Risk, rates, and resilience: brokers and reinsurers brace for 2025

Reinsurance pricing is at a crossroads in 2025, driven by major shifts in property casualty renewals, evolving market cycles, and the impact of events like the California wildfires. FAnews attended the recent AM Best reinsurance briefing to find out more about how the 1 January renewals played out and discover what brokers and insurers might expect from the June renewals.

Rates on the rise?

AM Best invited a couple of industry experts to discuss key trends, pricing pressures, and offer their predictions for the remainder of 2025. First up, Carlos Wong-Fupuy, senior director of global reinsurance ratings at AM Best said that AM Best had assigned a positive outlook on the global insurance segment midway through 2024, despite a gradual increase in rates since 2017. He then offered some history of the reinsurance landscape in the years running up to the 1 January renewals. 

“In 2021 companies started producing positive technical results; in 2022 [strong technical profits were offset by] some volatile investment results; and in 2023, we saw not just a sharp increase in rates but tightening of terms and conditions, a significant increase in attachment points, and reinsurers moving away from high frequency layers” Wong-Fupuy said. For some theory, the term ‘high frequency layers’ refers to coverage levels where losses occur more frequently but are typically of lower severity. 

And the panellist is saying that reinsurers are reluctant to offer coverage for these layers due to the cumulative financial impact of numerous small claims, which erode profitability. Instead, they are focusing on higher attachment points, thereby limiting their exposure to less frequent but potentially more severe losses. In reinsurance, the ‘attachment point’ is the specific dollar amount of loss or liability that a ceding or traditional insurer retains before the reinsurance coverage begins. 

The lower price, less cover conundrum

Steps taken by reinsurers in 2023 and 2024 contributed to a moderate decline in pricing in the latest renewal period, despite severe hurricane events in the final quarter of last year. According to Wong-Fupuy, the losses incurred following Hurricanes Helene and Milton, though severe, had been accommodated thanks to the aforementioned changes in rates, terms and conditions, higher attachment points, and tweaks around reinsurers’ exposures to higher frequency layers. 

“We have seen a decline in rates at the highest layers, but we have not seen any relaxation on attachment points, and that is the key behind the still strong results that we are seeing in the property casualty side,” he said. The impact of the January 2025 Californian wildfires had not yet filtered through to the market. The panel acknowledged the wildfires as “a huge tragedy for the community” with the consensus for insured losses totalling between USD35 and USD50 billion. Critical issues that will come out post-event include the availability of wildfire insurance; the number of properties without assets; the property cover limits and exposures under the Californian FAIR plan; and how to fix the Californian insurance market. 

Kyle Rhodes, President North America at Trans Re, said that global reinsurance pricing was weaker across most product lines during the latest one-one renewal period. “There was plenty of capacity to meet customer demand,” he said, with risk-adjusted rates down 5-10% for property casualty covers. Renewals in casualty reinsurance in the United States were less promising. “If you have a US casualty portfolio, and you are getting an 8-10% primary price increase, you are really not in the game,” he said. The expert also expressed some surprise at the multi-year softening rates in the Directors and Officers (D&O) and Cyber classes.

Inflation affecting treaty performance

“Social inflation has influence on previous underwriting year performance and reserve, and we have seen that it has been a key driver of loss trend and US casualty performance in the past year, as it put pressure on loss ratio and claim development,” said Laure Forgeron, Chief Underwriting Officer Casualty at Swiss Re. This ‘backward looking’ measure impacts treaty performance, reinsurance results, and risk appetite. Another major issue stems from litigation, with litigation funding in the world’s largest economy forecast to reach USD31 billion by 2028. Reinsurers in this segment must make sure their rates are sufficient to outpace the social inflation loss trend. 

The moderator interrogated the panellists on expectations for the upcoming renewal window in June 2025, starting with Florida renewals, an area that was massively impacted by hurricanes late 2024. “Florida is driven by supply and demand,” Rhodes said, noting that reinsurers had moved away from the so-called first layer of exposure. “When you look at the reinsurance towers, there is still supply at the bottom of the programmes, but you have got to pay for it,” he said. Hurricanes Helene and Milton will force reinsurers and third-party capital to reassess their exposures, and rates at the lower level will likely firm. 

Forgeron was put on the spot around expected casualty market developments in 2025. “Casualty markets are highly influenced by global and local external factors,” she said. External factors include inflation, interest rates, and the previously discussed social inflation. Commenting on inflation, the expert said that many casualty lines were exposed to above average inflation in healthcare and wage expenditure. “The social environment has a multi-faceted impact including the propensity to claim,” she said. Internal factors include supply and demand dynamics; the capacity available; emerging risks; and emerging losses. 

Reinsurer profitability in the spotlight

Weber asked the panellists to wrap the hour-long debate with key observations from the discussion. Rhodes framed his closing remarks in the context of reinsurer profitability, contrasting the widespread criticism the industry faced when it posted profits versus the silence during periods where reinsurers faced massive losses, and lay bleeding on the side of the road. “Our mission as reinsurers is to support our communities and our customers; we provide capital and put that capital at risk for them to earn a reasonable return,” he said. Big swings in reinsurer profits are inevitable given the volatile nature of natural catastrophe losses. 

“We need to focus on underwriting discipline,” concluded Wong-Fupuy, in a one-liner that will resonate with insurers and reinsurers globally. He stressed the need for reinsurers to trade profitably, and for the broader industry to retain its relevance. “We cannot just withdraw from areas where there are challenges around pricing,” he said. A more sustainable approach is for reinsurers to adapt to both the evolving economy and the nature of the risks they face. 

Forgeron concluded that, “Casualty risks were governed by both local environment and global systemic dynamics.” She added that casualty risks were increasingly complex, requiring insurers and reinsurers to deliver a sustainable, resilient casualty line of business worldwide. It is advice that applies across other lines too. 

Writer’s thoughts:
Global reinsurers are walking a fine line between profitability and providing risk cover, contributing to frequent shifts in capacity and pricing. Are brokers and insurers prepared for a market where risk-adjusted rates and attachment points continue to evolve? Please comment below, interact with us on X at @fanews_online or email us your thoughts editor@fanews.co.za.