As insurers finalize their audited 2024 financials, AM Best is warning that additional reserve strengthening is likely in the months ahead. While the insurance industry remains well-capitalized, investor sentiment and capital flows will be closely monitored as the year progresses.
The industry is currently at record capitalization levels, and credit profiles are improving. However, attention is shifting towards mid-year renewals and how reinsurers will adapt to emerging risks in the marketplace.
The January 2025 reinsurance renewal period followed a challenging period, marked by concerns over hurricane losses and ongoing pressures from social inflation. Despite forecasts of another $100 billion in industry losses, reinsurers managed to remain stable, with the hurricanes aligning with standard catastrophe models.
Strong investment returns helped bolster capital positions, contributing to increased property reinsurance capacity heading into 2025. This expanded capacity affected property rates, though reinsurers maintained strict attachment points and terms to limit exposure to secondary and unmodeled perils.
While property renewal drivers were relatively clear, concerns over profitability emerged in casualty renewals. Social inflation continued to put pressure on reserves, prompting several reinsurers to strengthen their positions in 2024. Despite signaling plans to scale back on casualty business, reinsurers maintained sufficient capacity to meet demand.
AM Best has revised its 2024 estimate of traditional reinsurance capital to $500 billion, down from its earlier projection of $515 billion. This revision, attributed to special dividends and reserve strengthening, still reflects a record-high capital level, surpassing the previous peak of $475 billion in 2021. Additionally, the insurance-linked securities (ILS) market saw continued growth, with investors reinvesting earnings and boosting overall capacity.
While reinsurers have made strides in managing secondary perils, early 2025 has already introduced new challenges. California wildfires—potentially the costliest in history—and severe winter storms in the Southeast have raised fresh concerns. Had the wildfires occurred just weeks earlier, they could have significantly impacted reinsurance renewals.
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