Continuing reductions across the global reinsurance segment has led AM Best to revise its outlook for the sector, the company has said in a new report.

The acceleration of reductions in property reinsurance pricing and continuing challenges in the US casualty space were cited as being among its key considerations.

The rating agency said: “While there has been some loosening in terms and conditions, the newly issued report notes that higher retentions imposed upon ceding companies in recent years have largely held, which AM Best views as a favourable indication of sustained underwriting discipline, despite the declining rates for property exposures.”

Best’s Market Segment Report said the pressure on rates may challenge the global reinsurance segment’s ability to sustain the very strong operating performance achieved over the past three years.

The 2025 calendar year also represented the sixth consecutive year of insured global catastrophe losses exceeding $100 billion.

The report said: “Apart from the California wildfires in the first quarter of 2025, there was an absence of higher-magnitude individual loss events last year. Performance in the segment has also benefited over the past three years from higher attachment levels for reinsurance coverage secured by primary market insurers and a strategic rebalancing of reinsurers’ portfolios.”

AM Best director Greg Dickerson said: “As a result, the reinsurance segment’s operating performance for 2025 is expected to generate returns that exceed its cost of capital for a third consecutive year.”

The sustained period of strong results in the sector has led to robust capital generation that has reinsurers searching for opportunities to deploy capacity.

Reinsurance capacity is projected to enter 2026 at record levels: about $540 billion in traditional dedicated reinsurance capital and $120 billion in insurance-linked securities capital, bolstered by a third consecutive year of robust earnings.

According to the report, the January 1 renewal period included a drop in reinsurance rates between 10 per cent and 20 per cent, with the largest declines occurring on non-loss impacted accounts.

Best’s associate director, Dan Hofmeister, said: “These declines brought pricing closer to pre-2023 renewal levels, when severe market dislocation led to dramatically improved risk-adjusted pricing and stricter terms and conditions.

“At the time, that included an industry-wide retrenchment away from lower layers of property catastrophe reinsurance programmes.”

Separately, AM Best has revised its individual market segment outlook for the global non-life reinsurance segment to stable from positive, while its outlook for the global life reinsurance segment is being maintained at stable.

The global life reinsurance segment remains highly concentrated among several highly rated, diversified and well-capitalised insurers, which also have strong liquidity and risk-adjusted capital, the agency said.