Reinsurers improved their capital positions in 2024, supported by lower-than-expected hurricane losses and strong investment income, according to a recent report by AM Best.
The increase in available capacity influenced property reinsurance pricing heading into the 2025 renewal period.
The lead-up to January 2025 renewals was marked by uncertainty, as the industry assessed how full-year results would impact renewal negotiations. The year began with concerns over the potential for significant hurricane-related losses.
Early forecasts predicted an active season, and Hurricanes Helene and Milton initially fueled expectations of major insured losses. However, as the storms developed, market losses remained within manageable levels, easing concerns over another US$100 billion catastrophe year.
Hurricane activity in 2024, while above average in frequency and severity, primarily involved well-modeled primary perils. These types of losses are factored into standard catastrophe reinsurance pricing and risk appetite.
In contrast, previous years saw greater exposure to secondary perils – such as severe convective storms and wildfires – that lacked reliable modeling, leading to uncertainty in pricing and coverage. Higher attachment points and refined underwriting practices have since reduced reinsurers’ exposure to these risks.
Although hurricane-related losses were less severe than initially projected, secondary peril activity continued at a steady pace. Reinsurers maintained stricter underwriting terms to limit exposure to these events, ensuring that pricing adjustments were primarily confined to primary perils.
The overall improvement in capital allowed for increased property reinsurance capacity heading into 2025, leading to some softening in rates. However, attachment points and terms remained firm, as reinsurers sought to control exposure to less predictable risks.
While property renewals were relatively straightforward, questions remain over the state of casualty reinsurance. Social inflation remains a key concern, affecting both insurers and reinsurers.
Several companies strengthened their casualty reserves in 2024, a trend that is expected to continue as full-year financial results are finalized.
New reserve developments have primarily been tied to recent accident years, as well as business lines that had already seen prior-year adjustments. With rising loss costs and limited options for improving margins, some reinsurers indicated plans to scale back on casualty business.
Despite these concerns, capacity remained sufficient to complete placements during the renewal period.
AM Best revised its estimate of traditional reinsurance capital for 2024 to US$500 billion, down from the US$515 billion projected in August. The adjustment was attributed to special dividends issued by large reinsurers in the US and Bermuda, as well as additional reserve strengthening.
However, the revised figure still represents a 6.8% increase for the year, pushing total reinsurance capital above the previous record of US$475 billion set in 2021.
Meanwhile, Guy Carpenter estimated that third-party capital reached US$107 billion at year-end 2024, exceeding the previous record set in 2023.
The insurance-linked securities (ILS) market, which had seen constrained growth due to trapped capital in prior years, saw renewed investment as large-scale losses were avoided. Many investors reinvested earnings into the market in 2024, further expanding available capacity.
The reinsurance sector enters 2025 in a position of relative strength, having addressed key concerns around pricing secondary and non-modeled perils. However, early developments in the new year have introduced fresh challenges.
Wildfires in California have the potential to become the most costly in history, and uncertainty remains over how reinsurance programs will respond. Had these fires occurred prior to the January renewals, they could have had a material impact on pricing and capacity.
Additionally, winter storms in the Southeast have underscored the continued volatility associated with secondary perils.
As companies begin to release full-year audited financials, actuarial reviews will provide further clarity on reserve adequacy and overall capital positions. Many firms are expected to further strengthen their casualty reserves, though the impact on investor sentiment and capital availability remains uncertain.
While reinsurers have adapted to adverse trends in recent years, the industry remains cautious about new challenges. Capitalization is on pace to reach new highs, and credit profiles have continued to improve.
However, with the turbulent start to 2025, market attention will now shift to mid-year renewals, where further adjustments may be necessary to account for emerging risks.
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