Global reinsurers have met or exceeded their cost of capital for the second consecutive year, according to a new report from AM Best. The report attributes this performance to strong market conditions, improved risk management, and a growing partnership with alternative capital providers.
The industry’s weighted average cost of capital declined to 7.66% in 2024 from 8.1% in 2023, and dropped further to 6.66% in the first quarter of 2025. For the second year in a row, reinsurers generated returns above the cost of capital in 2024, supported by positive underwriting results and portfolio adjustments.
While returns moderated in the first half of 2025 due to natural catastrophe losses, they remained well above the cost of capital.
High interest rates in 2024 kept the cost of debt elevated, but strong market performance reduced the cost of equity. The report notes that reinsurers have responded to recent volatility by maintaining flexibility in their approach, balancing short-term opportunities with long-term strategic goals. This includes taking advantage of favorable market conditions when available and retreating when pricing does not align with risk appetite.
Dedicated reinsurance capital is projected to reach US$649 billion this year, continuing a growth trend seen over the past two years. This increase is driven by both traditional reinsurance capital and a surge in third-party capital, with investor demand for catastrophe bonds playing a significant role in expanding overall market capacity.
Investor appetite for catastrophe bonds has also continued to grow, supporting the expansion of third-party capital in the reinsurance market. This trend has enhanced market capacity and provided reinsurers with more flexibility in structuring risk transfer solutions for cedents.
Meanwhile, the Big Four European reinsurers – Munich Re, Swiss Re, Hannover Re, and SCOR – achieved a record average return on equity of 21.1% in the first half of 2025. This result was recorded despite elevated catastrophe losses and reflects the sector’s ability to maintain profitability and capital adequacy in a volatile environment.
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.”
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