California wildfires and a “rough start” to the year will put a focus on mid-year reinsurance renewals, AM Best says.

The wildfires, which began after the January renewals, could be the costliest in history and it is unclear how reinsurance programs will respond, the ratings agency says in a report.

“Had these fires occurred just two weeks earlier, they would probably have had a marked impact on renewals,” it says. “At the same time, winter storms have plagued the [US] southeast, further substantiating a heightened level of caution with regard to secondary perils in 2025.”

AM Best says it will be a pivotal year for the reinsurance industry, which in the past two years has made up for an extended period of lacklustre performance.

“Heading into the new year, they had seemingly figured out the issues surrounding secondary and non-modelled perils and could ease up on pricing.

“However, the start of 2025 has again put the industry on alert.”

AM Best estimates traditional reinsurance capital reached a record $US500 billion ($802 billion) at the end of last year, 6.8% above the previous high of $US475 billion ($762 billion) in 2021.

Reinsurance broker Guy Carpenter estimates third-party capital was at $US107 billion ($172 billion), exceeding the previous high of $US100 billion ($160 billion) at the end of 2023. 

The market avoided “outsized losses” last year from US hurricanes Helene and Milton, while higher attachment points and better underwriting and pricing made reinsurers less vulnerable to secondary perils, AM Best says. “Previously, secondary perils that lacked sufficient modelling had plagued reinsurers and made it very difficult for them to price their business appropriately.”

Property reinsurance has begun to soften although margins remain strong, while casualty has become more scrutinised but is still being renewed without capacity constraints.

Social inflation continues to have an impact and some reinsurers strengthened casualty reserve positions last year, in a trend AM Best expects will continue as companies file year-end figures.