Capital, Reinsurance and Political Scrutiny

Insurance at the Intersection: The Business Case for Trust. This article is the second in a four-part series examining the strategic forces reshaping the insurance operating environment.

For most of the past decade, capital allocation in insurance was treated as a financial discipline. Decisions about reinsurance structure, catastrophe exposure, market participation, and alternative capital were evaluated through the lenses of solvency, return on equity, and rating agency expectations.

That separation is no longer reliable.

As the past several years have demonstrated, decisions that present as portfolio discipline are increasingly interpreted as public policy events. The dynamics of the reinsurance cycle, state market conditions, and federal attention to availability and affordability have converged in ways that make capital strategy — where insurers deploy it, how they structure risk transfer, and when they enter or exit markets — a public affairs issue as much as a financial one.

The Cycle Turned — But the Political Scrutiny Didn't

The reinsurance market has shifted materially since the dislocation of 2022 and 2023. Those years brought sharply higher attachment points, tighter terms, and reduced capacity that forced primary carriers to retain more risk and make hard choices about market participation. The political consequences were significant: carrier exits from California and Florida, residual market growth, and congressional attention to non-renewal patterns.

The market has since corrected. At the January 2026 renewals, property catastrophe pricing fell double digits on non-loss affected programs, and dedicated reinsurance capital reached record levels — roughly $540 billion in traditional capital plus another $120 billion in insurance-linked securities. AM Best revised its global reinsurance outlook from positive to stable, reflecting abundant capacity and competitive pressure rather than scarcity. For primary carriers, improved reinsurance economics represent a genuine opportunity to revisit program structures, manage retention levels, and reinvest savings.

But the political dynamics that took shape during the hard market have not simply unwound with pricing. Congressional attention to non-renewal data, state legislative responses to carrier exits, and the expanded infrastructure for federal oversight of market availability all developed during the period of market stress — and the data and policy record those efforts produced is durable, regardless of where the reinsurance cycle stands today.

Three Dynamics That Remain Active

The first is California, where the market stress that accelerated during the hard market years has continued to intensify. The January 2025 Los Angeles wildfires — among the largest urban wildfire disasters in state history — accelerated an already strained situation. The California FAIR Plan's total exposure reached $724 billion as of December 2025, a 230% increase since 2022, with policies in force approaching 669,000. California's Insurance Commissioner has pursued a Sustainable Insurance Strategy that allows carriers to use forward-looking catastrophe models in rate filings in exchange for commitments to write in distressed areas — and new Make It FAIR Act legislation introduced in early 2026 seeks to overhaul the FAIR Plan's governance, claims handling, and coverage structure. California illustrates the full arc of the capital-politics feedback loop: market withdrawal prompted regulatory and political intervention, which is now reshaping the conditions under which carriers can return.

The second is Florida, which illustrates the same dynamic in the other direction. Legislative reforms enacted in 2022 and 2023 — restructuring litigation rights, reforming assignment-of-benefits rules, and creating state-backed reinsurance backstops — have produced measurable market stabilization. Property litigation is down 25%, reinsurance costs have declined materially, seventeen new insurers have entered the market, and Citizens Property Insurance Corporation has shed hundreds of thousands of policies back into the private market. Florida is now being cited by other states, and by global reinsurers, as a model for how targeted legislative action can restore capital confidence. The lesson is not that Florida's problems are solved, but that the political and capital dynamics of market participation run in both directions — and proactive engagement with the policy environment can materially reshape market conditions.

The third is the federal oversight architecture that has developed around availability and affordability. During the 118th Congress, the Senate Budget Committee conducted a formal investigation into non-renewal practices among major carriers in California, Louisiana, Florida, and Texas, producing the first publicly available county-level non-renewal dataset nationwide. The FIO published parallel analysis. That data and the policy attention it generated now sit in the public record and establish a template for federal scrutiny that future congresses can revisit. Separately, legislation introduced in the current Congress would eliminate the FIO entirely — a development that would reduce federal visibility into systemic market dynamics, and that also reflects the current administration's disposition toward lighter federal oversight of insurance markets. Carriers should track this development: reduced federal coordination on market availability data could shift scrutiny more heavily back to the state level.

Why This Is a Leadership Issue

The core strategic challenge is that capital decisions shape market presence, market presence shapes political narratives, and political narratives shape the regulatory environment that governs capital. Leadership teams that manage these as separate domains — finance in one silo, government affairs in another — are poorly positioned for this environment.

The CFO, CRO, and head of government affairs need to be working from a shared analytical framework. Reinsurance program decisions, geographic exposure management, and market entry or exit choices all carry political and reputational dimensions that should be stress-tested before execution. The question is not whether financial strategy will attract scrutiny — it is whether the organization has a coherent narrative prepared when it does.

Alternative capital structures require proactive regulatory education. ILS, structured reinsurance, and captive arrangements continue to attract scrutiny from regulators who want greater transparency into how risk is transferred and where capital resides. As the reinsurance market softens and alternative capital grows — ILS now represents approximately 17% of total reinsurance capital — carriers that have invested in proactive dialogue with supervisors on these structures are better positioned than those that wait to explain them under examination pressure.

Board-level visibility into political and regulatory risk around capital strategy is an expectation rather than an option. As the governance frameworks around AI and climate risk have both demonstrated, regulators are moving toward explicit accountability for strategic risk at the board level. Capital and reinsurance strategy will follow the same trajectory.

Cross-border alignment is a material operational requirement for multinational groups. Capital flows between parent entities, U.S. subsidiaries, and reinsurance platforms carry both supervisory and political dimensions across jurisdictions. Reconciling U.S. state-based requirements with IAIS standards and EU regulatory expectations — in an environment where the current U.S. administration has signaled reduced appetite for international standard alignment — requires governance that sits at the intersection of finance and public affairs.

Looking Ahead

The reinsurance market has corrected from its recent peak, and carriers enter 2026 with improved economics and expanded capacity options. But the political and regulatory attention that market volatility generated has not dissipated at the same pace. California remains in active crisis. The congressional data infrastructure for oversight of market availability is established and can be reactivated. State legislative activity in response to carrier behavior continues across multiple markets.

Institutions that treat capital strategy, regulatory engagement, and external narrative as integrated functions will be better positioned to shape the environment in which they operate. The current moment — with reinsurance economics improved but political scrutiny still elevated — is precisely when proactive engagement is most likely to produce durable outcomes.

Bushnell Mueller helps insurers and their distribution and risk partners navigate the policy, regulatory, and reputational dimensions of strategic business issues. For more on our work on capital strategy, regulatory engagement, and public affairs, contact us.