AM Best cautions on reserve strengthening in 2025

Casualty renewals raised concerns over profitability. 

As companies finalise their audited 2024 financials in the coming months, further reserve strengthening is expected, advised AM Best. 

The industry remains well-capitalised, but investor sentiment and capital flows will be closely watched.  

With the industry at record capitalisation levels and credit profiles improving, attention will now shift to mid-year renewals and how reinsurers adapt to evolving risks.

The January 2025 reinsurance renewal period followed a turbulent lead-up, shaped by concerns over hurricane losses and ongoing social inflation pressures. 

Despite concerns over another $100b in industry losses, reinsurers remained stable, with the hurricanes falling within standard catastrophe models. 

Strong investment income further improved capital positions, allowing for increased property reinsurance capacity heading into 2025. 

This expansion affected property rates, but reinsurers maintained strict attachment points and terms to limit exposure to secondary and unmodeled perils.  

Whilst property renewal drivers were clear, casualty renewals raised concerns over profitability. 

Social inflation continued to pressure reserves, prompting several reinsurers to strengthen their positions in 2024. Many signaled plans to scale back on casualty business, but capacity remained sufficient to meet demand.  

AM Best revised its 2024 estimate of traditional reinsurance capital to $500b, down from its August projection of $515b. 

The revision was attributed to special dividends and reserve strengthening, though the capital level still marked a record high, surpassing the previous peak of $475b in 2021.  The insurance-linked securities (ILS) market continued to expand, with investors rein

vesting earnings, boosting overall capacity.  

Whilst reinsurers have made progress in managing secondary perils, early 2025 has already presented new challenges. 

California wildfires, potentially the costliest in history, and severe winter storms in the Southeast have heightened concerns. Had the wildfires occurred just weeks earlier, they could have significantly impacted renewals.