US state insurance regulators are moving to raise the capital that life insurers must hold against reinsurance ceded to counterparties in non-recognised jurisdictions. Industry pushback has focused not on the principle but on the method.
The NAIC Financial Condition (E) Committee issued a referral on July 27, directing the Life Risk-Based Capital (E) Working Group to develop two changes to the life RBC formula by year-end 2027. The referral was formally adopted at the committee's August 14 Summer National Meeting in Columbus, Ohio.
The first is a recapture charge on ceded reserves and modified coinsurance balances for reinsurance placed outside reciprocal jurisdictions, with an offset for overcollateralization. The second aligns the life RBC credit-risk methodology with the property and casualty approach to account for reinsurers with lower financial strength ratings. Reciprocal jurisdictions currently recognised by the National Association of Insurance Commissioners (NAIC) are Bermuda, the EU, Japan, Switzerland, and the UK.
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The committee said the referral reflected a general belief that immediate action was needed. It pointed to AG 55 filings showing increased offshore reinsurance activity and certain transactions that regulators said could pose risk to US cedants.
The Cayman International Reinsurance Companies Association (CIRCA) filed two comment letters with the NAIC on September 23. Both are now part of the public record ahead of the Life RBC Working Group's October 6 public meeting.
The more pointed of the two goes to the Financial Condition (E) Committee rather than the Working Group. CIRCA argues the referral selected additional RBC as the regulatory response before any public analysis established whether a capital deficiency exists. The Working Group confirmed as much at its August 26 meeting, stating it has no authority to change its parent committee's directives and asking commenters to focus on implementation rather than the underlying decision.
CIRCA argues that boundary matters. Exposing how a capital charge will be implemented is not the same as exposing whether it should exist. The appropriate sequence, the letter states, should first identify the risk, establish its materiality, and evaluate existing safeguards before selecting a regulatory tool. CIRCA also notes the year-end 2027 timeline runs ahead of the NAIC's own RBC Model Governance initiative. That initiative is still developing standards for materiality and prioritisation that, CIRCA argues, should apply to any new capital factor before it is adopted.
The second letter engages on implementation. CIRCA supports a modified factor approach but argues the charge must reflect the likelihood of a recapture event, rather than just its severity. As currently proposed, the Working Group's methods would apply full recapture severity to all business ceded outside reciprocal jurisdictions. That treatment presumes a forced recapture is certain.
CIRCA also argues jurisdictional status cannot substitute for individual counterparty assessment. A well-capitalised reinsurer in a non-reciprocal jurisdiction would attract the same charge as a weakly capitalised one. CIRCA recommends calibration using financial strength ratings and stress testing, and that business already ceded before year-end 2027 be scoped out to avoid retroactive application.
CIRCA members are Cayman-based reinsurers, and the Cayman Islands is not among the NAIC's recognised reciprocal jurisdictions, though it has applied for qualified jurisdiction status.
The American Academy of Actuaries' Reinsurance Work Group filed a comment letter on September 28, 2026 describing the proposed charge as significant. The Academy noted that forced recaptures in life and annuity reinsurance have been very rare over recent decades and raised the same methodological point as CIRCA. The capital required after an assumed recapture reflects severity but not the probability that a recapture occurs.
A Bridgeway Analytics presentation to the NAIC's RBC Model Governance Task Force on August 13 put total life reserve credit and modified coinsurance balances at approximately US$2.85 trillion. Of that total, roughly US$135 billion (about 4.7%) is associated with non-reciprocal jurisdictions. A uniform charge applied to that exposure without adjustment for individual counterparty strength or collateral quality would reshape the economics of a large portion of the offshore life reinsurance market.
The Life RBC Working Group is scheduled to discuss the recapture charge at its October 6 public meeting.
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