Capital redeployment is set to be the biggest challenge for reinsurance companies in 2026, Michael van Wegen, author of Gallagher Re’s Full Year Reinsurance Market Report, highlighted in a recent interview with Reinsurance News.
The report revealed that total dedicated reinsurance capital rose to a record $648 billion in 2025, representing an 11% increase on the prior year, and marking the second-strongest year for capital growth in more than a decade.
van Wegen noted that the speed of capital accumulation has outstripped business growth. Since the market began hardening at the end of 2022, traditional reinsurance capital has grown by 50%, while revenue has only climbed by 20%.
He commented: “That imbalance is a key factor behind the change in supply and demand dynamics and tilting that into the favour of the insurers, instead of the reinsurers. And it really highlights the pressure on the reinsurers’ management teams to figure out capital redeployment.”
While traditional reinsurance capital growth is expected to slow from double digits to about 4%, which is below the historic level of growth of around 6%, excess capital buildup is still expected to continue.
“Not only is there a lot of excess capital built up, it is also starting to affect the profitability. The underlying ROE in 2025 deteriorated, and yes, the underlying combined ratio deterioration may be somewhat of a factor in that, but the key factor in this is just continued capital buildup. That is the most significant driver of the deterioration in the underlying ROE in 2025,” van Wegen explained.
He continued: “I think that capital redeployment will be the key challenge, finding the right growth opportunities. Beyond that, what do you do with the excess capital? So, we see an increase in payout in 2025 already to 51% from 47% in 2024, and we expect a further step up to around 60%.
“But even then, you’re still getting excess capital build, so it’s not enough to stop that issue. So, what’s next? I think that will depend on reinsurer by reinsurer and management team by management team.”
van Wegen explained that some reinsurers are looking for diversification, stepping into new geographies, new lines of business, while some of them diversify outside of reinsurance.
He said: “Different companies will go about it differently, but I think the key objective for management teams is finding the appropriate opportunities to put that excess capital to work. And if they can’t, look at ways to distribute that to shareholders.”
The capital redeployment challenge has the potential to persist beyond 2026, but it will depend on how the cycle evolves, van Wegen suggested.
