Lower Reinsurance Costs Create Opportunities and Risks for P&C Insurers

Lower property-catastrophe reinsurance pricing could improve underwriting results and capital generation for property and casualty insurers, but the credit impact will depend on how companies use the savings, according to the Kroll Bond Rating Agency (KBRA) report, "Reinsurance Relief: Will P&C Insurers Bank the Savings or Take More Risk?"

Property-catastrophe reinsurance has moved away from the hard-market conditions of 2023 and 2024 as abundant traditional and alternative capital, strong reinsurer balance sheets, and increased competition have driven down pricing and improved terms, according to the report. At the January 1, 2026, renewals, global property-catastrophe rates-on-line declined by an average risk-adjusted 14.7 percent, compared with an 8 percent decrease in 2025, while US program-wide reductions generally ranged from 10–20 percent.

The downward trend continued at midyear, when weighted average risk-adjusted decreases reached as much as 25 percent at June 1 renewals, with the largest reductions on loss-free programs, per KBRA. Global property-catastrophe rates-on-line were down 16 percent at midyear renewals.

Available catastrophe capacity has expanded as traditional reinsurers, insurance-linked securities markets, and new entrants compete for risk, according to the report. Third-party capital reached a record $124 billion at the end of the third quarter of 2025, while more than $24 billion of catastrophe bonds were issued during the year and $59 billion remained outstanding at year-end.

Demand also increased by more than 10 percent at the 2026 midyear renewals, partly because US insurers sought additional protection at the top of their programs, per the report. Although pricing moved closer to levels recorded about 4 years earlier, attachment points remained comparatively higher and terms tighter.

Lower pricing does not mean that underlying catastrophe risk has declined, KBRA said. The Palisades and Eaton fires generated approximately $41 billion in insured losses in 2025, while severe convective storms produced approximately $61 billion in insured losses globally—the third-highest annual total for that peril.

Lower ceded premium expenses can improve net underwriting margins, combined ratios, operating earnings, and internal capital generation, according to KBRA. The effect could be most significant for insurers whose catastrophe reinsurance costs are large relative to their premiums, earnings, or policyholders' surplus.

However, the credit benefit must be considered alongside primary pricing and loss-cost trends, per the report. If primary insurance rates decline more quickly than underlying loss costs, reinsurance savings may only offset margin pressure elsewhere rather than produce a meaningful improvement in earnings.

Insurers also can use savings to purchase more coverage without increasing their reinsurance budgets, according to the report. Options include buying additional limits, lowering attachment points, reducing net retentions, adding aggregate or frequency protection, and expanding protection against second- or third-catastrophe events.

For catastrophe-exposed insurers, reinvesting savings in additional protection may be more credit supportive than allowing the entire benefit to increase near-term earnings, KBRA said. Reduced net catastrophe exposure can limit earnings volatility, protect surplus after a major event, and lessen the potential capital impact of multiple events.

Abundant capacity may also help smaller and regional insurers complete placements on acceptable terms, diversify their reinsurance panels, and reduce their dependence on individual counterparties, according to the report. The benefit may be less pronounced for large, diversified insurers with greater bargaining power and multiple sources of capital.

Management's allocation of reinsurance savings will be a key factor in determining the credit effect, per KBRA. Retaining savings can strengthen financial flexibility and risk-adjusted capitalization, while purchasing more protection can reduce net tail risk and earnings volatility.

Using the savings to support growth could be neutral or negative if catastrophe exposure, operating demands, or capital requirements outpace surplus and protection, according to the report. Returning savings through dividends or share repurchases could limit the balance-sheet benefit and leave risk-adjusted capitalization broadly unchanged.

Catastrophe-exposed regional insurers and property specialists with geographic concentrations in catastrophe-prone markets may be particularly sensitive to lower reinsurance costs, per KBRA. Although these companies could obtain meaningful earnings relief and improved access to coverage, they remain exposed to attachment points, coverage exhaustion, reinstatement costs, recoverability concerns, and liquidity needs.

A softer reinsurance market also could encourage companies to assume more gross risk or retain a larger portion of losses, according to the report. If catastrophe-exposed premiums and insured values increase faster than surplus and reinsurance protection, an insurer could become more vulnerable even as its risk-transfer costs decline.

The structure and quality of a reinsurance program remain important because headline pricing reductions do not show the full level of protection available, KBRA said. Attachment points, occurrence and aggregate limits, reinstatement provisions, exclusions, cascading features, exhaustion risk, counterparty strength, collateral quality, and recoverability can all affect an insurer's net loss.

The ratings effect is expected to vary by company rather than produce a broad sector-wide improvement, per KBRA. Insurers that use lower reinsurance costs to strengthen capital or reduce net catastrophe exposure could benefit, while those that increase growth, retentions, or capital distributions may see less improvement.