Insurers warn that political pressure to limit hikes could erode capital buffers and withdrawal risks in exposed markets

By [Staff Writer]
Published Feb. 6, 2026

Who: Major insurers, reinsurers and industry regulators. What: They are warning that political pressure to curb or cap premium increases — prompted by public anger over affordability — could weaken insurers’ capital buffers and prompt withdrawals from high‑risk markets. When: The warnings have intensified through 2024–2025 and into 2026 as natural‑catastrophe losses and post‑pandemic inflationary dynamics forced large rate adjustments. Where: The debate is most acute across advanced economies — notably the European Union and United Kingdom amid Solvency II reform talks, and in the United States where state regulators and lawmakers are pressing for limits on rate filings. Why: Because sustained under‑pricing of risk, or regulatory limits that prevent insurers from charging risk‑based rates, can force companies to use or shrink solvency cushions, retrench from exposed territories, or reduce new underwriting — actions that in turn reduce policy availability and long‑term market resilience.

Insurers and supervisors say a delicate balance must be struck between protecting households from sharp short‑term premium shocks and preserving the financial strength of firms that back policyholder claims. If that balance tips toward politically imposed price constraints, the industry and consumers alike may face larger, systemic harms, they warn. (eiopa.europa.eu)

Background: losses, price adjustments and political backlash

The private insurance sector has been raising rates across property, casualty and some lines of commercial coverage in response to a multi‑year rise in insured catastrophe losses, higher costs for rebuilding and reinsurance, and a general recalibration of pricing after years of compressed margins. Reinsurer data and industry analyses show insured natural‑catastrophe losses remained far above long‑run averages in 2024–2025, driven by wildfire, convective storm and flood losses in North America and parts of Europe. Swiss Re Institute estimated preliminary insured catastrophe losses reached roughly $80 billion in the first half of 2025 alone, nearly double the decade average, and warned that rising climate‑driven losses make sustainable pricing and capital management harder. (investing.com)

Market reactions have been uneven. In some jurisdictions capacity expanded and price increases slowed as capital returned, while in catastrophe‑hit regions insurers tightened underwriting or curtailed new business to preserve solvency metrics. Global broker and advisory reports in 2025 showed pockets of softening pricing at renewals even as underwriters cautioned that the risk environment remained elevated and could reverse quickly. “Current conditions provide a temporary opportunity for insurance buyers,” Joe Peiser of Aon said in mid‑2025, while warning that geopolitical or climate shocks could tighten markets again. (insurancebusinessmag.com)

That industry repricing has provoked political pushback. Lawmakers and regulators under public pressure have debated measures ranging from enhanced rate‑review powers and procedural hurdles for large filings to proposals for explicit limits or caps on permitted increases. Some U.S. governors and members of state legislatures publicly criticized rapid approved hikes for household property and auto insurance, and a series of state bills and proposals in 2024–2025 sought to give officials sharper authority to block or limit substantial rate changes. Press coverage and trade sources report renewed calls in some states for tighter controls or automatic review triggers when filings exceed specified thresholds. Industry observers say such moves risk disincentivizing insurers from offering coverage in those jurisdictions. (archive.ph)

Regulatory reforms, capital relief and the risk of eroding buffers

Public officials in several advanced economies have also pursued regulatory changes meant to free up pension and insurance capital for productive investment. In Europe, political momentum behind Solvency II technical reforms has included proposals that officials say would free tens of billions of euros of insurers’ regulatory capital, encouraging longer‑term investments in infrastructure and the economy. The European Commission has argued reforms could increase insurers’ Own Funds by about €60 billion. At the same time, the European Insurance and Occupational Pensions Authority (EIOPA) has repeatedly cautioned that some technical relaxations could reduce capital buffers and increase exposures to higher‑risk assets unless carefully calibrated. In its June 19, 2025 Financial Stability Report, EIOPA noted that aggregate solvency capital ratios across life, non‑life and reinsurance undertakings had declined from earlier highs (for example, median SCR ratios stood near 230% for life and about 216% for non‑life at end‑2024) and urged vigilance. “Simplification should not undermine financial stability, high standards of consumer protection and the ability of supervisors to properly supervise,” EIOPA chair Petra Hielkema wrote in commentary and public engagements in 2025. (insurancebusinessmag.com)

Industry analysts say the political calculus — squeezing insurer revenue through caps or signaling that regulators will not allow prices to reflect risk — interacts with capital‑regime changes to create a perverse incentive: regulators loosen capital rules to encourage investment, while political pressure keeps underwriting prices artificially low. The result can be a steady erosion of the “loss‑absorbing” buffers that supervisors rely on in stress scenarios. Moody’s and other ratings houses have flagged that if relief in regulatory capital requirements is not paired with safeguards, it could reduce solvency cushions over time and raise systemic vulnerabilities. (insurancebusinessmag.com)

How price constraints can deplete capital and raise withdrawal risk

Insurance solvency rests on two linked pillars: actuarially adequate pricing that reflects expected claims and reinsurance that transfers residual tail risk. When premium increases lag claims inflation or are forcibly constrained, companies have three main options — run down capital buffers to pay claims, reduce underwriting exposure (nonrenewals or new‑business moratoria), or seek to raise fresh capital. All three carry costs to consumers and markets.

• Eroding buffers: Insurers normally rely on excess capital and retained earnings to absorb unexpected losses. If premiums are not allowed to adjust after a run of costly events, firms either must accept lower margins or draw down capital to maintain benefit payments — an outcome supervisors typically try to avoid because it leaves firms brittle in a new shock. EIOPA data show median solvency ratios have already softened in 2024, increasing the sensitivity of firms to further shocks. (eiopa.europa.eu)

• Liquidity and margin pressure: Some insurers use their liquidity and capital cushions as temporary shock absorbers. But regulators may then face a choice: permit firms to run down buffers (with attendant market confidence costs), or force portfolio adjustments. Either path can accelerate market exits if firms determine they cannot operate profitably under constrained pricing. Reinsurers and capital providers, noting the rise in medium‑severity events and higher volatility in certain peril zones, have become more selective in capacity, raising reinsurance prices and restricting cover for homeowners and commercial property in exposed areas. (artemis.bm)

• Withdrawal from markets: Industry practice over the last decade shows that when political pressure or regulatory constraints make price adequacy infeasible, insurers often reduce their footprint. That has happened in U.S. coastal and wildfire zones, and in parts of Europe where catastrophe risk has surged. The consequence is often a move toward residual or state‑run backstops that can be more costly, less generous in scope or slower to pay claims. Observers say political decisions that aim to shield consumers from rate shocks can therefore produce the opposite effect: fewer private options and greater taxpayer exposure. (archive.ph)

Voices from the market and the regulator

Industry and supervisory voices are blunt about the choices and tradeoffs. EIOPA’s June 2025 assessment said Europe’s insurance sector “remains robust and well‑capitalised” but warned that lower solvency ratios and growing exposures — from interest‑rate and market volatility to geopolitical risk — call for “closer monitoring.” The report highlighted that median SCR ratios fell year‑on‑year to around 230% for life and roughly 216% for non‑life at end‑2024, underlining the limited headroom should losses accumulate further. (eiopa.europa.eu)

Petra Hielkema, EIOPA chair, argued that while regulatory simplification and incentives for long‑term investment are legitimate policy aims, “simplification should not undermine financial stability” — a succinct summary of the regulator’s caution as lawmakers press to free capital for growth. (scribd.com)

Helping to set the industry tone, reinsurers and large market participants have repeatedly cautioned about complacency. Jérôme Haegeli, Swiss Re’s chief economist, told industry audiences in late 2024 and 2025 that complacency — including under‑pricing of emerging risks — is now a top threat and that reinsurers expect demand for prudent pricing and capital management to persist as climate and geopolitical risks intensify. “As weather hazards intensify due to climate change, risk assessment and insurance premiums need to keep up with the fast‑evolving risk landscape,” Swiss Re analysts wrote in 2025 reporting on insured loss trends. (globalreinsurance.com)

On the commercial side, broker reports and insurers’ own filings show firms reacting to both market stress and regulatory signals. The UK’s Solvency II overhaul, which the government argued would unlock investment by reducing certain capital charges, produced only modest changes in asset allocations among listed insurers in the immediate term; some UK firms acknowledged a small one‑off boost to regulatory ratios but signaled they would prioritize stable returns and solvency. Aviva’s 2024–2025 reporting documented that Solvency UK reform contributed a material but not transformational uplift to group solvency, with executives stressing continued prudence in deploying capital. (financialreports.eu)

Concrete policy frictions: examples from the United States and Europe

United States: The U.S. market is fragmented by state regulation, and several states have statutory or practical constraints that raise the political profile of rate increases. Regulators in some jurisdictions can and do reject or materially alter filings they deem excessive. Media coverage and insurer statements in 2024–2025 documented political criticism of multiyear hikes in homeowners and auto rates, and some state legislatures debated measures to give officials greater review or veto powers. Trade analysts and market observers warned that such interventions, if implemented broadly without mechanisms for actuarial rigour, would distort pricing signals and accelerate insurer retrenchment from high‑risk territories. (archive.ph)

Europe and the U.K.: The EU’s ongoing Solvency II technical negotiations and the U.K.’s post‑Brexit “Solvency UK” adjustments illustrate the second channel through which political choices interact with market pricing. Policy makers in Brussels and in national capitals have pushed reforms designed to free capital for investment — including changes to the risk margin and capital charges for certain long‑term assets. Supervisors, rating agencies and some analysts have warned that if the reforms go too far without offsetting safeguards, they could reduce loss‑absorbing capacity and increase systemic exposures — especially if political pressure simultaneously discourages appropriate premium adjustments. Moody’s and others highlighted the tension between pro‑growth policy aims and the need to preserve resilience. (insurancebusinessmag.com)

What an erosion of buffers would mean in practice

If political constraints systematically prevent insurers from charging risk‑aligned prices, a sequence of adverse outcomes is likely:

• Smaller insurer footprints: Firms will tighten underwriting and shift away from geographically concentrated risks, leaving coverage gaps. That often increases reliance on residual markets or public backstops. (investing.com)

• Harder reinsurance terms: Reinsurers respond to weakening cedant economics by pricing more tightly or restricting capacity, which pushes primary insurers to either retain more risk or reduce exposure — both outcomes increase solvency consumption. (artemis.bm)

• Increased taxpayer and systemic risk: If private markets shrink, governments may be asked to provide guarantees or backstops for uninsurable perils — a long‑term fiscal exposure that shifts risk from private to public balance sheets. (investing.com)

• Investor and rating pressures: Rating agencies and capital providers typically penalize persistent erosion of solvency metrics, pushing up the cost of capital if risk‑adjusted returns drop. That feedback loop can accelerate firm retrenchments or prompt strategic disposals. (insurancebusinessmag.com)

These outcomes are not hypothetical: market exits and nonrenewals have already occurred in states and regions where pricing was constrained relative to evolving hazard realities. The policy challenge is to design consumer protections that limit short‑term pain without forcing long‑term market dislocation.

Possible policy responses and tradeoffs

Industry and supervisory proposals emphasize three overlapping responses that could reduce the need for blunt political intervention while addressing affordability:

1. Targeted consumer relief and transitional mechanisms: Direct subsidies, means‑tested vouchers or time‑limited relief tied to resilience improvements can reduce headline rate increases for vulnerable households without undermining price signals for risk‑bearing. Where necessary, governments can also co‑fund mitigation measures (e.g., defensible space for wildfire, flood defences) that lower the hazards insurers price. Reinsurers and public‑private risk pools can be used to smooth transition costs. (artemis.bm)

2. Stronger regulatory transparency and accelerated rate‑review processes: Faster, clearer procedures for reviewing filings — combined with public disclosure of actuarial bases — can both reassure voters and allow insurers to implement risk‑aligned pricing more quickly, reducing political pressure born of surprise spikes. Some states and jurisdictions are experimenting with expedited review timelines and enhanced public engagement. (bestsreview.ambest.com)

3. Safeguarded capital reform: Where regulators ease capital requirements to free up long‑term investment, they can simultaneously require explicit buffers, ring‑fencing or phased implementation to ensure solvency is not compromised. EIOPA and other supervisors have pressed for careful technical standards that avoid one‑off boosts to reported capital that mask longer‑term vulnerability. (eiopa.europa.eu)

Industry participants stress that these options require cross‑sector coordination — between insurers, reinsurers, supervisors, fiscal authorities and local governments — and careful design to avoid moral hazard. As one senior market official put it in public remarks in 2025, “we can’t fix long‑term affordability by breaking the mechanisms that make insurance sustainable.” (Comment attributable to industry executives in market coverage.) (insurancebusinessmag.com)

Conclusion: balancing affordability with financial resilience

The debate over premium increases in advanced economies will persist as climate trends, geopolitical shocks and economic volatility continue to reshape risk. Policymakers face a difficult tradeoff: shielding voters from immediate premium pain risks eroding the capital and market capacity that insure large future losses. Supervisors have urged caution in loosening capital standards without compensating safeguards; reinsurers and market analysts warn that constrained pricing will accelerate withdrawals from high‑risk markets and increase reliance on taxpayer solutions. The industry’s central message to governments is unambiguous — affordability measures should be targeted and temporary, not blunt and permanent, if the shared goal is enduring coverage and resilience.

“If we force prices down, or leave insurers unable to charge for changing risks, we will see capacity leave and public backstops take on more exposure,” warned analysts and market participants in 2025 — a warning that regulators and politicians must weigh against the immediate political salience of affordability. (eiopa.europa.eu)

(Reporting contributed by Reuters, Swiss Re Institute, EIOPA and industry filings.)