Midyear 2025 renewals brought a rare win for cedents, as reinsurance pricing softened amid growing competition, according to AM Best’s latest Market Segment Report. Property catastrophe reinsurance pricing fell roughly 10% on a risk-adjusted basis, a notable reversal from the broad rate hikes seen just two years ago.

The report, “Record CAT Bond Issuance Boosts ILS Capacity and Reshapes Pricing Landscape,” highlights the surge in 144A catastrophe bond issuance, which has expanded avenues for investors and added capacity for insurers. In the first half of 2025, record-breaking issuance facilitated greater participation by the capital markets, especially benefiting small- to mid-sized insurers seeking fully collateralized multi-year reinsurance.

Pricing Trends Across Reinsurance Layers

While overall rates fell, reductions were layer-specific:

• Upper layers: High single-digit rate cuts.

• Lower layers: Flat to modest reductions, fueled by new startups in Florida and ongoing depopulation of Citizens Property Insurance, driving additional demand.

This stratified pricing underscores a more competitive market where insurers must balance risk exposure with evolving capital availability.

CAT Bonds and ILS Market Dynamics

The first half of 2025 also saw unprecedented catastrophe bond activity, with new sponsors entering the market and smaller insurers leveraging the capital markets. AM Best notes that the Insurance-Linked Securities (ILS) market began the year with weaker returns, largely due to California wildfires in January. Returns rebounded February through June but lagged 2024’s levels.

“While 2025 full-year CAT bond returns may not match 2024, current spreads and collateral yields indicate returns will still exceed the 2017–2022 average,” said Wai Tang, Senior Director at AM Best.

Why It Matters

For cedents, the combination of softening midyear pricing and expanded capital via CAT bonds offers a rare window to secure cost-effective coverage. Investors and insurers alike are navigating a reshaped landscape, where ILS growth and targeted pricing strategies across layers are redefining risk management in property catastrophe reinsurance.

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