Has your annuity been reinsured in the Cayman Islands? Here’s why it matters

What happens when a foundational promise of the retirement security system is broken? The collapse of PHL Variable Life Insurance Co. is a stark, unsettling answer. For policyholders depending on guaranteed retirement income, it is a cautionary tale about what can go wrong when an insurer loses its financial footing — and when the system designed to catch it looks the other way.

For consumers, PHL raises a legitimate question: What red flags should you watch for? When your retirement security depends on an insurer’s promise to pay, you have every right to expect that the company is financially sound, that its behavior is not reckless and that regulators are doing their jobs.

During my tenure as Insurance Commissioner for the State of Connecticut, I held policyholder protection as my paramount duty. The most important job any insurance commissioner has is to ensure that an insurance company keeps its promises to its policyholders. Everything else is secondary.

One red flag that deserves more attention — from consumers and regulators alike — is whether an insurer has handed over financial responsibility for your annuity contract to an offshore company in the Cayman Islands.

The Cayman Islands’ reinsurance regulatory system is defined by permissive capital standards and a troubling lack of transparency. This combination has proven to be a powerful draw. The sector has grown to $101 billion in reinsurance assets across 113 companies as of the end of 2025 — a pace of expansion that should give any thoughtful regulator pause.

Rapid growth in a low-transparency environment is not an abstraction. It creates real risk for U.S. policyholders when the liabilities behind an insurer’s promises are ceded to a jurisdiction outside U.S. borders.

As Connecticut's insurance commissioner, I had real tools to protect my policyholders, examination authority, capital intervention powers, and ultimately, the ability to place a troubled company into receivership. But the moment an insurer cedes its liabilities to the Cayman Islands, every one of those tools disappears, and Connecticut consumers become entirely dependent on the decisions of a regulator with no obligation to put their interests first.

To be clear, the Cayman system did not cause PHL’s troubles. But it helped the company mask and delay the recognition of its mounting losses, papering over problems that should have surfaced sooner.

A race to the bottom

Worse still, some states have begun to allow U.S. companies to emulate Cayman’s permissive approach to capital and reserving in order to cater to domestic insurers. Left unchecked, that trend invites a regulatory race to the bottom, and U.S. policyholders are the ones who would pay for it.

The next failure could be far more consequential than PHL. That is why state regulators must act now, before a larger crisis forces their hand.

Regulators must have a clear line of sight into the material reinsurance exposures that U.S. life insurers are ceding to Cayman. And the jurisdiction’s coming bid for Qualified Jurisdiction status from the National Association of Insurance Commissioners deserves rigorous scrutiny, with one test above all others: does it protect U.S. policyholders.

Promises made must be kept. That obligation belongs to the insurers who write the contracts — and just as much to the regulators who stand behind them.

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Thomas B. Leonardi is a former Insurance Commissioner for the State of Connecticut. He previously served on the executive committees of the National Association of Insurance Commissioners and the International Association of Insurance Supervisors. He currently serves as an independent director on the boards of The Travelers Companies and ACRA. The views expressed in this piece are his own and do not represent the views of any organization he is affiliated with. Contact him at thomas.leonardi@innfeedback.com.