Reserves ceded to life & annuity sidecars increased to over $90bn in 2025: AM Best

Strong U.S. annuity sales have driven a surge in reinsurance sidecar formations, with total ceded reserves climbing to over $90 billion in 2025, a notable increase from $64 billion in 2024, and $55 billion in 2023, rating agency AM Best has reported.

In its latest report, AM Best notes that individual annuities have experienced significant growth amid rising interest rates over the last few years, even though growth rates cooled slightly in 2025.

Last year, AM Best reported that total ceded reserves to sidecars had increased to nearly $55 billion in 2023, which marked a major increase from around $17 billion in 2021.

This momentum has clearly continued, climbing up to over $90 billion in 2025.

Because annuities are a highly capital-intensive business, this rapid expansion has forced insurers to seek additional reinsurance capacity to manage their growth and maintain adequate capitalisation

“As a result of managing strong premium growth through reinsurance, the individual annuity composite has steadily seen its surplus relief through reinsurance leverage increase since 2019,” AM Best said.

As a result, this has driven new/additional capital and brought capacity to the market in the form of reinsurance sidecars in order to manage growth and risk-based capitalisation.

While sidecars have traditionally been a tool for the property/casualty (P/C) sector, they are increasingly gaining traction in the life/annuity (L/A) space

Jason Hopper, associate director, Industry Research and Analytics, AM Best, commented: “Sidecars have historically been more prevalent in the property/casualty segment; however, they have become more pronounced in the life/annuity industry since 2021.”

“Many P/C sidecars have finite lives funding short-term risks with liquid assets, while reinsuring a block of fixed-indexed annuities to a sidecar, for example, could go on for decades,” Hopper added.

Moreover, AM Best goes on to explain that while some insurers have reinsured existing blocks of business to these sidecars, other deals involve new business only. Furthermore, several sidecars have expanded to reinsure third-party business, including both flow and legacy blocks.

The agency pointed to Prismic Life Re as a key example. A subsidiary of the firm recently agreed to reinsure a yen-denominated, in-force block of whole life and annuity policies from Daiichi Life, underscoring the growing potential for sidecars within the Japanese market.

“This market has experienced quite a few deals with asset-intensive reinsurers over the last two years as Japanese insurers navigate an evolving regulatory capital landscape. Such deals help diversify the sidecar’s risk and earnings profile,” AM Best noted.

Geographically, Bermuda remains the dominant hub for these structures, given the island’s reputation as the leading global domicile for alternative capital.

The island is supported by a Bermuda Monetary Authority (BMA) regulatory environment specifically designed for Special Purpose Insurers (SPIs) and collateralized structures.

However, geographic diversity is emerging, as AM Best flags that three new sidecars that were set up within the last two years are domiciled in the Cayman Islands.

The report also observed that companies ceding reserves to life/annuity sidecars have an outsized share of funds withheld in coinsurance compared with the industry aggregate. However, while sidecars account for approximately 4% of the industry reserve credit taken at primary insurers, they account for 10% of funds withheld.

In fact, the agency states that many of the sidecars using funds withheld modco structures likely choose to do so in ord3r to reduce counterparty risk as part of their enterprise risk management (ERM) program and for regulatory and rating agency capital management.

“AM Best has higher risk charges for unrated reinsurance partners, but with the funds still on the primary insurers’ books, the charges get significantly reduced. The primary insurer can cede the liabilities to the sidecar, improving its risk- based capitalization, but the affiliated asset manager or sponsor can also earn fees for managing assets,” the agency concludes.

You can read all about the many reinsurance sidecar investments and transactions over the history of the ILS market, by visiting our comprehensive list of collateralized reinsurance sidecars transactions.