AM Best: Reinsurance capital poised to grow 7% to $649 billion in 2025

By Navneeta Nandan

Aug 19 - (The Insurer) - Traditional reinsurance capital increased to $500 billion at 2024 year-end, up from $468 billion in previous year, and is expected to grow to $535 billion in 2025, in line with the increases in the previous two years, AM Best stated, while third-party capital is expected to grow to $114 billion this year from $107 billion last year.

The overall $607 billion of estimated dedicated reinsurance capital at the end of 2024, which includes both traditional and third-party, is expected to grow 7% to $649 billion in 2025, AM Best said.

In its global reinsurance segment report, AM Best said that the 7% increase in traditional capital in 2024 was driven by strong underwriting results, retained earnings and higher investment yields, AM Best said.

Despite Hurricane Helene in September 2024 and Hurricane Milton in October, as well as the California wildfires at the beginning of 2025, the report said that the performance across traditional and third-party capital reinsurance markets were "notably strong" in 2024 and continued in the first half of 2025.

While there is no wave of entry of new startup reinsurers, established ones have strengthened their capital bases by secondary equity offerings, disciplined retention of earnings and a surge in investor appetite for catastrophic bonds.

The traditional reinsurance capital has been less than 60% of the consolidated shareholders' equity of reinsurance writers. This was around 50% in 2024, indicating the pivot from reinsurers expanding their primary and specialty insurance lines.

“Reinsurers continue to transition toward more diversified and balanced business models, including a growing allocation to primary and specialty insurance lines, reflecting a deliberate move away from purely relying on property catastrophe risk,” said Antonietta Iachetta, associate director, AM Best. “This structural shift supports earnings stability and more agile capital deployment, as well as the amount of capital deployed in the traditional reinsurance market, even with significant catastrophic activity.”

The report also said that apart from Berkshire Hathaway’s National Indemnity, the majority of capital in 2024 is generated by the largest European reinsurance groups, with an average return on equity of 16.2%, down from 17.4% last year. These companies collectively generated $11.6 billion in net income.

The Big 4 Europeans' share in the global reinsurance capital is at 21% at 2024 year-end, up from 20% last year.

Even though the size of the reinsurance market has globally grown, the market concentration has declined.

The top five companies by capital, who have been over 60% historically, have fallen to 57.5% in 2023 and 55.8% at 2024 year-end, which is the lowest since 2018. This indicates the expansion of medium-size companies, mostly Bermudian reinsurers and capital diversification across the sector.

Bermudian reinsurers represent 15% of the global reinsurance market. They reported a capital growth of 16% from 2023 to 2024, strongest among all regions, despite the adverse reserve development in casualty lines and losses from Milton and Helene in the fall of 2024.

The third-party reinsurance capital grew 7% to $107 billion in 2024, AM Best stated as per Guy Carpenter's estimate. This is estimated to grow to $114 billion in 2025.

The report also stated that the issuance of 144A cat bonds hit a record-breaking level at $16.7 billion on June 30, 2025, primarily due to the investors entering the market during the first half of 2025 when there is more capacity.

The capital utilization of traditional reinsurers fell to 85% in 2024 from 103% in 2022. Capital utilization exceeding 100% indicates that risk-adjusted capitalization levels have dropped below the “strongest” level, AM Best said.

AM Best said that it expects the market conditions to remain stable in the second half of 2025, with normal levels of catastrophic events. It predicts reinsurers will report upper single-digit capital growth in 2025, possibly offset by volatility in asset risk from growing investment base and higher reserve charges due to social inflation and adverse development in the U.S. casualty segment.