Reinsurers Sustain Profits Through Disciplined Capital Strategy

A recalibration of the global reinsurance market since the January 2023 renewals has created a more resilient structure with reduced earnings volatility and improved margins, according to a new AM Best report. The firm maintains a positive outlook on the sector as reinsurers continue to show underwriting discipline and capital management strength.

The report, Reinsurers' Disciplined Capital Deployment and Underwriting Remain Key Foundations, highlights continued strength in underwriting results for 2024, building on the gains seen since 2023. The European "Big Four" reinsurers posted a combined ratio of 86.4 percent under International Financial Reporting Standard 17, including discounting that typically lowers the ratio by about 8 percentage points. US and Bermuda-based reinsurers reported an undiscounted combined ratio of 89.5 percent under US generally accepted accounting principles, signaling sustained profitability.

"Reinsurers' risk-adjusted capitalization levels remain robust, reflecting retained earnings and disciplined capital management, and the strong underwriting profitability is being augmented by a surge in investment income given elevated interest rates," Michael Lagomarsino, senior director at AM Best, said.

The report also points to the absence of significant new global reinsurance entrants as a factor supporting market discipline, contrasting this cycle with previous ones.

Despite weather-related insured losses projected to exceed $100 billion in 2025—driven in part by California wildfires estimated between $30–50 billion—many reinsurers maintained strong results through the first half of the year. "Assuming no further material weather events in the second half of 2025, the combination of disciplined underwriting, rate adequacy, and robust investment income should deliver full-year operating results exceeding the cost of capital," Dan Hofmeister, associate director at AM Best, said.

Challenges remain, including social inflation, geopolitical instability, and trade tensions. These risks continue to test the durability of the market's improved structural dynamics.

"The question now facing the industry is whether the improvements in terms and conditions represent a durable shift," Steven Chirico, director at AM Best, said. "The lessons of past cycles suggest caution, but reinsurer sentiment has ensured tighter exposure management and market discipline in the current cycle."

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