Reinsurance price softening to continue in 2027, with rising pressure on terms: S&P

The global reinsurance sector is expected to face more challenging market conditions in 2027, with price softening expected to continue while pressure on terms and conditions rises, as the market exhibits typical cyclical characteristics, all of which makes discipline key to the ability to deliver returns, S&P Global Ratings has said.

In its reinsurance sector view issued just in advance of the 2026 Monte Carlo Rendez-vous event, S&P Global Ratings spotlights a market it expects to face tougher conditions going forwards.

Despite this expectation, S&P maintains its stable outlook on the global reinsurance sector, saying that strong fundamentals help to offset some of the challenges near-term market conditions are posing.

The sheer weight of capital in the reinsurance industry is seen as the key driver for the rating agencies expectation that prices will soften further at renewals in 2027.

But, S&P believes reinsurers can continue to cover their costs-of-capital, provided annual natural catastrophe and large losses remain within budgets.

Insurance-related risk is the main threat to the industry, rather than asset-side risks and the capital base of reinsurers has continued to grow, providing additional buffers.

At the same time, S&P notes that “reinsurance and retrocession capacity continued to expand in 2025 and into 2026,” helped by both traditional and alternative capital expansion.

Catastrophe bonds and sidecar structures are seen as the main sources of alternative capital growth in reinsurance, with these instruments playing increasingly important roles for the sector.

At the same time, the appetite to access insurance-linked sources of return through the reinsurance industry remains strong, S&P believes.

“Investor demand for alternative capital remains strong, reflecting the low correlation between insurance risks and traditional financial capital market risks,” the rating agency said. Adding that, “Investor appetite is also increasing for emerging and non-peak risks, including casualty, cyber, and wildfire exposures.”

S&P expects “ample reinsurance and retrocession capacity to remain available for the upcoming renewal seasons.”

But, this highly capitalised reinsurance sector means pressure is rising for underwriters, particularly on terms and conditions.

S&P believes the pressure on T&C’s will continue to rise in 2027, although notes that in 2026 reinsurers have largely defended the structural gains made during the hard market.

Summing up, S&P explained, “We expect pricing pressure to persist through 2027. Rate reductions could match those seen in 2026, even if large losses reach annual budget levels. Ample reinsurance and retrocession capacity is likely to exert additional pressure on terms and conditions, including coverage provisions and attachment points.”

But added, “However, we expect the sector to continue earning returns above its cost of capital in 2027, as underwriting discipline and contract structures remain more robust than they were at the trough of the previous cycle.”