Reinsurers Meet Cost of Capital for Second Straight Year

Global reinsurers met their cost of capital for the second consecutive year in 2024, according to a new AM Best report released ahead of the Rendez-Vous de Septembre conference. The achievement follows four years of underperformance and reflects improved market dynamics, including disciplined underwriting and tighter risk controls. 

The Best's Market Segment Report, titled "Reinsurers Meet Cost of Capital for Second Consecutive Year," shows that the reinsurance industry's weighted average cost of capital declined to 7.66 percent in 2024, down from 8.1 percent the previous year. The figure dropped further to 6.66 percent in the first quarter of 2025, marking a significant improvement in capital efficiency. 

AM Best attributes the trend to several stabilizing factors, including more effective risk management strategies, increased use of technology, and growing collaboration with alternative capital providers. The report points to these developments as helping reduce the volatility typically associated with the reinsurance market. 

Helen Andersen, industry analyst at AM Best, said, "The current hard market conditions in the reinsurance segment are being driven primarily by the memories of historical prolonged underperformance, compounded by the abundant capital due to the extended low interest rate environment." 

Although reinsurance rates surged in 2023, rate growth has moderated. Guy Carpenter reported a 6.2 percent decline in rate-on-line at January 1, 2025, for US and European property catastrophe reinsurers. This followed a 5.4 percent increase in 2024 and a nearly 30 percent spike in 2023. The 2025 renewals showed variation, as reinsurers impacted by losses faced higher pricing. 

Sridhar Manyem, senior director of industry research and analytics at AM Best, said, "Reinsurers have also implemented thorough derisking measures, such as tightened terms and conditions and a sharp increase in attachment points, which are unlikely to be loosened." 

The report is part of AM Best's broader analysis of the reinsurance market, which includes upcoming assessments of insurance-linked securities, Lloyd's, life/annuity, health, and regional sectors. Additional reports and rankings are scheduled for release in August and September. 

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