisticated regulatory regimes, we view the overall movement of business offshore as a credit negative for the life insurance sector and believe the Life Actuarial (A) Task Force (LATF) highlights an important issue relating to the transparency and governance surrounding offshore transactions. The proposal has been posted for public comment through May 17.”
