Viewpoint: Global Reinsurance Pricing to Remain Under Pressure Through 2027
S&P Global Ratings maintains a stable view of the global reinsurance sector. Reinsurers entered the 2026 hurricane season from a position of strength, supported by record-high capital adequacy and strong year-to-date operating performance. Even so, near-term headwinds are emerging.
Abundant capacity and lower-than-expected catastrophe losses in recent years suggest that reinsurance pricing will remain under pressure through 2027. As a result, reinsurers are likely to face increasing pressure to loosen terms and conditions, while property and casualty (P/C) reinsurers’ underwriting margins and overall profitability will gradually compress over 2026-2027.
That said, we believe underwriting margins and overall profitability will remain sufficient to cover the sector’s cost of capital. This reflects still healthy P/C reinsurance combined ratios, solid net investment income, and strong life reinsurance earnings, provided annual natural catastrophe and large man-made losses remain within the annual budgets.
Natural catastrophes, geopolitical conflicts, and social inflation – which will continue to require robust risk and portfolio management – as well as softening prices may curb near-term growth. However, the sizable protection gap in areas such as cyber risk, renewable energy, and data centers presents growth opportunities.
The sector’s primary risks remain insurance-related rather than asset-related. Natural catastrophe exposure and loss reserve volatility continue to be the key sources of risk, while investment risk remains significantly lower than in the primary insurance sector. We will continue to monitor reinsurers’ exposure to less liquid assets, including private equity, real estate, and private debt.
Rating Trends Support Our Stable Sector View
Over the past 12 months, most rating actions within our benchmark reinsurance group have been positive, reflecting stronger capitalization, robust earnings, and improving earnings diversification. The industry remains highly rated. The average rating on companies in our reinsurance benchmark group (African Re, Arch, Arundo Re, Ascot, AXIS, China Re, Convex, Everest, Fairfax, Hannover Re, Hiscox, Lancashire, Lloyd’s, Munich Re, Pelagos, RenRe, SCOR, Sirius, Swiss Re, and Toa Re) is at the upper end of the ‘A’ category.
Our ratings outlook is stable for 85% of the benchmark group, positive for 10%, and negative for 5%.
Decline In Operating Performance Will Be Manageable
The global reinsurance sector’s operating performance has been strong since 2023. Assuming natural catastrophe losses remain within reinsurers’ budgets in 2026-2027, the sector will earn returns above its cost of capital for the fifth consecutive year. Year-to-date results have been strong, benefiting from relatively low natural catastrophe losses. To date, the Middle East war has not resulted in material losses for the sector.
Our base-case scenario assumes a decline in P/C reinsurers’ underwriting margins as pricing continues to soften. This will increase the combined ratio by about 2-4 percentage points over 2026-2027, assuming that natural catastrophe losses are in line with reinsurers’ projected budgets.
Although we expect softer pricing in P/C lines, reinsurers continue to benefit from strong net investment income, which will support the overall operating performance. We forecast a return on equity (ROE) of 12%-15% in 2026 and 10%-13% in 2027; an undiscounted combined ratio of 92%-95% in 2026 and 94%-97% in 2027; positive reserve releases of 1-2 percentage points; and strong net investment income with a net investment yield of 3.5%-4.0%.
Natural Catastrophe Trends
Wildfires and convective storms contributed most to insured losses in 2025 and year to date. While Swiss Re indicated that insured natural catastrophe losses totaled about $42 billion in first-half 2026 – below the 10-year average of $50 billion – recent events underscore the risk of tail events. These include the earthquake in Kumamoto, Japan, in July, the heatwaves and wildfires in Southern Europe in July and August, and Hurricane “Lala” in mid-August 2026, which led to the first meaningful insured loss of this year’s hurricane season.
The 2026 natural catastrophe loss budget for our benchmark reinsurance cohort is approximately $21.5 billion. We believe the sector’s capitalization is likely to withstand severe industrywide losses exceeding $300 billion without the benchmark group’s capitalization falling below our 99.99% confidence level.
Geopolitical and Social risks
Geopolitical risks continue to pose challenges to both sides of reinsurers’ balance sheets. Year to date, losses related to the Middle East war have been manageable. Most losses from the war have been concentrated in political risk, marine, and terrorism lines of business.
Social inflation in U.S. casualty lines have increased reserving volatility in recent years and prompted many global reinsurers to strengthen their reserves. While higher pricing and additional reserve strengthening have helped mitigate pressures, the underlying drivers of social inflation remain largely unchanged. As a result, the risk of further reserve volatility persists, including for the most recently underwritten accident years.
Growth Opportunities And Strategic Trends
Growth opportunities will likely arise from innovative products – such as parametric drought coverage – and the significant protection gap (the difference between economic and insured losses) of about 60% in the first half of 2026. The gap is particularly pronounced in areas such as cyber, renewable energy, and data centers.
We expect reinsurers will remain the backbone of insurers’ ability to transfer cyber risk, making the reinsurance market the primary absorber of cyber accumulation risk as cyber exposures grow in scale and interconnectedness. Reinsurers continue to leverage managing general agents for specialized underwriting and distribution. This requires strong oversight to protect earnings and companies’ reputation.
Strong Capitalization Increases Capacity for Cedents
Capitalization strengthened further on the back of robust earnings and remains one of the sector’s key strengths. Our benchmark reinsurance cohort’s capital redundancy at the highest confidence level according to S&P Global Ratings capital model increased to 11% in 2025 from 10% in 2024.
Supported by strong operating performance, our benchmark reinsurance cohort returned more than $20 billion to shareholders through dividends and share buybacks, while generating net income of more than $50 billion in 2025.
Reinsurance and retrocession capacity continued to expand in 2025 and into 2026. This was due to ample traditional reinsurance capacity and growing alternative capital, particularly through catastrophe bonds and sidecars. Investor demand for alternative capital remains strong, reflecting the low correlation between insurance risks and traditional financial capital market risks. Investor appetite is also increasing for emerging and non-peak risks, including casualty, cyber, and wildfire exposures.
Reinsurers Are Actively Adopting Artificial Intelligence (AI)
Our AI survey among a representative number of our benchmark reinsurance group suggests that most reinsurers invest in AI, with all companies in our sample reporting that AI is already part of their strategy or currently being implemented. Current AI strategies focus on improving business productivity and efficiency by leveraging support functions and tools to automate workflows and increase general workforce productivity.
An increasing number of reinsurers use AI to analyze large datasets in areas such as underwriting, claims processing, and real-time operational monitoring. Security and data privacy remain primary challenges for AI adoption. All surveyed reinsurers identified vulnerabilities in data, models, or the supply chain as key risks to their AI initiatives. The most significant risks related to AI models are the lack of transparency in AI decision-making and the risk of AI providing false information.
Tougher Conditions Expected in 2027
The global reinsurance sector is once again exhibiting its cyclical characteristics and is likely to face more challenging market conditions in 2027.
In this environment, disciplined underwriting, active portfolio management, and robust risk controls will be critical to sustaining underwriting performance and profitability above the sector’s cost of capital.
Reinsurers best positioned to navigate the next phase of the cycle will be those that begin managing the cycle proactively, retain strategic flexibility to adjust capacity and risk appetite as market conditions evolve, and benefit from diversified business portfolios that are less exposed to cyclical pressure.