A recent report by AM Best indicates a substantial rise in reserves allocated to life and annuity sidecars, surpassing $90 billion in 2025. This marks a considerable jump from $64 billion in 2024 and $55 billion in 2023. This growth is largely attributed to robust annuity sales in the U.S. market and the impact of increasing interest rates, prompting life insurers to seek enhanced reinsurance solutions.
Expanding Horizons: Life/Annuity Sidecars Reach New Financial Heights
In a detailed analysis, AM Best reveals that the U.S. individual annuity market has experienced remarkable expansion over recent years, fueled by a period of climbing interest rates. Although the pace of growth moderated slightly in 2025, the overall trend points to a flourishing sector. This sustained demand for annuities has compelled insurance providers to strategically manage their capital by transferring a greater volume of reserves to reinsurance sidecars.
Historically, sidecars have been a more common mechanism within the property/casualty insurance domain. However, data from AM Best illustrates a clear shift, with these structures gaining significant prominence in the life/annuity landscape since 2021. Jason Hopper, an associate director at AM Best, emphasized this evolving trend, noting the fundamental differences in the nature of risks and liabilities. While property/casualty sidecars often address short-term risks with liquid assets, life/annuity sidecars, particularly those reinsuring fixed-indexed annuities, are designed for commitments spanning several decades.
The growth isn't limited to traditional arrangements. The report highlights that some insurers are ceding existing blocks of business, while others are focusing on new policy flows. Furthermore, a noteworthy development is the expansion of several sidecars to encompass third-party business, including both ongoing and legacy portfolios. Prismic Life Re serves as a prime illustration of this evolution, with its subsidiary recently securing an agreement to reinsure yen-denominated whole life and annuity policies from Daiichi Life, signaling the burgeoning potential for sidecars in the Japanese market. This diversification helps to enhance the risk and earnings profiles of these sidecar entities.
Geographically, Bermuda maintains its position as a central hub for these innovative reinsurance structures. The island's well-established regulatory framework, specifically tailored for Special Purpose Insurers (SPIs) and collateralized arrangements, underpins its leadership in attracting alternative capital. Nevertheless, there's an emerging trend of geographic diversification, with AM Best observing the establishment of three new sidecars in the Cayman Islands over the past two years.
The study also points out that companies ceding reserves to life/annuity sidecars hold a disproportionately large share of funds withheld in coinsurance arrangements compared to the broader industry. While sidecars represent approximately 4% of the industry's total reserve credit taken by primary insurers, they account for a significant 10% of funds withheld. This preference for funds-withheld modified coinsurance (modco) structures is largely driven by enterprise risk management (ERM) strategies, aiming to mitigate counterparty risk and optimize regulatory and rating agency capital management. AM Best acknowledges that while it imposes higher risk charges for unrated reinsurance partners, the practice of retaining funds on primary insurers' books substantially reduces these charges. This arrangement allows primary insurers to improve their risk-based capitalization by ceding liabilities, while affiliated asset managers or sponsors can earn fees for managing the associated assets.
This surge in sidecar activity underscores a dynamic and adaptable reinsurance market, responding to the evolving needs of life and annuity insurers in a complex financial environment.
The increasing utilization of life and annuity sidecars, as detailed in the AM Best report, illuminates a critical strategic response by insurers to market dynamics. This trend highlights the insurance sector's ingenuity in managing capital and risk, particularly in high-growth areas like annuities. The expansion of these structures beyond the traditional property/casualty realm into life/annuity business signifies a maturing market for alternative capital. It prompts a deeper reflection on how financial innovation, coupled with robust regulatory frameworks, can create flexible solutions for capital-intensive industries. For market participants, this development suggests new avenues for investment, risk transfer, and capital efficiency, ultimately contributing to the resilience and growth of the global insurance landscape.
