Non-traditional reinsurance, particularly asset-intensive reinsurance (AIR), also known as funded reinsurance, has become a major focus for regulators. Across the five jurisdictions of the United States, United Kingdom, Bermuda, Japan and Hong Kong, regulators are looking at whether:
- These transactions deliver genuine risk transfer
- Capital relief is proportionate to the underlying risks
- Collateral and supporting assets remain reliable under stress
- Cedents are prepared for counterparty deterioration or recapture
Despite regulators' common concerns, the five jurisdictions are taking different approaches. Bermuda, as a key global reinsurance jurisdiction, focuses more on supervising reinsurance entities. The United States started with a reserve-adequacy lens and is now planning to directly address the recapture risk in its risk-based-capital framework. In the United Kingdom, the focus is on capital calibration and the incentives created by the current framework. Japan is moving from a narrower legal concept of financial reinsurance toward a broader AIR supervisory framework centered on effective risk transfer, collateral security, recapture stress testing and governance. And the Hong Kong Insurance Authority’s latest proposal would require pre-approval for certain AIR and finite reinsurance arrangements, while also strengthening governance around collateral management, investment strategy, recapture planning and counterparty assessment.
Still, overall, supervisory frameworks are converging on a more demanding standard for non-traditional reinsurance. The differences lie less in what regulators care about than in how they intervene: the United States through reserve and risk-based-capital mechanics; the United Kingdom through capital recalibration and structural incentives; Bermuda through transaction approval and active supervision; and Japan and Hong Kong through governance and risk-transfer discipline.
In this paper, we discuss the following:
- Why asset-intensive and finite reinsurance are under scrutiny
- Key structures and market uses of asset-intensive reinsurance
- Recent regulatory developments by jurisdiction
- Common themes, key differences and strategic implications
- What cedents should do now
- How independent actuarial support can help
- Our outlook and concluding observations