A combination of accelerated price softening in the property segment with a modest relaxation of certain terms and conditions, as well as ongoing challenges in the casualty space, the heightened frequency and severity of natural catastrophes, and ongoing macroeconomic uncertainty, has caused AM Best to revise its global reinsurance sector outlook to stable from positive.
The global credit rating agency turned positive on the reinsurance sector for the very first time in June 2024, citing an expectation of robust reinsurer profit margins and sustained underwriting discipline in the hard market environment.
However, throughout 2025, reinsurance pricing started to soften from the recent highs following the property market reset in 2023, and this trend accelerated at the recent January 2026 renewals, with property catastrophe rates declining by around 15% on average.
AM Best’s revision to stable from positive reflects this increasing pressure on property pricing, which the firm says could challenge the sector’s ability to sustain the strong operating results it has achieved for the past three years.
But while competitive pressures have increased in the property cat space, with supply outpacing incremental new demand at 1.1 2026, sellers do remain disciplined with terms and conditions and attachments largely intact, while reinsurers’ risk-adjusted capital position remains robust as a result of retained earnings and prudent capital deployment.
AM Best explains: “Notably, the significant improvements in terms and conditions that reset following the 2023 renewals are proving durable. AM Best has not observed significantly lower retentions on reinsurance programs. Instead, the changes have been more focused on broadening policy wording and narrowing exclusions. These changes can have a meaningful, but typically lesser, impact than more substantive structural changes to reinsurance programs. Aggregate/frequency products have re-emerged more plentifully than last year but have not returned broadly to pre-hard-market structures. Deployment remains highly selective and analytics-driven.”
According to industry reports, 2025 is yet another year that saw insured losses from natural catastrophes exceed $100 billion, but as noted by AM Best, with the exception of the costly California wildfires in January, the profile of individual events in the year was insufficient to impact reinsurer results in a meaningful way, driven in part by the higher attachment points enforced by the market. As a result, 2025 is expected to be another strong year of profitability with the sector poised to exceed its cost of capital for the third year in a row.
“The sustained period of strong results has led to robust capital generation that has reinsurers searching for opportunities to deploy capacity. Reinsurance capacity is projected to enter 2026 at record levels: approximately USD 540 billion in traditional dedicated reinsurance capital and USD 120 billion in ILS capital, bolstered by a third consecutive year of robust earnings. As a result, competitive pressures have increased,” says AM Best.
Alongside the robust capital position of the sector and continued underwriting discipline, AM Best highlights elevated interest rates and limited new market entrants as other counterbalances to less favourable trends impacting the marketplace.
“Reinsurers are still benefiting from elevated reinvestment yields, even as central banks begin an easing cycle. Current yields remain above those of longer-dated bonds now maturing from legacy portfolios, allowing reinsurers to steadily lift investment income while the higher cost of capital continues to reinforce underwriting discipline,” says AM Best. “Inflation trends, monetary policy shifts, and broader geopolitical uncertainty leave the future path of interest rates unclear. Still, with most non-life portfolios concentrated in the three- to five-year duration range, reinsurers are positioned to earn relatively elevated levels of interest income for several more years, providing a durable tailwind even if headline rates begin to drift lower.”
Additionally, the rating agency describes life reinsurance as a diversifying pillar for some as it provides stability and diversification against the volatility of property and casualty books.
Although, another key area of concern for reinsurers is the casualty space, with certain lines still presenting challenges as unpredictable jury verdicts in the US continue to drive social inflation amid an uneven tort reform landscape.
Expanding on casualty reinsurance, AM Best says: “Several reinsurers strengthened casualty reserves in 2024 and 2025 and AM Best expects this trend to continue in 2026. In some cases, unfavorable loss reserve development in long-tail lines has been partially or entirely offset by favorable development from property, specialty, and workers’ compensation reserve releases, although the buffer derived from potential excess reserve positions in other lines may be diminishing.
“Capacity limits have been reduced and rate hikes continue to be observed in the most volatile lines, such as commercial automobile, general liability, and excess liability, but systemic risks nevertheless remain unresolved. Whether the meaningful pricing gains seen for the past several years are keeping pace with loss cost trends is questionable. Casualty therefore remains a fragile area of opportunity, balancing investor appetite for diversification against mounting volatility.”
While there’s clearly greater competitive pressure for reinsurers in 2026, and a likelihood of further property rate reductions at the April and mid-year renewals, AM Best says that, overall, “market conditions support underwriting profitability and solid overall operating performance in 2026.”
“Reinsurers nevertheless face a complex and challenging operating environment, particularly in the US casualty space. Assuming catastrophe experience remains within modeled expectations, AM Best expects the segment to generate returns sufficient to at least cover its cost of capital, supported by robust investment income and profitable underwriting performance sustained by continuing careful risk selection and portfolio allocations within the context of an increasingly challenging pricing environment. The Stable outlook reflects the market’s structural improvement in recent years, and its ability to balance profitability with stability in an ever more complex risk environment,” says the rating agency.
