Unless there is a significantly large industry catastrophe loss, reinsurance pricing will continue to soften into 2027, JP Morgan analysts highlight in a most recent Love Actuary report.
The acceleration of reinsurance price softening is evident in 2026, a trend unlikely to stop as mid-year renewals near, driven by robust surplus capital levels and impressive first-quarter 2026 earnings.
According to the report, a massive capital overhang is heavily tilting the scales as the culprit for rate declines. JP Morgan emphasises that this capital must be weighed against market demand.
Analysts said: “Headline capital levels are high but need to be considered relative to demand. Headline broker reports always point to the absolute level of capital available in the industry as a justification for why prices should soften.
“Based on Aon data, reinsurance industry capital was estimated to be $760bn at FY25, a 32% increase since FY22. We believe that in order to evaluate the picture fully, we also need to take into account the demand side of the equation. In our view, a good proxy for demand is global non-life insurance premiums.”
Using global non-life insurance premiums as a proxy for demand, JP Morgan estimates that the market is currently saturated with approximately $125 billion of surplus capital
The report explains: “Comparing reinsurance capital to premiums at the end of 2022, a period when the market last turned, capital was about 14.5% of global non-life insurance premiums.
“In FY25, capital to premiums were ~17.5%, if we assume that capital-to-premium ratio level need to reach similar levels to 2022, this suggests there is ~$125bn of surplus reinsurance capital in the market.”
The sheer loss-absorption capacity of the current market means that even a highly active catastrophe year is unlikely to trigger a market hardening.
Using the historic market shares of losses from their Break in Case of Emergency database, JP Morgan calculated that “to wipe out the underwriting profits for the largest European reinsurers, the industry loss would need to be ~$120bn on top of a normal catastrophe load for the year. This suggests that catastrophe losses for the year would need to be in excess of $200bn”.
The reinsurance renewals this year have gotten progressively worse with property catastrophe lines down 12% at the January renewals, a trajectory that accelerated into mid-teens reductions by the April renewals.
Looking at the Florida renewals on June 1st, pricing in catastrophe-focused lines is projected to get worse again. According to the report, a major catalyst for this drop is Florida’s recent legal climate.
“With tort reform in Florida likely to have reduced litigation in the state, we would not be surprised if headline price reductions are~20% or more,” analysts stated.
Adding: “Based on data from Howden, that would still suggest that pricing in Florida is still at reasonable levels, but the super normal levels of profit made in recent years are likely to be behind us.
“The surplus capital issue for the reinsurance market is likely to lead to continued reinsurance market softening in our view. If 2026 turns out to be a ‘normal’ year for large losses, ROEs will be strong again and we see the inevitability that pricing will continue to soften into 2027.”
