A new AM Best report reveals that risk-adjusted prices declined across most reinsurance classes during the first half of 2026, with the strongest pressure in property catastrophe — particularly United States-exposed business.

For Bermuda this is particularly relevant because many locally based reinsurers have substantial US property-catastrophe portfolios.

“It appears that there has also been pressure on terms and conditions in 2026,” AM Best noted. “Although rates have declined they have moderated from a very strong peak and are expected to remain adequate at least through 2026.”

The report, Steering Profitability Remains Crucial for Lloyd’s in a Softening Market explores the growing capacity materialising in the combined property and casualty sidecars segment within the insurance-linked securities market, placing a broad estimate for the niche segment at $17 billion to $19 billion.

The research is part of AM Best’s look at the global reinsurance industry ahead of the Rendez-Vous de Septembre in Monte Carlo.

AM Best said casualty lines remain under heightened scrutiny across the reinsurance segment after several years of adverse loss development and persistent concerns about social inflation, litigation trends and a changing legal environment.

“Certain capital market participants continue to view the risk as attractive, drawn in by the economics of casualty float,” the credit ratings agency said.

Premium collected up front for casualty-related coverage is held as reserves for many years before claims are paid, earning investment income at current interest rates and producing returns that compare favourably with private credit.

“The long payout tail also draws an investor base largely different from the one supporting catastrophe risk,” AM Best stated. “Private credit platforms, insurance-focused private capital, family offices and sovereign wealth funds have backed the recent vehicles, seeking diversification from their credit books rather than from catastrophe portfolios.”

“The question ultimately becomes whether the ceded risk has truly left the balance sheet,” AM Best managing director Emmanuel Modu said.

Disclosed capital from casualty sidecars announced since 2024 has surpassed $2 billion and casualty vehicles have driven much of the sidecar market's recent growth.

AM Best said casualty sidecars generally are not fully collateralised, so social inflation, litigation trends or other factors can drive adverse reserve development that pushes ultimate losses beyond the vehicle’s capital.

The credit ratings agency defined this residual sponsor exposure as tail risk and charged the largest projected capital shortfall over the sidecar's remaining life against the sponsor’s available capital.

“Exit mechanisms can provide investors with liquidity or contractual finality, but they do not eliminate the underlying reserve risk,” AM Best said. “Their significance depends on which party retains or assumes that exposure when an exit occurs.”