The insurance and reinsurance market is expected to experience further softening in 2026, yet profitability is to remain robust, with returns on equity (ROEs) remaining above the industry’s cost of capital, Fitch Ratings notes in a recent report.
Fitch forecasts that while ROEs may dip from the high teens seen in recent years to the mid-teens, approximately 15.5%, they will remain significantly higher than the estimated cost of capital, which typically ranges between 8% and 10%.
The rating agency stated: “Fitch anticipates softening market conditions to continue at the midyear 2026 renewals in April (Asia-focused) and in June and July (Florida), as the competitive reinsurance environment intensifies, while macroeconomic, trade and geopolitical conditions remain uncertain.
“Nevertheless, the reduced pricing and somewhat easing of terms and conditions will still support an attractive risk-adjusted ROE (mid-teens) for reinsurers comfortably above the cost of capital (8%–9%), as reinsurers maintain underwriting discipline and selectively deploy capital into profitable opportunities.”
For property, catastrophe pricing significantly softened at the January 2026 reinsurance renewals, continuing a trend of rate reductions that began at the mid-year 2025 renewals.
Specifically, pricing for lower-layers coverage remained relatively stable, experiencing only flat to single-digit rate decreases. In contrast, higher, more remote layers of coverage that had not been affected by losses saw the most substantial rate declines, reaching double-digit levels.
This was due to the abundant capacity supplied by both traditional insurers and alternative capital providers in these layers, Fitch noted.
Terms and conditions weakened marginally as reinsurers competed for business growth. While higher attachment points generally held, aggregate and frequency event covers increase, mainly from the capital markets, offering earnings volatility protection.
Reinsurers were also willing to participate lower down on programs where cedent demand is high.
US property risk and cat loss-free pricing dropped up to 20%, compared to -10% to 10% a year ago, and even loss-hit business declined up to 5%. European risk and cat loss-free rates also fell up to 20%, though loss-hit accounts saw flat to 5% increases.
Unlike the property sector, where pricing is retreating, casualty reinsurers are navigating a landscape defined by social inflation and legal system abuse.
Fitch notes that while clarity exists on the 2015-2019 soft market losses, mainly in commercial auto and general liability, uncertainty persists over recent 2021-2024 reserve strengthening pockets.
“These factors will help drive casualty rate increases to keep pace with loss-cost trends, although added capacity from the casualty ILS market could dampen pricing. Favourably, US tort reform is expanding across several states, and efforts to limit third-party litigation funding are gaining traction, which could improve the liability market environment,” Fitch stated.
Finally, specialty lines experienced a decline in premium rates, mainly due to increased competition and more reinsurer capital, though aviation rates saw some firming.
Rate increases were driven by 2024-2025 aviation losses and the London court ruling in favour of stranded Russian planes. Cyber rates decreased up to 25%, with higher commissions, as ample supply met slower demand and losses were limited.
For retrocession, pricing accelerated its softening, with rates down up to 20% in January 2026, especially for higher layers, reflecting robust ILS capital and minimal 2025 retro losses.
Lower rates led reinsurers to increase retro demand, particularly for aggregate and frequency protections, Fitch noted.
