Abundant reinsurance capital ‘should be a wake-up call’
In today’s buyer’s market, reinsurers will need to carefully consider what their value proposition is and how they can differentiate themselves from their competitors
The reinsurance industry is basking in record capital and strong returns — but the industry cannot rest on its laurels
AS THE reinsurance industry descends on Monaco for the annual Rendez-vous de Septembre, reinsurers are in a strong position.
Capital levels are at record levels, supported by growth in both traditional and alternative capital, and reinsurers closed 2025 with exceptionally strong returns (Gallagher Re puts the sector’s return on equity at 19.3%).
This year is on track to be the fourth consecutive year of outstanding performance, with analysts projecting a sector RoE in the region of 15%.
While soft market conditions are expected to persist and drive a decline in returns, Marsh Re expects reinsurer returns to continue in the mid-teens over the next three years and exceed the cost of capital over the next three years.
But the industry cannot rest on its laurels; indeed, this situation presents something of a double-edged sword, brokers argue.
Excess capital means willingness to deploy capital is no longer a differentiator. In today’s buyer’s market, reinsurers will need to carefully consider what their value proposition is and how they can differentiate themselves from their competitors.
Value proposition
“Abundant capital should be a wake-up call, not a victory lap,” says Laurent Rousseau, head of Marsh Re’s international business.
“It should push reinsurers to deliver more value, not less [price] discipline, and to be materially more client-centric than the industry was when capital was scarce and clients had fewer options.”
Such an approach, Rousseau argues, will support growth and increase reinsurers’ relevance at a time when the risk landscape is becoming increasingly turbulent.
These opportunities include cyber, where the threat landscape continues to evolve, digital infrastructure, where huge re/insurance capacity is needed, and geopolitical risk such as war and political violence, where demand for cover is growing and new structures are being developed.
Swiss Re’s latest Sigma publication released on the eve of this year’s Rendez-vous estimates AI data centres and renewable energy investments could generate around $200bn in cumulative commercial insurance premiums by 2030.
The principal constraint in meeting this demand, Swiss Re argues, is not the availability of re/insurance capital, but the willingness to deploy it given increasingly complex and significant loss exposures.
Engineering-led underwriting, improved modelling and accumulation management will be vital in achieving this, as will partnership between insurers, reinsurers and capital markets.
“The deployment of capacity will depend on our ability to understand and manage those, and getting paid for the associated tail risk,” Gianfranco Lot, Swiss Re’s chief underwriting officer P&C Re, says.
Meanwhile, AM Best has warned reinsurers will struggle to maintain high underwriting standards amid the current ample capital levels. The rating agency said last month that property catastrophe reinsurance “faces its first real test since the 2023 market reset”.
Of course, for reinsurance buyers, record capital provides a huge opportunity to capitalise on the increased competition to access more flexible structures, broader coverage and innovative solutions.
Terms and conditions will come under pressure, and retentions levels, which surged in 2023, may fall, to some degree, brokers say. Appetite to provide aggregate products is also increasing, they add.
“Today’s reinsurance market gives insurers more options than they have had in years,” says Alfonso Valera, chief executive of international, reinsurance at Aon.
Aon identifies a number of priorities for insurers heading into January renewals, including using capital more creatively to support growth, and aligning risk with capital and product strategies.
“The opportunity now is to use that flexibility strategically, balancing growth ambitions with risk appetites while building resilience over the long term,” Valera says.
Gallagher Re chief executive Tom Wakefield agrees, saying cedants should look beyond simply achieving price reductions in their reinsurance programmes. “Rate reductions are important, but rate savings alone are the least strategic outcome available [for buyers].
“Instead, [the most successful outcomes] will come from using today’s market to improve capital efficiency, reduce volatility, strengthen balance sheets, and secure structural advantages that continue to create value long after the market eventually normalises.
“The real opportunity is to use the environment to build better programmes,” he adds.
Mergers and acquisitions
Beyond organic growth, executives are looking closely at M&A opportunities as a way to deploy excess capital.
The past year has already seen as string of acquisitions by international groups looking variously to build specialty expertise, add scaled P&C platforms and access distribution.
Recent transactions include Zurich’s $11bn purchase of Lloyd’s heavyweight Beazley, Japanese insurance giant Sompo’s $3.5bn acquisition of Bermudian re/insurer Aspen, and the $1.5bn purchase of US property and casualty firm Safety Insurance Group by Mapfre.
Only this week, there were reports that Korea’s Samsung Fire and Marine is preparing a bid for Lloyd’s specialty re/insurer Canopius.
As the insurance and reinsurance pricing cycle moderates, well-executed inorganic growth is becoming an increasingly attractive strategic option, industry executives say.
“We have already seen increased mergers and acquisitions in the specialty insurance industry. We should expect that to continue, if not accelerate,” says Marsh Re’s Rousseau.
