The reinsurance market is bracing for heightened competition in 2027, even as it continues to experience a normalization of underwriting results throughout the remainder of 2026, assuming no major catastrophic events. This competitive surge is primarily attributed to the industry's expanding capital reserves, as noted by AM Best.
A recent analysis from AM Best underscores the pivotal role of underwriting discipline among the leading 50 global reinsurance entities. This steadfast approach has been crucial in maintaining profitable outcomes amidst a market that has shown signs of easing. The global reinsurance landscape has undergone significant changes since the peak of its recent hard market phase.
After years of struggling to meet its capital expenditure, the global reinsurance industry successfully restored its profitability through robust market rates and stringent underwriting protocols. AM Best's assessment indicates that this discipline remains firmly in place. Despite a notable market softening observed during the 2025 renewal period and extending into 2026, fundamental shifts introduced during the hard market—such as increased cedent retentions, enhanced risk selection, and reduced involvement in lower-tier reinsurance towers—have largely endured.
The resilience of these changes was notably tested by the California wildfires in early 2025, which inadvertently supported reinsurer profits. Although property catastrophe reinsurance rates have since softened considerably, the sustained enforcement of terms and conditions from the hard market instills confidence in AM Best regarding reinsurers' ability to maintain profitability in 2026, provided no significant loss events occur later this year.
Reflecting on the mid-2026 reinsurance renewals, AM Best observed a continued downward trend in rates. The June and July renewals further empowered cedents, as reinsurers demonstrated ample capital to absorb potential losses. This period also saw additional softening in property catastrophe pricing, a greater willingness to extend coverage limits, and slightly more flexible terms and conditions compared to recent renewals. An compounding factor in this shifting market dynamic is the escalating competition from the insurance-linked securities (ILS) market.
With no substantial industry-wide loss events in the first half of the current year, the rating agency highlighted that reinsurers are consistently accumulating capital. This is facilitated by a relatively high-interest rate environment, profitable underwriting operations, and catastrophe activity that has remained below long-term averages. However, AM Best did point out the increasing frequency of severe weather events in the United States in recent weeks, alongside wildfire incidents in regions like Washington.
As 2026 progresses, the renewal seasons have clearly depicted a market transitioning from a period of rapid hardening to a more competitive, softening environment. While rates continue their decline, the overall market remains favorable, though with fewer avenues for deploying the substantial capital amassed over the past few years. This scarcity of capital deployment options against a backdrop of a growing capital base is expected to intensify competitive pressures.
Recently, AM Best and Guy Carpenter projected that reinsurance capital would reach $705 billion by the close of this year, with third-party and insurance-linked securities (ILS) capital contributing approximately $130 billion to this total. AM Best clarified that despite early indicators of normalized underwriting profitability, the industry's capital position continues to strengthen. The record levels of traditional and third-party capital are anticipated to ensure abundant market capacity into 2027, thereby increasing competitive pressures while still enabling well-managed market participants to achieve appealing returns.
AM Best further anticipates a likely deterioration in underwriting results for reinsurers between year-end 2025 and year-end 2026. This is largely due to declining rates, unless significant US catastrophe events impact earnings in the latter half of the year. Additionally, AM Best expects that market growth will continue its current decelerated trajectory, as rates fall further and market participants remain committed to enhanced underwriting discipline. The rating agency concluded by stating that the 'World's Largest Reinsurers' report is expected to evolve as more major reinsurance players adopt IFRS 17, global market dynamics shift, and existing participants strategically adapt to find growth and profitability within the current reinsurance cycle, all while navigating new and evolving perils. Moreover, AM Best foresees a continued normalization of underwriting performance from the exceptionally strong results achieved by reinsurers between 2023 and 2025, given the uninterrupted current rate trend.
