Regulators sharpen focus on growing asset-intensive reinsurance market

Asset-intensive reinsurance (AIR) is a fast-growing innovation in the life sector: reinsuring long-dated annuity or savings liabilities alongside a dedicated asset pool.  

Done well, it frees trapped capital, improves asset-liability matching and creates capacity for new business. 

Done badly, ‘relief’ becomes a fault line under stress. That tension sits at the heart of why regulators from the International Association of Insurance Supervisors (IAIS) to the UK’s Prudential Regulation Authority (PRA) and Japan’s Financial Services Agency (JFSA) are intensifying their focus on the segment.

In November, the IAIS published a paper setting out a globally coordinated supervisory approach to major structural shifts in the life insurance industry, including the growing use of cross-border AIR.

“Structural shifts in the life insurance sector present both opportunities and challenges,” said Toshiyuki Miyoshi, Chair of the IAIS Executive Committee, who also highlighted “the importance of robust supervisory frameworks to manage emerging risks while recognising the potential benefits of these trends for insurers and the real economy.”

Regulators aren’t stopping the AIR market. But they do want firms to prove they understand the risks. 

“Firms that are decades old, at times over 100 years old, and are household names, risk their reputation passing critical policies over to a non-traditional reinsurer that may not even exist in its current form in a decade.“

Jateen Vaghela

Independent actuarial consultant

AIR risks 

Given AIR’s rapid growth, it’s important to understand its evolving risk profile.

Collateral risk is arguably at the top of the list, because AIR ultimately depends on the performance and reliability of the backing assets to support long-dated liabilities.

If those assets are illiquid or misvalued, they may not be realisable when needed, creating a shortfall in a stress scenario. The liquidity squeeze doesn’t have to be extreme to cause issues: even a moderate tightening can make it harder to raise cash.

If liquidity tightens, firms may struggle to post additional collateral or margin and to roll hedges as they come due, which can make FX hedging more expensive—and, under stress, difficult to maintain.

This can be further complicated when collateral is held offshore or under the reinsurer’s or asset manager’s control, reducing the cedant’s day-to-day visibility into exposures such as liquidity pressures. 

“Put it this way, if the assets are out of sight, they are out of mind. And ultimately, there are counterparty risks to the cedant, and hence, the collateral remains critical,” says independent actuarial consultant Jateen Vaghela. 

Even with strong collateral, counterparty risk doesn’t disappear. The reinsurer itself may have weaknesses, such as being lightly capitalised or holding illiquid assets. Operationally, recapture—where the cedent takes back the ceded liabilities from the reinsurer—could be possible. But the resulting reputational damage could be much harder to repair.

“Firms that are decades old, at times over 100 years old, and are household names, risk their reputation passing critical policies over to a non-traditional reinsurer that may not even exist in its current form in a decade,” Vaghela adds.

“Aligning the reinsurer investment strategy with the cedants is key, as in a stress event – collateral may be inefficient, which may cause the cedant to recapture liabilities.“

Rodney Gollo

Founder, Rhodes Point Advisory

Risks can be managed if both the cedant and reinsurer have strong governance.  However, by its nature, AIR can create unclear accountability and misaligned incentives. When reinsurers control collateral investments, incentives can skew toward yield. And, over time, resilience could erode, leaving cedants exposed to stress. 

Rhodes Point Advisory founder Rodney Gollo notes AIR’s benefits in serving ageing populations but highlights counterparty and recapture risks, with collateral potentially exposed to liquidity and market risks. “Therefore aligning the reinsurer investment strategy with the cedants is key, as in a stress event – collateral may be inefficient, which may cause the cedant to recapture liabilities.”

Regulation direction  

There are numerous risks, but regulators’ task is to prioritise and outline the most likely to crystallise, or be under-measured. 

In Asia, two key reference points are the International Association of Insurance Supervisors (IAIS)—which sets the supervisory agenda—and Japan’s regulators, who oversee the Asia region’s largest AIR market. 

The IAIS November 2025 paper Structural Shifts in the Life Insurance Sector is a milestone in signalling likely supervisory follow-through. It noted that insurers can use cross-border gaps in reserving, capital and investment rules to change the assets backing liabilities. 

Closer scrutiny of capital structures seems inevitable.  

“I believe supervisors are likely to place much greater emphasis on whether insurers truly understand the private assets backing their liabilities and how these exposures link them into the wider financial system,” Gollo says. 

Opacity and complexity have also been flagged. Cedants are expected to set monitoring ‘triggers’, such as solvency ratio thresholds, across counterparty risk.   

The IAIS has placed particular emphasis on recapture risk: it’s concerned a failed arrangement can force cedents to retake portfolios that then leaves them strained. 

As a result, supervisors may test loss-absorption capacity and recapture readiness. 

The Bank of England, an influential voice in international prudential debates, has already reflected these concerns in practice: prudential policy director Vicky White said last year the Bank included a Funded Re recapture scenario in its life insurance stress test.  

“This isn’t a change in attitude toward AIR – it’s [Japanese] supervisors catching up with a fast-moving, cross-border market.”

David Schwintowski

Partner at Freshfields

Japanese focus  

While the IAIS sets the global supervisory tone, Asian markets will watch Japan closely for how these expectations translate into practice. 

Japan’s AIR market, the largest in the region, has grown from near zero to multibillion-dollar block deals in under five years.  

Noting recent developments, David Schwintowski, a partner at Freshfields, a legal firm, believes the Japan Financial Services Authority (JFSA) approach has shifted markedly since early 2024.  

In early 2025, Japanese regulators focused their attention on major life cedents, asking detailed questions in questionnaires. Information was requested across AIR volumes, Bermuda counterparty concentration, recapture, and private equity ownership.  

This was followed up in July 2025 by the Insurance Monitoring Report. It flagged an intention to “strengthen risk-based monitoring” and amend the Comprehensive Guidelines. 

Schwintowski says the intensified focus reflects growing interest in transparency, concentration and risk-based monitoring as Japan transitions toward economic-value solvency under Japan’s Insurance Capital Standard (J-ICS).

Given the pace of AIR growth, he describes Japan’s response as healthy.

“This isn’t a change in attitude toward AIR – it’s supervisors catching up with a fast-moving, cross-border market,” Schwintowski said.

Navigating the regulatory path  

For life insurers, the question is how to meet rising supervisory expectations without losing the strategic benefits of AIR. 

Recapture and counterparty risk sit at the top of the agenda. Because the originating insurer remains ultimately responsible to policyholders. Gollo says due diligence must go “much deeper than headline terms”. For offshore reinsurers, he adds, the key is to translate cross-border differences in reserving, capital, and investment rules into robust collateral and recapture plans. 

Vaghela, who has led ALM and risk planning at major insurers, has a simple message:  keep control. He favours funds withheld to preserve visibility and accountability.  

This should be backed by clear investment controls that prevent risk from creeping in, especially around private assets, concentrations, FX hedging, and derivatives.  Independent valuation, stress testing and transparent reporting then make sure the structure stays resilient as markets move. That discipline matters most when assets sit off-balance sheet or offshore, where opacity can grow, and accountability can blur.  

In extremis, he says, firms should maintain a ‘living will’ – a distress playbook covering collateral calls, recapture and more severe failure scenarios. 

Japan: what next? 

Japan is entering an economic solvency-based regime, with Hong Kong and Singapore on similar progressive paths. Taiwan is an evolving regime. 

An economic-solvency lens makes AIR’s potential stress points harder to ignore: illiquidity, collateral plumbing, and cross-border enforceability.

Taken together, Schwintowski suggests that cedants may wish to tighten collateral terms to align more closely with J-ICS and JFSA expectations. 

Having larger collateral buffers is becoming routine. Haircuts for illiquid assets are becoming more explicit.  Firms may also want to define recapture triggers and operational mechanics from day one, they say. 

Monitoring is shifting too. Cedants may push for look-through visibility into collateral pools. Independent valuation of illiquid assets is becoming a bigger focus. 

All this, they note, comes at a time when recapture and counterparty-failure scenarios are also featuring more prominently in Own Risk and Solvency Assessment (ORSA) and board-level capital planning.

“Japan won’t be a single template, but it will be one of the key benchmarks shaping how aggressively other Asian markets pursue AIR as a capital management tool under economic solvency,” Schwintowski says.

Unpredictable future

Having weighed up the pros and cons, regulators want proof firms can see, measure and control risks — before markets turn.

Vaghela recalls a company mantra under then–Sun Life Financial CEO Don Stewart: ‘Plan for war but pray for peace.’”

“This is such a key mantra for AIR deals. Over the long-term time horizon of a deal, expect market crashes, elevated risk environments and have your plans in place,” he concludes.