Abundant capital puts reinsurance discipline to the test: BCG

Reinsurers are entering a more demanding phase of the cycle, with Boston Consulting Group (BCG) warning that underwriting discipline and capital allocation, rather than premium growth, will increasingly determine value creation.

BCG’s 2026 Insurance Value Creators analysis found reinsurance generated average annual total shareholder returns (TSR) of 19.1% over the five years to 2025. However, momentum slowed markedly last year, with one-year TSR falling from 29% in 2024 to 14% in 2025.

The longer-term picture remains strong. Reinsurance produced average annual TSR of 13.4% over the decade to 2025, while tangible book value across BCG’s extended sample of 12 reinsurers increased from $119 billion at year-end 2022 to $162 billion at year-end 2025. Global dedicated reinsurance capital, meanwhile, reached $648 billion.

That capital strength is now creating a different challenge: resisting the temptation to deploy it when returns do not justify doing so.

Recent Bermuda market data underscores that dynamic. Recent data published by the Association of Bermuda Insurers and Reinsurers (ABIR) demonstrated that ABIR members’ total equity jumped 16.6% in 2025 to $207.7 billion, while gross premiums increased by a much more measured 4.6% to a record $197.5 billion. ABIR said premium volumes at many participating carriers were relatively flat, reflecting a reluctance to chase market share as rates declined. The figures suggest Bermuda’s carriers are entering the softer phase of the cycle with considerable financial strength, but are so far showing restraint over how they deploy it.

“When capital is abundant, success often depends not simply on identifying which business to write, but also on deciding which business not to write,” the BCG report said.

For Bermuda, there is evidence that such discipline has paid off. Bermuda-headquartered Arch Capital Group was one of three reinsurers, alongside Munich Re and Hannover Re, identified by BCG as delivering the strongest combination of returns and comparatively low volatility over the past decade. BCG’s analysis also links stronger long-term shareholder returns among market leaders with combined-ratio performance.

The finding puts underwriting discipline firmly at the centre of the debate as reinsurers head into the next stage of the cycle.

BCG calculated that P&C reinsurers generated an average 16% return on tangible equity between 2021 and 2025, including seven percentage points from underwriting and nine from investment returns. An average 94% combined ratio, however, means there is limited underwriting margin available to absorb deteriorating prices or adverse loss experience.

BCG said reinsurers should therefore allocate capital dynamically across products, geographies and different forms of capital, pursue growth only where risk-adjusted returns justify it and return capital when attractive opportunities are insufficient.

The conclusive message was clear: “The next few years will not test who can deploy the most capital,” BCG concluded. “They will test who can allocate it most effectively.”

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