Willingness to deploy influences price more than the weight of reinsurance capital: J.P. Morgan

Analysts from investment bank J.P. Morgan have suggested that the willingness to invest additional capital in the reinsurance market could be a more significant factor when it comes to pricing than the total capital volume presently accessible in the market.

Global reinsurance capital reached new heights by the end of the third-quarter of 2025, as estimates from Aon’s Reinsurance Solutions shows that traditional reinsurance capital grew 6% through the first nine months of 2025 to reach a new high of $636 billion.

However alternative or insurance-linked securities (ILS) capital grew at a faster pace, increasing by 9% throughout the first nine-months of the year to reach a new $124 billion high, which was largely driven by elevated catastrophe bond and sidecar activity.

In a new report, analysts from J.P. Morgan highlighted one theory that’s often flagged across the reinsurance industry, which is how levels of capital drive pricing across the sector.

The analysts note that they do not perceive industry capital volumes as the main influence on reinsurance pricing levels at this time.

“In our experience, capital availability does not necessarily mean that capital is willing to be deployed by reinsurers and it also does not reflect the level of demand from the primary market. Therefore, we do not see this as the biggest driver of market pricing. The market continued to show hardening in 2019-21 despite capital levels increasing and this trend was clear again in 2024,” J.P. Morgan’s analysts explained.

By citing the hardening trends of 2019–21 and 2024, J.P. Morgan’s statement highlights a structural shift where demand-side pressures, driven by inflationary exposure growth and secondary peril volatility outpace the supply of willing capacity, which ultimately allows reinsurers to maintain rate discipline and terms and conditions regardless of their balance sheet size.

In the same report, J.P. Morgan’s analysts also explained that European reinsurance profitability remains well above historical levels, which indicates that the shock required would need to be material in order to reverse the current trajectory of reinsurance prices.

The analysts also described stronger reinsurance industry profitability as “a blessing and a curse.”

“It means that profits remain at better levels and have far further to fall to get back to previous points in the cycle. But if worse-than-expected loss experience drives the direction of pricing, better margins are also likely to be a headwind to reaching more positive pricing trends in the near term,” the report reads.

Overall, J.P. Morgan’s analysts expect European reinsurers’ profitability to remain elevated for the next few years.

The fact that, even after the softening seen at the 1/1 2026 reinsurance renewals, rate adequacy is still deemed high means capital providers are still motivated to deploy and this elevates the competitive effects being seen, with a commensurate additional pressure on rates-on-line.

Considering the profitability of the sector, it may require a significantly larger loss, succession of losses, or a broader economic effect, to shift the current soft market conditions.