Reinsurers Boost Capacity at January Renewals and Maintain Discipline

Reinsurers entered 2025 with improved capital positions, fueled by lower-than-expected hurricane losses and strong investment income, according to a new AM Best report. As a result, additional property capacity was introduced into the market, influencing pricing trends at the start of the year.

AM Best's commentary indicates that traditional reinsurance capital has reached a record high, supported by strong earnings and reduced investment volatility. Although AM Best revised its 2024 estimate of traditional reinsurance capital down to $500 billion, this still represents a 6.8 percent increase over the prior year. The previous peak was $475 billion at the end of 2021. While property reinsurance rates have begun to ease, margins remain robust. Casualty reinsurance has also faced increased scrutiny, though renewals continue without significant capacity constraints.

The report highlights 2025 as a crucial year for the reinsurance sector, given ongoing secondary peril activity and economic uncertainty. The impact of California wildfires on property reinsurance rates is expected to be a key factor moving forward.

"We expect that reinsurers will continue to hold strong on attachment point levels and terms and conditions, which are their main tools to exclude secondary and unmodeled perils from reinsurance treaties," said Dan Hofmeister, associate director at AM Best.

The lead-up to the January renewal season was marked by uncertainty over pricing, as the US hurricane season initially showed a pessimistic outlook. Concerns were centered around whether industry losses would surpass $100 billion for another consecutive year, a scenario that previously led reinsurers to scale back property capacity and harden the market. However, this year's losses were more in line with historical patterns, in contrast to past years when secondary perils with insufficient modeling complicated pricing strategies.

While property renewal trends were relatively clear, casualty renewals remain uncertain, particularly regarding margins and profitability. Social inflation continues to affect both insurers and reinsurers. "In 2024, we saw a number of reinsurers strengthen their casualty reserve positions," Mr. Hofmeister said. "That's a trend we expect will continue as companies file year-end figures."

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