Accelerating price softening in the real estate sector, modest easing of certain terms and conditions, ongoing challenges in the casualty sector, increased frequency and severity of natural disasters and continued macroeconomic uncertainty have led AM Best to revise its global reinsurance industry outlook to stable from positive.
The global credit ratings agency first took a positive view on the reinsurance sector in June 2024, citing expectations for strong margins for reinsurers and continued underwriting discipline amid tough market conditions.
However, throughout 2025, reinsurance pricing began to soften from recent highs following the housing market reset in 2023, and this trend accelerated with the most recent January 2026 renewals, with housing catastrophe rates falling by approximately 15% on average.
AM Best’s revision to stable from positive reflects growing pressure on property prices, which the company said could challenge the industry’s ability to maintain strong operating performance over the past three years.
However, despite increased competitive pressure in the real estate cat space and supply exceeding the 1.1% new demand increment in 2026, sellers do remain compliant with terms and conditions and attachments largely intact, while reinsurers’ risk-adjusted capital positions remain strong due to retained earnings and prudent capital deployment.
AM Best explains: “It is worth noting that the significant improvements in terms and conditions reset after 2023 renewals have proven to be durable. AM Best has not observed a significant decline in retention rates across reinsurance programs. Instead, the changes have been more focused on broadening policy wording and narrowing exclusions. These changes may have a meaningful impact, but generally less impact, than more substantive structural changes to reinsurance programs. Aggregation/frequency products are reappearing more frequently than last year, but have not yet returned.” Broadly applied to pre-hard market structures. Deployment remains highly selective and analytics-driven. “
According to industry reports, insured losses from natural catastrophes will exceed another $100 billion in 2025, but as AM Best points out, with the exception of January’s costly California wildfires, individual events during the year were not enough to meaningfully impact reinsurers’ performance, in part because of the higher attachment points mandated by the market. As a result, 2025 is expected to be a strong year for profitability, with the industry exceeding the cost of capital for the third consecutive year.
AM Best said: “Continued strong performance has led to strong capital generation, and reinsurers are looking for opportunities to deploy capacity. Going into 2026, reinsurance capacity is expected to reach record levels: approximately $540 billion in traditional dedicated reinsurance capital and approximately $120 billion in ILS capital, supported by a third consecutive year of strong earnings. As a result, competitive pressure has increased.”
In addition to the industry’s strong capital position and continued underwriting discipline, AM Best highlighted rising interest rates and limited new market entrants as additional counterweights to adverse trends affecting the market.
AM Best said: “Reinsurers are still benefiting from rising reinvestment yields even as central banks begin their easing cycle. Yields currently remain higher than maturing long-term bonds in traditional portfolios, allowing reinsurers to steadily increase investment income, while higher capital costs continue to strengthen underwriting discipline.” “Inflation trends, changes in monetary policy and broader geopolitical uncertainty make future interest rate trends uncertain. Nonetheless, with the majority of non-life portfolios concentrated within three- to five-year maturities, reinsurers are well positioned to generate relatively high levels of interest income over the next few years, providing a lasting tailwind even if headline rates start to move lower.”
Additionally, the ratings agency describes life reinsurance as a diversification pillar for some as it provides stability and diversification against fluctuations in property and casualty accounts.
Nonetheless, another key area of focus for reinsurers is the casualty space, where some lines remain challenged as unpredictable jury verdicts in the U.S. continue to drive social inflation amid an uneven tort reform landscape.
On expanding casualty reinsurance, AM Best said: “Several reinsurers have strengthened casualty reserves in 2024 and 2025, and AM Best expects this trend to continue in 2026. In some cases, adverse developments in loss reserves in long-tail lines have been partially or fully offset by favorable developments in the release of property, professional and workers’ compensation reserves, although the buffer from underlying excess reserve positions in other lines may be diminishing.
“In the most volatile areas, such as commercial vehicles, general liability and excess liability, capacity constraints have been reduced and rates continue to rise, but systemic risks remain unresolved. It is questionable whether the meaningful pricing gains of the past few years have kept pace with loss cost trends. Casualty therefore remains a fragile area of opportunity that requires balancing investor interest in diversification with rising volatility.”
While there will be significantly greater competitive pressure on reinsurers in 2026 and the potential for further reductions in property rates at renewals in April and mid-year, AM Best said that overall, “market conditions support underwriting profitability in 2026 and solid overall operating results.”
“However, reinsurers face a complex and challenging operating environment, particularly in the U.S. casualty segment. Assuming catastrophe experience remains within model expectations, AM Best expects the segment to generate returns sufficient to at least cover its cost of capital, supported by strong investment income and profitable underwriting performance sustained by continued prudent risk selection and portfolio allocation in an increasingly challenging pricing environment. The stable outlook reflects the market’s structural improvements in recent years and the ability to balance profitability with stability in an increasingly complex risk environment,” the ratings agency said.
