Reinsurance pricing at the midyear 2025 renewals shifted in favor of cedents, reflecting increased competition among capacity providers, according to a recent report from AM Best.
The report also highlights a surge in 144A property catastrophe bond issuance, which has broadened investor participation and contributed to capacity growth.
The report states that property catastrophe reinsurance pricing at the June 2025 renewals declined by about 10% on a risk-adjusted basis. This marks a change from the widespread rate hikes seen two years prior.
Pricing changes varied across reinsurance towers, with upper layers seeing average rate reductions in the high single digits, while lower layers experienced either flat rates or modest decreases.
The report also attributes increased demand at lower layers to the emergence of new startup insurers in Florida and the ongoing depopulation of Citizens Property Insurance, the state-run insurer.
Global reinsurance pricing at the January 2025 renewals remained near historic highs, with regional variations based on recent loss activity. While some regions that avoided major losses saw moderate rate reductions, areas impacted by significant events, such as hurricanes or severe convective storms, experienced rate increases ranging from 10% to 45%.
In the retrocession market, demand remained strong for expanded coverage, particularly for secondary perils such as wildfires and floods. This trend reflects a growing awareness among reinsurers and cedents of the need to address risks that have become more frequent and severe in recent years.
As a result, retrocession contracts increasingly include broader coverage for these secondary perils, which has helped support market stability despite ongoing catastrophe activity.
Catastrophe bond issuance reached record levels in the first half of 2025, with several notable deals and new sponsors entering the market. The report notes that small- and mid-sized insurers have increasingly accessed capital markets to sponsor catastrophe bonds.
“The capital markets allow these insurers access to a broad range of investors, and the insurers in turn can get fully collateralized multi-year reinsurance,” said Emmanuel Modu, managing director at AM Best. Modu emphasized that this approach offers insurers additional flexibility in managing risk.
Global reinsurer capital reached US$715 billion as of Sept. 30, 2024, representing a US$45 billion increase since the end of 2023. This growth was driven primarily by retained earnings, and it has contributed to the ample capacity observed in the market.
Alternative capital also reached record levels, with US$17 billion in catastrophe bonds issued during 2024. This brought the outstanding catastrophe bond market to US$47 billion, marking an 11% year-over-year increase.
The influx of alternative capital has provided insurers and reinsurers with additional risk transfer options and has played a significant role in shaping the current reinsurance landscape.
Returns in the insurance-linked securities (ILS) market started 2025 on a weaker note, mainly due to wildfires in California in January. Monthly returns turned positive from February through June, though they remained lower than those recorded in the same period of 2024.
“Full-year 2025 cat bond market returns are unlikely to match the levels observed in 2024; however, spread levels on the in-force deals and current levels of collateral yield suggest the 2025 return will be higher than the average observed from 2017 to 2022,” said Wai Tang, senior director at AM Best.
Tang noted that while returns may not reach last year’s highs, they are expected to outperform the longer-term average.
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