Everyone’s seen the wildfires. But that’s not what should scare you.
By now, U.S. insurers have adapted to the “new normal” of climate volatility. Wildfires have triggered massive payouts, double-digit premium hikes, and a growing list of carriers scaling back exposure. These are known issues: priced in, debated, regulated.
But while your team fine-tunes underwriting, a deeper threat is forming.
Reinsurers are walking away. Quietly. Systematically. And if you're not watching this closely, you’re already holding more risk than you realize.
The real crisis isn’t the fires, it’s the vanishing reinsurance capacity
Reinsurance was once the bedrock of catastrophe risk strategy, a mechanism for growing safely in volatile markets. But now, that support structure is disintegrating.
In 2023, California’s FAIR Plan saw its reinsurance premiums jump from $8 million to $169 million. By 2025, reinsurers had minimal exposure to record-breaking LA wildfire losses1, not because risk improved but because they exited before the losses hit.
Many strategy teams miss this crucial point: if reinsurance quietly disappears, your entire risk architecture collapses in slow motion.
You’re now carrying risk that used to belong to someone else
This isn’t theoretical; balance sheets are already being reshaped. If you lead strategy, capital planning, or risk forecasting, here’s what’s now in play:
You're underestimating retention
With reinsurers pulling back or tightening terms2, carriers are absorbing more catastrophic exposure. Unless you've restructured treaties recently, you’re likely carrying risk you didn’t plan for.
Your reserves may be misaligned
Legacy capital models assumed diversified reinsurance participation, but that assumption may no longer hold. Under-reserved carriers could face ratings pressure or worse in the next major event.
Your credit rating is now in the blast radius
As risk concentration increases, so does scrutiny from rating agencies. A shrinking reinsurance cushion can degrade financial strength ratings, choke future investment, and erode trust with partners and regulators.
Your growth assumptions might be invalid
If your expansion strategy includes wildfire-prone regions, your pricing might be right, but your risk transfer is wrong. Reinsurer flight turns high-growth markets into capital sinkholes.
The industry’s blind spot: you can’t adjust to what you don’t see
Most carriers are tracking catastrophe exposure. But few are tracking reinsurance sentiment with the same rigor.
- Which markets are being repriced or blacklisted by global reinsurers?
- How are treaty structures evolving beneath the surface?
- What exclusions and clauses are being buried into 2025–2026 renewals?
- Where are competitors retreating or overcommitting?
This is where market intelligence becomes strategic infrastructure.
You don’t need more modeling. You need forward-looking visibility, across borders, across carriers, and across the reinsurance value chain.
Capital markets are watching, and they don’t like unanswered risk
If reinsurance capacity contracts and underwriting exposure expands, it doesn’t just affect loss ratios. It creates long-term valuation drag, the kind that reshapes how investors, regulators, and M&A partners view your franchise.
Private equity is already adjusting its insurance investment thesis
Markets once seen as long-term winners are now being reevaluated based on reinsurance dependency, climate exposure, and capital volatility3.
Debt becomes more expensive when catastrophe risk concentration rises
Credit spreads widen when balance sheets tilt too far into uncovered territory. The moment reinsurers exit and capital reserves don’t catch up, the cost of borrowing jumps, and so do capital reserve requirements.
Strategic buyers are getting more selective
If you’re planning an exit, recap, or JV in the next 3–5 years, being overexposed to unbacked CAT risk won’t just lower your valuation; it could eliminate you from consideration altogether.
This isn’t just about risk
It’s about capital access, strategic optionality, and long-term franchise value.
The Strategic Moment Is Now, Before Capacity Fully Contracts
The industry is at an inflection point. Not because of the climate events we can see but because of the capital that's quietly leaving before the next one hits.
If your team doesn’t know where that capital is flowing and, more importantly, where it’s not, then you’re not just navigating risk; you’re absorbing it.
Because once the reinsurance exits are complete, it’s not just about being prepared.
It’s about being insurable at all.