Traditional reinsurers’ capital utilisation improved to 77% at year-end 2025 from 85% in 2024 and 92% in 2023, and credit rating agency AM Best expects further improvement to 72% in 2026, driven by a continuation of market trends.
In a new report, AM Best highlights how the record level of dedicated reinsurance capital, from both traditional and alternative sources, has strengthened the market’s financial position.
Data from AM Best and reinsurance broker Guy Carpenter predicts that dedicated reinsurance capital will hit a new high of $705 billion at year-end 2026, comprised of a record $575 billion of traditional capital and a record $130 billion of alternative capital.
Importantly, though, AM Best finds that this growth in capital has occurred while the underlying risk profile of the traditional market has remained relatively stable.
The rating agency measures the reinsurance industry’s risk-adjusted capitalisation by comparing required capital with available capital. Capital utilisation approximates the amount of the industry’s available capital that is needed to maintain risk-adjusted capitalisation at the strongest BCAR assessment of 25% at a 99.6% VaR level. The lower the better, so were capital utilisation to exceed 100%, this shows that risk-adjusted capitalisation levels have fallen below the “Strongest” level, which AM Best says was last seen in 2022.
As mentioned previously, AM Best expects capital utilisation to continue to improve in 2026 to 72%, a solid improvement from 2023’s 92%.
“Improvement in capital utilization in 2025 was driven mostly by growth in available capital. Required capital remained relatively flat year over year (with the exception of modest growth in asset risks), while strong underwriting and investment earnings continued to increase the industry’s available capital base. The distinction is important. The improvement in capital utilization does not reflect a material reduction in the risks being assumed by the industry. Instead, reinsurers have accumulated capital and have broadly been conservative in deploying that new capital. The result is a market with historically strong capital buffers and considerable financial flexibility,” says AM Best.
Dan Hofmeister, associate director, AM Best, said: “The continued accumulation of capital is particularly notable because it has not been accompanied by a corresponding increase in required capital, which remained relatively flat in 2025.
“This divergence between available and required capital has created increasingly substantial capital buffers across the sector and provides reinsurers with greater flexibility to absorb volatility, pursue growth opportunities, return capital to shareholders or redeploy capital into primary and specialty insurance markets.”
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