Best’s Commentary: Capacity Grows at January 1 Reinsurance Renewals, but Underwriting Discipline Remains

Bolstered by less severe than expected hurricane losses and strong investment income, reinsurers improved their capital positions in 2024 and were able to supply the market with additional property capacity to the point that it affected pricing heading into 2025, according to a new AM Best report.

The Best’s Commentary indicates that traditional reinsurance capital has reached an all-time high, supported by strong operating earnings and diminished investment volatility. AM Best has revised its 2024 estimate of traditional reinsurance capital down to $500 billion, but this still reflects a projected 6.8% increase over the prior year. The previous high-water mark was $475 billion at year-end 2021. While property reinsurance rates have begun to diminish, margins in the segment remain strong. The Best’s Commentary notes that casualty coverage also has become a bit more scrutinized but is still being renewed without capacity constraints.

The report notes that 2025 will be a pivotal year for the reinsurance industry as secondary peril activity remains unabated, in addition to economic uncertainty. The impact of this year’s California wildfires on property reinsurance renewal rates is another factor to monitor going 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 unmodelled perils from reinsurance treaties,” said Dan Hofmeister, associate director, AM Best.

The road to the January 2025 reinsurance renewal season was somewhat turbulent, with quite a bit of uncertainty about how the related pricing would respond to full-year results. Last year began with a pessimistic outlook for the U.S. hurricane season and the frequency and severity of the storms was worse than normal.

According to the report, the main concerns heading into the January renewals centered around the potential for industry losses to eclipse the $100 billion mark for another year, which just years ago led reinsurers to reduce property capacity and resulted in a hardened market. However, these losses were much different than in the past, in that they were more typical. Previously, secondary perils that lacked sufficient modeling had plagued reinsurers and made it very difficult for them to price business appropriately.

Although the property renewal drivers and results are easy to grasp, the casualty renewals raise quite a few questions regarding margins and profitability. Social inflation continues to impact both insurers and reinsurers. “In 2024, we saw a number of reinsurers strengthen their casualty reserve positions,” Hofmeister said. “That’s a trend we expect will continue as companies file year-end figures.”

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=350811.

AM Best will host an online briefing on January 1 reinsurance renewals at 10 a.m. on Thursday, Jan. 30, 2025. This briefing will feature Carlos Wong-Fupuy, senior director, AM Best; Laure Forgeron, chief underwriting officer-casualty, Swiss Re; and Kyle Rhodes, president-North America operations, Trans Re. For more information, visit the event website.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2025 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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