Healthy capacity brings stable 2025 reinsurance renewals season

Reinsurance renewals occur on the 1st of January each year, providing valuable insights into the global health of the insurance sector. At Optalitix, we use these insights to better understand our client's challenges and likely pricing requirements. We believe this information is also beneficial for insurance industry participants not directly involved in reinsurance, as it can significantly impact their businesses, influencing both the cost of coverage and the demand for protection.

This year, the reinsurance renewal season has been more stable compared to previous years. In 2023 and 2024, a shortage of insurance capacity enabled providers to demand higher prices or more favourable terms. However, in 2025, the substantial influx of capital into the reinsurance market during 2024 led to a significant increase in capacity. As a result, reinsurance coverage became more readily available, with pricing softening from previously high levels and better terms being offered. Nevertheless, for catastrophe-prone areas, pricing remained stringent.

This article incorporates perspectives from various market commentators on the renewal season.

Reinsurance capacity continues to grow

As reported by Aon, global reinsurer capital reached US$715 billion as of September 302024, a US$45 billion increase since the end of 2023. Alternative capital also experienced record numbers, with US$17 billion in catastrophe bonds issued during 2024, bringing the outstanding catastrophe bond market to US$47 billion, an 11%year-over-year increase and a 34% rise since January 2023.

This relatively healthy position has been driven by sufficiently strong returns over the past two years and the continued profitability potential of the market toattract capital. Average reinsurer returns on equity of in 2024 have been reported at 17.3%.

Divergent trends across regions and lines of business

While the overall trend indicates a softening market, regional disparities persist. Portfolios that have experienced catastrophe losses, particularly in the United States, Europe, and Canada, are encountering stable rates or increases of up to 30%.

Canada, for instance, faced its worst year for insured losses in recorded history in 2024, with significant events including floods, wildfires, and severe convective storms. Two significant events, the Calgary hailstorm and the Quebec floods, caused around C$5.3 billion in insured losses combined.  

The positive capacity trend has helped to soften reinsurance rates, especially in property catastrophes. Non-loss-impacted property catastrophe renewals have seen risk-adjusted rate reductions ranging from 5% to 15%.

In the casualty reinsurance sector, renewal outcomes have varied. Proportional casualty structures have generally experienced flat to slightly reduced ceding commissions. However, excess of loss general liability and excess/umbrella placements, especially those with U.S. exposure, continue to face pressure on treaty terms. Meanwhile, Aon has reported favourable conditions for 1 January reinsurance renewals and conditions that were ‘broadly stable…with more than ample capacity to meet demand.’

Looking at cyber, the market is increasingly seen as maturing and around nine new reinsurers entered the market in 2025, leading to some price moderation. Overall cyber capacity increased by some US$250 million. The market is not showing signs of slowing with annual insurance premiums looking likely to increase to circa US$23 billion by the end of 2026, up from US$14 billion at the end of 2023.

Market stability amidst evolving conditions

Fitch Ratings has revised its global reinsurance sector outlook from 'improving' to ' neutral,' suggesting that the pricing cycle may have reached its peak. Despite this adjustment, profitability is expected to remain robust by historical standards throughout 2025. Record profits in 2023 and the first half of 2024, coupled with enhanced balance-sheet resilience and strengthened reserve adequacy, provide a solid foundation for the sector to withstand potential pressures from declining prices, rising claims costs, and high catastrophe losses.

Similarly, Moody's has upgraded its outlook on global reinsurers from stable to positive, citing higher prices, more restrictive policies, and healthy investment income as key factors. The agency anticipates that property reinsurance pricing will remain favourable, with solid balance sheets enabling reinsurers to endure potentially high catastrophe losses.

Challenges lay ahead for the market

Despite the current relative stability, the reinsurance market faces several ongoing challenges:

• Natural catastrophe exposure: The increasing frequency and severity of natural disasters continue to pose significant risks. The year     2024 marked the fifth consecutive year with property catastrophe losses exceeding $100 billion, highlighting the escalating impact of climate-related events.
• Inflation and social inflation: Rising loss costs, particularly in casualty lines, are being driven by economic inflation and social inflation factors, including increased litigation and higher jury awards. Reinsurers are expected to push for double-digit increases in U.S.     casualty premium rates upon renewal to keep pace with these rising costs.
• Changing risk landscape: Emerging risks, such as new cyber threats and the evolving complexities introduced by technological advancements, are forcing the reinsurance industry to continually adapt.  The dynamic nature of these risks requires innovative solutions and comprehensive risk assessments from the sector to meet changing needs.
• Regulatory Environment: Compliance with ever-changing regulatory requirements remains a critical concern. Reinsurers must adhere to complex regulatory landscapes across different jurisdictions, ensuring they meet standards set by regulatory bodies is key markets.

The insurance market in 2025 is a mix of positive capacity trends due to growing capital injection, relative stability in non-catastrophe-prone covers and increasing challenges from higher-risk areas.

The January 1 renewals have seen rates soften in many lines, driven by this increased capital and competition. However, regional disparities and line-specific challenges continue to highlight differences. Natural catastrophe exposure, inflationary pressures, and a changing risk landscape, require careful risk management and pricing practices, and adaptability by underwriting teams to realise a positive 2025.

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