The reinsurance market is well positioned to absorb reasonable losses, with dedicated capital projected to increase this year in a continuation of recent trends, AM Best says.

Total capital is expected to rise about 7% to $US649 billion ($1 trillion) by year end, with gains from traditional and third-party sources.

AM Best says while there has not been a wave of start-up reinsurers, established providers strengthened capital bases last year and investor appetite for catastrophe bonds surged.

“Together, these sources of capital have enhanced the market’s overall financial resilience and its capacity for growth, even during challenging times such as Hurricane Helene in September 2024 and Hurricane Milton in October, as well as the California wildfires at the beginning of 2025,” the ratings agency says in a report.

Traditional capital this year is expected to rise to $US535 billion ($826 billion) from $US500 billion ($772 billion), AM Best says. Reinsurance broker Guy Carpenter sees third-party capital increasing to $US114 billion ($176 billion) from $US107 billion ($165 billion).

AM Best says the property reinsurance market remains stable. There are signs of modest softening emerging at the highest layers of attachment, but companies have remained diligent on attachment points and terms. 

Severe convective storms and large catastrophes have stressed cedents and reinsurers over the past year, but the market has been resilient despite the California wildfires eroding budgets and creating uncertainty about loss costs.

“The resilience of reinsurers can be mainly attributed to the accumulation of retained earnings and strong investment yields, which have established solid capital buffers” AM Best says.

Capital growth could be dampened by dividends, plus a highly active hurricane season this year, but AM Best associate director Dan Hofmeister says that, assuming a more normal level of catastrophes, reinsurers are on pace to report high single digit capital growth.

“Volatility in asset risk and potentially higher reserve charges from continued social inflation could create some negative pressure, but reinsurers are well positioned to absorb a normal level of volatility in the market,” he says.