Following the Nov. 15, 2023, publication of our insurer risk-based capital adequacy criteria, and S&P Global Ratings' subsequent review of issuers in 2024, we upgraded 22 by one notch, with our ratings on 17 issuers also seeing an upward revision in outlook or placed on CreditWatch with positive implications. These positive actions were primarily driven by higher levels of available capital, including changes in our approach on reserve adjustments, and more explicitly capturing the benefits of risk diversification under the revised criteria (see chart 1). In particular, our recalibration of mortgage insurance premium and reserve risk capital requirements had a positive ratings effect for mortgage insurers.

We also downgraded three issuers by one notch and revised two outlooks to negative from stable. These negative actions primarily related to our revised definition of capital resources, which reduced the basis for determining the amount of debt-funded capital for some issuers.

In aggregate, the rationale for the changes in capital adequacy for insurers that did not experience a rating or outlook change mirror the above rationales for rating changes. For example, higher levels of available capital and more explicitly capturing the benefits of risk diversification being key positive drivers. Overall, most rated insurers and reinsurers across the globe have capital levels consistent with our two highest stress levels (see charts 2 and 3).

Throughout this article, we offer comparisons of capital adequacy under the revised and previous frameworks, including capital forecasts, with sections on global reinsurance; North America mortgage, property/casualty (P/C), health, and life insurance; Europe, the Middle East, and Africa (EMEA) insurance; Asia-Pacific (APAC) insurance; and Latin American insurance.

On a global aggregate basis, we only expect a modest deterioration of capital levels over 2025, with business growth and returns to shareholders only slightly outweighing earnings (see chart 5). Substantial capital buffers, despite recent volatility, leave insurers well positioned to withstand geopolitical and financial market events over the year. Enhanced risk management practices over the past decade (for example, a focus on asset/liability management, strategic asset allocation, and sector and obligor concentration limits), combined with capital buffers and product redesign, will remain the anchors of relative ratings stability.

Asia-Pacific Insurers Face Capital Growth Challenges

Capital buffers are likely to remain strong

• We anticipate APAC insurers' weighted-average capital buffer will remain at a 99.8% confidence level in 2025. The slightly weaker capital buffer in the cohort for insurers based in China and Hong Kong (CHK) reflects this cohort's demand on capital to support growth and anticipated growth in equity investments.
• On the other hand, there is greater diversity of capital strength by individual companies in APAC. The insurers that possess stronger capital adequacy, however, are small in absolute scale. We expect about 19% and 48% of rated insurers in APAC to maintain their capital buffer at or above the 99.95% and 99.99% confidence levels, respectively, in 2025.

Risk variations by jurisdictions and sectors

• Life insurers in China, Japan, Korea, Taiwan, and Southeast Asia demonstrate higher asset risk-weighting, reflecting the business' asset accumulation nature.
• For APAC reinsurers and Japanese P/C insurers, diversification into life reinsurance helps spread risk across asset and liability while managing natural catastrophe exposure.
• Life insurers in many APAC markets and P/C insurers in South Korea face interest rate risks given limited availability of long-dated assets relative to their long-tenor insurance liabilities. Japan's insurers are improving duration mismatches amid rising domestic interest rates. Korean P/C insurers' long-term portfolios, mainly health insurance policies, contribute to their sizeable interest rate risk.
• Pacific insurers exhibit higher premium risks due to larger long-tail business exposures. This contrasts with other APAC non-life insurers that are predominantly retail-focused on auto and property, relying on reinsurance for commercial lines.
• Long-tail casualty insurers generally require more capital for reserve risk. Korean insurers include guarantee insurers, which face high premium charges due to the volatility of the surety business. However, their subrogation rights to recover losses help alleviate their reserve requirements.

Proactive protection to mitigate risks from catastrophe-prone areas

• Insurers in catastrophe-prone countries, particularly Japan P/C, face relatively large natural catastrophe charges while managing natural catastrophe risks through proactive reinsurance covers to mitigate potential losses. Most P/C groups in Japan have 10%-20% natural catastrophe risk, but a small P/C player with concentration in property insurance has 36%.
• Accelerated growth in nonmotor insurance, especially agriculture insurance, may increase sensitivity to natural catastrophe exposures for P/C insurers in China.
• The natural catastrophe risk charge is lower for Korean and Southeast Asian insurers within our cohort, reflecting their operations in less natural-catastrophe-exposed areas or having sufficient reinsurance protection. Also, most of these insurers have low catastrophe insurance penetration in the region.
• Natural catastrophe risk charges are likely to increase at least at pace with premium growth, particularly for insurers with accelerating growth in commercial risks without adequate insurance coverage. This is also the case for insurers that are navigating outside their familiar business areas amid ongoing climate changes and rapid urbanization.

Capital redundancy expected to remain at 99.80% confidence level

• The aggregated capital buffer is likely to somewhat moderate as capital requirements outpace capital growth, driven by shareholder return pressures, merger and acquisition expansion needs, and a shift toward more capital intensive equity and alternative investments.
• We project APAC insurers will maintain a robust weighted average capital adequacy at the 99.8% confidence level through 2025, despite anticipated pressures on capital buffers.
• Overall, we expect profits to remain steady, supported by stable underwriting and steady investment income. However, insurers with higher investment market exposure could face more volatile profits.

Latin American Insurers Exhibit Higher Redundancy Under Revised Criteria

Notable differences under the revised from previous criteria

• Improvements in diversification recognition contribute the most to the capital adequacy increase. Even mono-line insurers have significant diversification benefits under our revised criteria, given the new correlation assumptions between the asset and liability risk categories.
• The deduction of premium receivables and deferred acquisitions from non-life reserves results in lower reserve discounting. Also, we don't adjust these reserves if the duration is less than one year, which is the case for many insurers.
• Increased credit risk differentiation has reduced asset risk requirements, due to conservative investments.
• The recalibration of our capital charges to higher confidence levels and the revised approach on interest rate risk and natural catastrophe charges slightly offset improvements in asset and liability requirements.
• Other changes in total adjusted capital (TAC) include the elimination of deferred acquisition cost (DAC) deductions and inclusion of intangible assets net of taxes.

Capital strength characterizes our rated insurers in Latin America

• Most insurers hold robust capital, with their prudent underwriting and investment standards and constant efforts to improve efficiency and control fraud (mainly through digitalization and AI), resulting in healthy net income that boosts internal capital generation.
• Latin American insurers' conservative growth strategies are reflected in modest capital requirements that lead to capital levels above the 99.95% confidence level and low funding needs. In this sense, their capital doesn't rely on debt or hybrid capital, which we consider in TAC on a limited basis.
• In addition, some regulators have adopted--or are in the process of adopting--risk-based regimes grounded in solvency II standards, which require insurers to strengthen corporate governance, risk awareness, and self-surveillance and are reflected in healthier capital management.
• In Colombia and Mexico, insurers must hold robust natural catastrophe reserves to face extreme events that damage technical results. In Columbia, these reserves are already accounted in capital. In Mexico, we consider these as equity-like reserves within TAC given their loss absorption capacity.
• Therefore, we believe the majority of our rated insurers will retain their capital buffers at or above the 99.95% confidence level, respectively, in 2025.

Risk variations among Latin America insurers

• Regional insurers focus on high-quality bonds (mainly government securities) and liquid instruments when investing, therefore equity and real estate exposures are below 5% each.
• Nearly half of the insurers have material participation in the life business, which carries relevant interest-rate risk charges to capture the yield stress applied on the sensitive assets backing the respective reserves.
• Also, we generally apply a standard assumption on duration mismatch, which leads to higher interest-rate risk capital requirements for many of our rated insurers in the region.
• Recalibrated non-life premium charges are lower, mainly for medical expense and auto insurance. The latter is a result of insurers' efforts to contain combined ratios in the past 10 years. However, these charges remain the most relevant in total liability risk requirements.
• On the contrary, recalibration and reclassification of mortality and morbidity risks in less developed markets have slightly increased life charges.
• Even though most insurers cede over 90% of their natural catastrophe exposures, we observe higher charges because we now capture the respective reinsurance counterparty risk.

2025 forecast for regional capital redundancy at 99.80% confidence level

• Our net income forecast of $1.0 billion-$1.2 billion for 2025, considers dynamic rate adjustments to offset the rise in claims amid high medical and spare parts inflation to control combined ratios.
• Our assumptions also include strong net investment income as insurers maintain conservative investment standards based mainly on local government securities, which contribute with high investment income based on significant real interest rates. We expect interest rates will remain high during the next 12 months due to current global uncertainty related to U.S. tariffs and geopolitical risks.
• However, investment income will decelerate as interest rates gradually fall, while fraud and medical abuse will remain the main challenges for insurers.
• Therefore, we expect capital redundancy to slightly decrease in 2025, although it will remain safely above our 99.8% confidence level (24.4%).
• In fact, we forecast a redundancy margin between 9%-12% at the 99.95% confidence level for 2025.
• Our baseline forecasts for technical results do not currently incorporate effects from U.S. tariffs, which carry a significant amount of uncertainty.

Strong Capital Surpluses Could Diminish For EMEA Insurers

EMEA insurers' capital adequacy

• Capital adequacy is a key strength of EMEA insurers, across all geographies and sectors.
• Under our new criteria, the greater focus on diversification benefits supported our assessment of capitalization, especially for rated European insurers, which in most cases are composite groups offering life, non-life, and health insurance.
• The shift to IFRS 17 for large, listed insurers added transparency to future profits with the contractual service margin (CSM), which is now fully recognized, net of any applicable taxes, in our view of capital, alongside the IFRS 17 risk adjustment (RA).
• EMEA's multiline insurers particularly gained from higher diversification benefits, for which our analysis moved closer to the regulatory view (under Solvency II in the EU 27 and Solvency U.K.), somewhat mitigated by higher asset risk charges.
• Under our new criteria, liability charges in some lines have increased materially, mainly affecting non-life insurers with a narrower business focus--such as on motor insurance.

Risk variations by region and sector

• We note a disparity between Western European, Middle East and African (MEA), and Commonwealth of Independent States (CIS) insurers, with our analysis of the latter often capped by non-investment-grade sovereign ratings, and their small absolute size.
• Although most insurers in Western Europe are composite, the focus in MEA and CIS is often on P/C.
• European players include global multiline insurers like Allianz, AXA, and Zurich, which are among the leaders in many regions. In absolute terms, they also form a substantial part of EMEA aggregated numbers.
• Typically for primary insurers in Western Europe, asset risk charges dominate overall risk charges.
• Despite listed and unlisted equity investments often being limited to 5%-10% of overall investments, sensitivity to equity markets is higher than to bond markets.
• Within the "specialized" bucket we aggregated marine insurers and credit insurers.
• For some insurance lines like motor, liability risk charges increased materially.
• Although many primary insurers in Western Europe are composite groups that were less affected, we note some higher charges for more focused monoline insurers.

Natural catastrophe risks are not a dominant factor in EMEA

• Despite natural catastrophe events like flooding, droughts, and wildfires becoming more frequent in EMEA, the overall catastrophe load is fairly limited.
• So far, primary insurers in EMEA proved reinsurance cover is functionally working and covering peak risks.
• In some European countries, private public partnerships and risk pools also mitigate risks from natural perils.

EMEA insurers' capital redundancy will persist at the 99.80% confidence level in 2025

• We expect the aggregate redundancy for EMEA insurers to level off slightly.
• This assumption is based on ongoing progressive dividends from listed players and more frequent share buybacks.
• In emerging EMEA, we have also observed strong business growth, which could increase capital requirements and lead to thinner capital buffers.
• We note that the overall aggregated capital surplus--capital redundancy on top of the respective capital level required for today's ratings--will remain higher than €100 billion in Europe.

Capital Is A Pillar Of Strength In Global Reinsurance

Global reinsurers' capital adequacy

• Under the new capital adequacy model, global reinsurers' buffers improved following the removal of haircuts on P/C loss reserve discounting and the inclusion of P/C DAC.
• We also captured the benefits of risk diversification more explicitly in our analysis, which supports capital adequacy.
• The recalibration of our capital charges to higher confidence levels somewhat offsets these improvements.
• For the two highest confidence levels, liability charges increased for natural catastrophe risk.
• Of the top 19 reinsurers, 95% had capital adequacy above the 99.95% confidence level.

Risk charges

Reinsurers show growing appetite for natural catastrophe risks

• We observed rising demand, improved pricing, and more favorable terms and conditions boosted reinsurers' appetite for property catastrophe risk during 2024. Most of the top 19 global reinsurers increased their exposure.
• Bolstered capital from strong earnings in 2024 led to ample capacity and healthy competition from reinsurers during January 2025 renewals, resulting in downward pressure on pricing across property and property catastrophe lines.
• The Jan. 1, 2025, reinsurance renewals marked a return to normalcy after challenging conditions two years ago. Back then, a dramatic increase in property and property catastrophe (short-tail lines) reinsurance pricing, driven by years of underperformance, led to a frantic and disorderly market renewal. In contrast, buoyed by two years of strong and favorable returns, reinsurers entered this year's renewals with a greater willingness to deploy capacity.

North American Life Insurers' Capital Is A Key Strength

Continued strong capital buffers at 99.80% confidence level under new framework

• Capital redundancy improved to about $213 billion under the revised framework, up from $120 billion under the previous criteria.
• Higher risk diversification benefits, along with inclusion of VIF and other equity-like life reserves, are the primary drivers of improvement in capital adequacy for life insurers.
• The increased RBC requirements resulting from higher charges related to insurers' exposure to interest rate volatility, mortality, and pandemics partially offset the expanded capital base.

Solid capital position bolsters credit fundamentals and stability

• More than 90% of the insurers within our portfolio are scored as strong or higher for C&E within the ratings framework.
• We believe that insurers will closely monitor capital to manage or mitigate any effects from changing economic and regulatory environments and use what they deem excess capital judiciously for shareholder returns, mergers and acquisitions, or reinvestment in the business.

Asset risk variations by cohort

• On a consolidated basis, North American life insurers' required capital for asset risks is balanced between credit risk, equity risk, and interest rate risk exposures.
• Interest rate risk and credit risk remain a dominant constituent of asset risk charges across all cohorts, reflecting exposure to long-tailed liabilities and higher allocation of investment portfolios toward fixed-income instruments.
• The significant equity risk at mutual life and private equity insurers is largely due to their insurance operating companies owning large noninsurance businesses, in addition to the equity held within their investment portfolios.

Liability risk variations by cohort

• Liability risk charges do not follow a consistent trend and are influenced by the specific business and product offerings of different companies within cohorts.
• The elevated proportion of longevity risk charges at private and private-equity-backed insurers indicates a business focus on retirement products and annuities.
• Other life risk captures potential losses from a permanent change in lapse rate assumptions, a mass lapse event, a permanent change in expense assumptions, and potential operational risk losses.

U.S. Health Insurance Capital Adequacy Weakens

Capital adequacy for North American health insurers weakened under revised criteria

• Aggregate capital adequacy for health insurers weakened under the revised criteria. This was largely because of less debt-funded capital credit, due to a change in how we calculate debt-funded capital, as well as higher asset risk charges, driven by interest rate risk charges.
• The negative impact from "other changes in TAC" primarily reflects the exclusion of investments in noninsurance and unconsolidated insurance subsidiaries in TAC.

Differences by peer group

• Our overall capital & earnings (C&E) assessment is informed by both our capital model and qualitative factors
• For publicly-traded health insurers, we predominantly have satisfactory C&E assessments based on long-term expectations of moderate capital deficiencies (less than 30%) at the 99.5% level, offset by favorable qualitative adjustments for their earnings power and financial flexibility.
• For not-for-profit and mutual BCBS health insurers, we predominantly have very strong and excellent C&E assessments based on long-term expectations of capital redundancies at the 99.95% and 99.99% levels, respectively.

Risk variations by peer groups

• Publicly traded health insurers' RBC requirements are weighted toward their premium and liability risks. Their asset risk charges primarily relate to their fixed-income and investments' credit and interest rate risks. They generally take on zero to modest equity investment risks.
• BCBS and other health insurers' RBC requirements are weighted toward their asset risks, primarily because their investment portfolios generally have higher equity allocations.

Capital adequacy should gradually improve over the forecast period

• In our base-case, aggregate capital adequacy for health insurers will gradually improve in 2025 based on capital growth driven by net earnings.
• This will be offset by other changes in TAC, which reflect shareholder returns (for publicly-traded companies) as well as debt issuances/redemptions (affecting debt-funded capital).
• Required capital will naturally increase with overall asset and premium growth in 2025.

North America P/C And Mortgage Insurance Capital Adequacy Improved

P/C insurers see robust capital buffer at 99.80% confidence level under revised capital framework

• Capital adequacy significantly improved under the revised framework.
• Higher risk diversification benefits along with inclusion of non-life DAC, and higher reserve discount credit led to improvements in capital adequacy for P/C insurers.
• The higher RBC requirement attributed to the recalibration of confidence levels partially offset these improvements.

Mortgage insurers benefit from recalibrated capital requirements

• Mortgage insurers' capital headroom also significantly improved.
• While TAC is largely unchanged, the recalibration of premium and reserve RBC requirements led to an improvement in capital adequacy.
• Increased asset risk charges partly offset these improvements.
• Diversification credit is limited for mortgage insurers because of their monoline business models.

Capital strength characterizes our rated P/C and mortgage insurers

• We expect more than 45% and 35% of our rated insurers will retain their capital buffers at or above the 99.95% and 99.99% confidence levels, respectively, in 2025.
• This reflects our expectations of resilient balance sheets in 2025 and continued high levels of net investment income that support capital strength.
• While the P/C sector could encounter increasing challenges in 2025 due to heightened market volatility and escalating weather losses, we believe aggregate capital adequacy remains resilient for our group of rated insurers.
• Similarly, we think our rated mortgage insurers will maintain solid capital buffers at the 99.95% confidence level, supported by strong underwriting earnings.

Equity exposure and interest rate sensitive assets drive asset risk charges

• While our analysis shows a high proportion of equity risk for multiline and personal insurers, we detect no major differences in asset allocation among the P/C cohorts when excluding Berkshire Hathaway Insurance Group and State Farm Mutual Insurance.
• Mortgage insurers' relatively high interest rate risk charges capture the yield stress applied on the interest rate sensitive assets backing their capital in excess of reserves. Absent company-specific duration mismatches, the high proportion of their capital relative to reserves generally leads to high interest-rate capital requirements.
• Mortgage insurers typically carry low reserve positions because reserves are set only when borrowers become delinquent rather than at inception of the policy.

Long-tail commercial sees higher reserve charges and mortgage insurers' high premium charges reflect loss severity inherent to the product

• Short-tail personal line insurers see higher premium risk capital requirements because they are prone to inadequate pricing. The high mortgage insurance premium charge reflects the low frequency and high severity nature of mortgage insurance business.
• Long-tail casualty commercial insurers are confronted with high reserve risk charges, reflecting the potential buildup of latent exposure inherent to the business written in prior years.

Personal line insurers' high natural catastrophe charges reflect vulnerability to climate volatility

• Personal lines writers exposed to homeowner business are most vulnerable to natural catastrophe losses.
• Personal lines insurers' median natural catastrophe charge of 11.4% of total RBC is higher than the 6.6% for commercial insurers and 5.0% for multiline insurers.
• We expect natural catastrophe risk charges will likely increase, especially among insurers with a regional focus, amid a rising severe climate-related loss trend.

P/C insurer capital redundancy roll forward

• We expect robust capital redundancy for the 37 groups of P/C insurers.
• Our net income forecast for these groups in 2025 considers stable underwriting margins, since insurers remain focused on rate adequacy (personal lines) amid rising natural catastrophe losses and uncertainty on long-tail reserves (commercial lines).
• Our assumptions also include strong net investment income as insurers continue to invest new money in higher-yielding securities.
• Included in other changes in TAC are share buybacks/issuances, debt redemption/financing, and other extraordinary items embedded in our base-case assumptions.
• Our net income forecasts generally exclude (un)realized investment gains/losses unless indicated otherwise at the issuer's level.

Mortgage insurer capital redundancy roll forward

• Similarly, we expect capital redundancy to remain robust for mortgage insurers amid underwriting discipline and strong, capital-accretive earnings.
• Our net income forecast in 2025 reflects our expectation that delinquency rates, and therefore near-term loss ratios, will rise, influenced by an expected increase in U.S. unemployment rates.
• However, we forecast strong returns on equity in the low to mid-teens for U.S. mortgage insurers and high teens for Canadian peer (Segan) through 2025.

Related Research

• Credit Conditions North America Special Update: Tariff Turmoil, April 17, 2025
• North American Property And Casualty Insurers Show Strength Under Dual Capital Pressure, April 11, 2025
• Global Reinsurers Stand Strong Amid Investment Volatility And Natural Disasters, April 10, 2025
• Robust Capital Supports North American Insurers Amid Market Volatility, April 9, 2025
• Tariffs Put European Re/Insurance Ratings To The Test, April 9, 2025

Primary Credit Analysts:	Simon Ashworth, London + 44 20 7176 7243; simon.ashworth@spglobal.com
	Patricia A Kwan, New York + 1 (212) 438 6256; patricia.kwan@spglobal.com
Secondary Contacts:	Serene Y Hsieh, CPA, FRM, Taipei +886-2-2175-6820; serene.hsieh@spglobal.com
	Olivier J Karusisi, Paris + 44 20 7176 7248; olivier.karusisi@spglobal.com
	Johannes Bender, Frankfurt + 49 693 399 9196; johannes.bender@spglobal.com
	Ireri Botello, Mexico City +52 5510375276; ireri.botello@spglobal.com
	Volker Kudszus, Frankfurt + 49 693 399 9192; volker.kudszus@spglobal.com
	Taoufik Gharib, New York + 1 (212) 438 7253; taoufik.gharib@spglobal.com
	James Sung, New York + 1 (212) 438 2115; james.sung@spglobal.com
	Harshit Maheshwari, CFA, Toronto (1) 416-507-3279; harshit.maheshwari@spglobal.com
Credit Program Analyst:	Matthew Cashman, New York; matthew.cashman@spglobal.com
Rating Analyst:	Zhi Fan Luo, New York + 1 (212) 438 3204; zhifan.luo@spglobal.com
Research Contributors:	Ronak Chaplot, CRISIL Global Analytical Center, an S&P affiliate, Mumbai
	Pranav Manek, CRISIL Global Analytical Center, an S&P affiliate, Mumbai
	Nadeem Shaikh, CRISIL Global Analytical Center, an S&P affiliate, Mumbai
	Abhilash Kulkarni, CRISIL Global Analytical Center, an S&P affiliate, Mumbai
	Tanveen K Bamrah, CRISIL Global Analytical Center, an S&P affiliate, Mumbai