The global reinsurance sector has entered 2025 facing a double blow from volatile financial markets and mounting natural catastrophe losses. However, according to a recent report by S&P Global Ratings, the sector remains on stable footing due to strong capitalization and conservative investment strategies.
In early 2025, the United States’ imposition of new tariffs triggered equity market shocks worldwide. While reinsurers’ exposure to equities is limited, S&P Global noted that short-term asset impairments and potential longer-term effects on illiquid assets remain concerns. “Despite these challenges, we believe global reinsurers remain well positioned,” the report stated, citing high-quality fixed income holdings and robust liquidity profiles across the top 19 global firms.
Reinsurers are dealing with severe natural disaster losses, particularly from the California wildfires in January. The Palisades and Eaton fires have led to insured industry losses estimated between US$40 billion and US$50 billion, with reinsurers expected to absorb roughly 20% of those losses. S&P estimated this would consume up to 40% of their annual catastrophe budgets. Nevertheless, the sector is projected to retain about 60% to 65% of its catastrophe reserve for the rest of the year.
Despite the challenging start, reinsurers’ recent performance has bolstered their resilience. Following structural changes in early 2023 and favorable pricing in recent renewals, the industry delivered earnings growth in 2023 and 2024 that exceeded the cost of capital. Capital adequacy remained strong even under hypothetical stress scenarios. A simulated 35% equity market shock would result in a US$11 billion impact, which reinsurers could absorb while maintaining surplus capital at the 99.99% confidence level.
However, the sector is not without risks. S&P warned of the potential for adverse developments in US casualty reserves, citing rising litigation costs and inflationary pressures as persistent threats. With inflation in the United States projected to hover near 3% in 2025, reserve adequacy will remain a critical issue for reinsurers with large property and casualty exposures in the region.
Despite these headwinds, S&P reaffirmed its stable outlook on the sector. “The top-19 rated reinsurers are well positioned to navigate market turbulence without immediate consequences for our ratings or outlooks,” the agency said, emphasizing the likelihood that firms will proactively manage their capital and risk profiles.
While uncertainty remains—particularly regarding macroeconomic conditions and the duration of trade-related disruptions—S&P expects reinsurers to continue demonstrating resilience through prudent capital management and defensive investment strategies.
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