US Medical Reinsurance Market Rebalances as Capacity Shifts

Three major reinsurers have recently signaled their exit from the US medical reinsurance market, marking a structural shift in the sector. According to Gallagher Re, this development represents a rebalancing rather than a crisis. The firm reports that it has already secured replacement capacity for some affected clients, in certain cases at improved terms.

Despite the withdrawals, overall market capacity remains strong. A series of new entrants in recent years, including direct reinsurance organizations and managing general underwriters, have helped offset the impact. Reinsurance renewals through the remainder of the year are expected to remain navigable.

Capacity Reductions Affect Key Health Segments

The reduction in supply is likely to affect several US healthcare business lines, most notably employer stop loss and fully insured group healthcare plans, as well as the Affordable Care Act individual market and Medicare Advantage and Medicaid. Appetite for quota share arrangements may decline, particularly where profitability has been challenged. However, appetite for excess of loss arrangements remains healthy.

In capacity contracts, pricing discipline may increase. Gallagher Re indicates that reduced capacity could result in higher risk-adjusted rates, higher attachment points for excess-of-loss coverage, and tighter underwriting standards. Consequently, insurers may face higher reinsurance costs or retain more exposure to high-severity claims.

Capital Pressures and Loss Trends

Medical insurers may experience additional pressure on capital reserves, particularly small to mid-sized and regional healthcare plans. Data from the National Association of Insurance Commissioners show that US health insurers’ capital and surplus have continued to rise in recent years, though at a slower pace. The NAIC also reports increasing medical loss ratios, tied to higher utilization, prescription drug costs, and healthcare inflation.

Structured Solutions and Alternative Risk Transfer Gain Momentum

In response, the market is shifting toward more structured solutions. Traditional quota share arrangements are evolving into trend risk corridors, multi-year structured agreements, and population health-linked reinsurance. These approaches allow insurers and reinsurers to refine risk-sharing and pricing structures.

Interest in alternative risk transfer mechanisms is also increasing. Captive structures and insurance-linked securities can provide regulatory capital relief, with captives ceding risk on a quota share basis and arranging aggregate reinsurance in the ILS market. In addition, bespoke carve-out coverage for specific high-cost treatments, including advanced CAR T-cell immunotherapies, is gaining traction.

Gallagher Re characterizes the current environment as a recalibration of supply and demand rather than a market breakdown. The firm states that the market is restructuring as participants adjust to new capacity dynamics.