Reinsurance buyers gain leverage as market softening accelerates: Fitch
Reinsurers face increasing pressure on pricing, terms and premium growth as the market shifts towards buyers, with property catastrophe rates falling by as much as 25% at the 2026 mid-year renewals, according to Fitch Ratings.
The 18 non-life reinsurers monitored by Fitch posted an aggregate reinsurance combined ratio of 86.1% in the first half of 2026, a marked improvement from 92.7% a year earlier.
Higher underwriting profits were supported by a sharp reduction in catastrophe losses, which contributed 3.5 percentage points to the combined ratio, compared with 10.9 points in H1, 2025, when results were heavily affected by the California wildfires.
First-half 2026 losses included winter storms and severe convective storms, mainly in the US, alongside losses from the Iran war, which Fitch said are estimated at approximately $3 billion for the industry.
Yet the underlying numbers point to a tougher environment. The accident-year combined ratio excluding catastrophe losses deteriorated by 2.3 percentage points to 85.8%, and Fitch expects it to rise by another one to two points in 2027 as market conditions weaken.
Non-life reinsurance net premiums also fell 6% year-on-year among companies reporting on a comparable basis, reflecting reduced pricing, exposure reductions, non-renewals and smaller line sizes, as well as the absence of reinstatement premiums from the California wildfires.
Fitch expects premium revenues to remain constrained as reinsurers prioritise profitability over growth.
That discipline is being tested by an accelerating shift towards a buyers’ market. Property has led the change, with US loss-free risk and catastrophe pricing declining by as much as 25% at the mid-year renewals. Fitch expects property catastrophe rates to soften further in 2027, absent a major hurricane or other significant loss event in the second half of 2026.
Terms and conditions are also expected to become more flexible for cedants, although attachment points and retentions have largely held so far.
Despite those pressures, profitability remains strong. Reinsurers, excluding Berkshire Hathaway, generated net income ROE of 18.2% in 1H26, up slightly from 17.7% a year earlier. Even as pricing falls, Fitch expects risk-adjusted ROEs to remain in the low teens, above its estimated 8%-9% cost of capital, with competition remaining “mostly rational” as reinsurers selectively deploy capital.
Finding attractive opportunities for that capital, however, is becoming harder.
Several years of strong results have left the sector highly capitalised. Common share repurchases among companies tracked by Fitch jumped from $4.37 billion in 1H25 to $13.06 billion in 1H26, with elevated buybacks and dividends expected to persist if the remainder of the Atlantic hurricane season remains mild.
Fewer organic growth opportunities are also contributing to a revival in M&A. Fitch expects activity to continue into 2027, particularly among small and medium-sized reinsurers, although it cautioned against deals pursued for scale and diversification without a clear strategic rationale.
Casualty presents another emerging pressure point. Rates have largely increased to keep pace with higher loss costs from social inflation, but Fitch warned that adequacy could be tested in 2027. Unlike property, casualty did not undergo a comparable rate reset in 2023, while supply is ample and capacity from casualty sidecars is growing.
Alternative capital more broadly continues to break records. Total alternative capital reached $141 billion in the first quarter, while first-half catastrophe bond issuance hit a record $17.1 billion and outstanding cat bonds reached $65.8 billion at end-June.
Retrocession is feeling the impact of that abundant capacity, with pricing softening by as much as 20% at the 2026 renewals. Lower prices have encouraged reinsurers to purchase additional aggregate and frequency protection to manage exposures.
Life and health reinsurance, meanwhile, is providing diversification from the increasingly competitive P&C market. Pre-tax income across the L&H operations tracked by Fitch increased 12% year-on-year, while net revenue rose 9.5%.
The first-half results therefore leave reinsurers well positioned for the next phase of the cycle. But with premiums contracting, pricing falling and capital plentiful, maintaining the discipline behind those strong returns could become increasingly difficult as the market moves towards 2027.
The data on selected non-life reinsurance operations comprised: Arch Capital Group; AXIS Capital Holdings; Berkshire Hathaway; Everest Group; Fairfax Financial Holdings; Hamilton Insurance Group; Hannover Re; IRB-Brasil Resseguros; Lloyd’s of London; Mapfre Re; Markel Group; Munich Re; PartnerRe; Reaseguradora Patria; RenaissanceRe; Scor; SiriusPoint; Swiss Re; W R Berkley Corporation.
The data on selected life reinsurance operations comprised: Berkshire Hathaway; Hannover Re; Mapfre Re; Munich Re; PartnerRe; Reinsurance Group of America (RGA); Scor; Swiss Re.
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