Reinsurers see capital growth in 2024 amid lower-than-expected hurricane losses: AM Best

A new AM Best report has observed that the lower-than-expected losses from Hurricanes Helene and Milton, coupled with strong investment income, allowed reinsurers to improve their capital positions in 2024 and supply the market with additional property capacity, influencing pricing heading into 2025.

According to the rating agency’s report, as the 1.1 2025 renewals approached, many industry participants were unsure how reinsurers would respond to hurricane activity in 2024.

The main concerns reportedly centred around another year of a potential $100 billion in industry losses, which just years ago led reinsurers to reduce property capacity, resulting in a hardened market.

“However, these losses were mostly related to traditional modelled primary perils. Previously, secondary perils that lacked sufficient modelling had plagued reinsurers and made it very difficult for them to price their business appropriately,” AM Best explained.

The rating agency continued, “The hurricane losses of 2024 were more typical storms, which are incorporated in pricing for any standard reinsurance catastrophe treaty—paying for hurricane losses every few years is usually within any property cat reinsurers’ risk appetite.

“Additionally, although secondary peril activity remained unabated, higher attachment points and better underwriting and pricing made reinsurers less vulnerable to secondary peril losses.”

However, as mentioned, the hurricane losses were slightly less severe than originally anticipated. As per AM Best, this, coupled with strong investment incomes, allowed reinsurers to improve their capital positions and supply the market with more property capacity going into 2025.

“This additional capacity has affected property rates. However, we expect that reinsurers will continue to hold strong on attachment points and terms and conditions—their main tools to exclude secondary and unmodelled perils from their treaties,” the rating agency said.

With this in mind, 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.

Looking forward, the rating agency’s report suggested that the year 2025 will be a pivotal one for the reinsurance industry.

“In the prior two years, reinsurers had been able to make up for an extended period of lacklustre performance,” AM Best said.

The firm added, “Heading into the new year, they had seemingly figured out the issues surrounding secondary and nonmodeled perils and could ease up on pricing. However, the start of 2025 has again put the industry on alert. The wildfires in California could be the costliest in history, and much uncertainty remains on how programs will respond to them.

“All eyes will be on the renewals for the remainder of the year. In recent years, reinsurers have been able to respond well to adverse trends. Results are still strong, allowing reinsurers to experience robust growth.

“The industry is on pace to reach all-time highs in terms of capitalization, and credit profiles continue to improve. With the rough start to 2025, the focus will be on what happens during the mid-year renewal period.”

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