S&P: Reinsurers Face Pricing Pressure but Remain Resilient

S&P Global Ratings maintained its stable view of the global reinsurance sector in its report, Global Reinsurance Sector View 2026: Reinsurers Face Balancing Act, citing strong fundamentals that help offset increasingly difficult near-term market conditions.

Reinsurers entered the 2026 hurricane season with record-high capital adequacy and strong year-to-date operating performance, according to the report. However, abundant capacity from traditional reinsurers and alternative capital providers, combined with lower-than-expected catastrophe losses in recent years, is expected to keep reinsurance pricing under pressure through 2027.

Property and casualty reinsurers are likely to experience gradually declining underwriting margins and overall profitability during 2026 and 2027 as pricing softens, S&P said. The report projects an undiscounted combined ratio of 92 percent–95 percent in 2026 and 94 percent–97 percent in 2027, compared with 89 percent in 2025.

Despite the expected decline, underwriting margins and profitability should remain sufficient to cover the sector's cost of capital, per the report. S&P forecasts a return on equity of 12 percent–15 percent in 2026 and 10 percent–13 percent in 2027, supported by healthy underwriting results, strong net investment income and life reinsurance earnings.

The sector's ratings also support the stable outlook, according to S&P. The average rating among the companies in the report's reinsurance benchmark group is at the upper end of the "A" category, while 85 percent of the group has a stable outlook, 10 percent has a positive outlook, and 5 percent has a negative outlook.

Pricing and Capacity Pressures

Reinsurance and retrocession renewals during 2026 produced double-digit rate declines across most major business lines and regions, according to the report. Swiss Re, Munich Re, and Hannover Re reported risk-adjusted price reductions of approximately 3 percent–5 percent across their portfolios.

Property catastrophe reinsurance experienced broad-based softening, including double-digit rate reductions across North America, Europe, and Asia, per S&P. Casualty pricing was more varied, with rates in North America continuing to increase moderately because of reserve and loss volatility associated with social inflation, while loss-free accounts generally experienced moderate rate decreases.

Pricing pressure is expected to continue through 2027, according to the report. S&P said rate reductions could be similar to those recorded in 2026 even if large losses reach reinsurers' annual budgets, while ample reinsurance and retrocession capacity could place additional pressure on coverage provisions and attachment points.

Reinsurance and retrocession capacity expanded during 2025 and into 2026 as traditional capacity remained plentiful and alternative capital continued to grow, per S&P. Catastrophe bonds and sidecars contributed to that growth, while investor demand remained supported by the low correlation between insurance risks and traditional financial market risks.

Capitalization and Catastrophe Risk

Capitalization remains one of the reinsurance sector's principal strengths, according to the report. Capital redundancy within S&P's benchmark reinsurance group at the highest confidence level increased to 11 percent in 2025 from 10 percent in 2024.

The benchmark group generated more than $50 billion in net income during 2025 while returning more than $20 billion to shareholders through dividends and share repurchases, S&P said. The sector's risk profile remains more heavily influenced by large natural catastrophe events and reserve development than by asset-related risks.

Insured natural catastrophe losses totaled approximately $42 billion during the first half of 2026, below the 10-year average of $50 billion, according to the report. Wildfires and convective storms contributed most heavily to insured losses in 2025 and during 2026 through the report's publication.

S&P's benchmark reinsurance group established a natural catastrophe loss budget of approximately $21.5 billion for 2026, per the report. The rating agency estimated that sector capitalization could withstand severe industrywide losses exceeding $300 billion without the benchmark group's capitalization falling below its 99.99 percent confidence level.

Geopolitical risks continue to affect both sides of reinsurers' balance sheets, according to S&P. Losses related to the Middle East war had remained manageable and were concentrated primarily in political risk, marine, and terrorism lines of business.

Social inflation continues to create reserving volatility within US casualty lines, per the report. Higher pricing and additional reserve strengthening have helped reduce the pressure, but the underlying causes of social inflation remain largely unchanged, leaving the potential for further reserve volatility.

Reinsurers Expand AI Use

Reinsurers are actively adopting artificial intelligence (AI), according to S&P's survey of a representative group of companies in its reinsurance benchmark. All surveyed companies reported that AI was either already incorporated into their strategies or was being implemented.

Current applications are primarily focused on support functions, workflow automation, and broader workforce productivity, per the report. Reinsurers are also increasingly using AI to analyze large datasets for underwriting, claims processing, and real-time operational monitoring.

AI governance frameworks have been established by 78 percent of the surveyed reinsurers, while the remaining 22 percent are developing them, according to the report. All respondents reported having processes to identify, monitor, and mitigate AI model failures or breaches.

Security, data privacy, and regulatory compliance remain major challenges to AI implementation, S&P said. All surveyed reinsurers identified vulnerabilities involving data, models, or supply chains as risks, while a lack of transparency in AI decision-making and the possibility of false information were among the leading model-related concerns.

Investment Results

Reinsurers maintained a conservative investment risk appetite that remained lower than that of primary insurers, according to the report. Fixed-income securities represented more than 70 percent of investments in 2025, with more than 74 percent rated "A" or higher and 91 percent rated "BBB-" or higher.

The sector also maintained well-matched asset and liability profiles and sufficient liquidity to cover large losses, per S&P. Strong reinvestment rates continued to support investment income and overall earnings.

The global reinsurance sector is expected to face more challenging conditions in 2027 as the market cycle progresses, S&P said. Maintaining underwriting discipline, actively managing portfolios, applying robust risk controls, and retaining the flexibility to adjust capacity and risk appetite will be important as pricing and profitability come under additional pressure.