A recent report from KBW analysts, following their semi-annual trip to Bermuda in anticipation of the January 1st renewals, indicates that the retrocession market continues to be more vulnerable to instability, with this instability contributing an additional layer of fragility to the broader reinsurance ecosystem.
This included a $60-70 billion single-event loss, which could shift trends in property cat reinsurance pricing; a $35 billion loss event in which lower reinsurance layers are impacted; and/or a $50-60 billion loss event with losses felt very broadly felt across the reinsurance market.
“We remain convinced that expected profitability is generally a better predictor of future pricing than absolute capacity levels (absent significant capacity shortfalls) because we simply don’t think the industry is irrational enough to intentionally underprice business just because it’s overcapitalized. Hence, we don’t view the incremental capital generated through recent strong reinsurance returns as the primary catalyst for softening reinsurance pricing,” analysts said.
Adding: “On the other hand, the combination of many primary insurers’ much-improved results is probably pressuring demand somewhat (since better-capitalized and more profitable cedants can absorb a little more volatility), and as noted above, widely perceived catastrophe reinsurance rate adequacy and the typical desire for premium growth are sustaining competitive pricing and will probably do so until compounding rate decreases erode expectations.”
Commenting on the retrocession market, analysts said: “That said, a few executives pointed out (we think correctly) that the relatively small size of the retrocessional reinsurance market adds an element of fragility to the broader reinsurance marketplace, since a relatively small number of retro players’ changing views of profitability (following, for example, a significant unmodeled catastrophe loss) could upset dynamics that would likely ripple into the primary (i.e., non-retro) reinsurance market.”
Additionally, KBW’s analysts also stressed that compounding rate decreases are more likely to change pricing trends than a single surprise loss, with the firm specifically highlighting how January’s 2025 California wildfire losses had little impact on reinsurance pricing, other than for loss-impacted accounts, which according to analysts “probably points to sustained weak investor sentiment toward the reinsurance space.”
The broad consensus from Bermuda executives as per KBW, is that risk-adjusted property catastrophe reinsurance rates are softening more than previously forecast.
Expectations during Q3 2025 conference calls pinned rate decreases within the 10% range. However, KBW analysts note that expectations have now worsened to the “upper teens,” with major pressure on remote layers that remain loss-free through 2025.
“In general, reinsurance brokers’ guidance (which we think is more credible, especially amidst overall softening) was of rate decreases of 15-20% versus the reinsurers’ more common 10-15% range,” KBW added.
In a newer report, KBW’s analyst team noted that due to the fact the January reinsurance renewals are looking to be later in signing terms, the average property catastrophe reinsurance rate decline at 1/1 2026 may be closer to 20%.
The analysts noted that “the relatively “late” (meaning fewer-than-expected issued firm order terms, and very few reinsurance contract signings to date) season pointing to overall decreases approaching 20%,” in a report released today.
Looking past the projected rate decreases, 2026 is still expected to be strong year for reinsurers, with several executives describing 2026 as the “fifth-best” year in the catastrophe reinsurance industry’s history, supported by per-occurrence attachment points which, following the stark increases of 2023, have remained broadly unchanged in nominal terms.
Turning attention to terms and conditions (T&C), KBW explained that the market is seeing a loosening on the margin, though changes are not considered to be overly significant.
Key shifts include: an expansion of covered perils beyond peak perils; an expansion to worldwide coverage; longer hours clauses; and coverage of strikes, riots, and civil commotion (SRCC) following major weather events.
“Relatedly, continuing the theme from our May discussions, several brokers noted that a few more aggregate covers are being written, albeit selectively and focused on protecting cedants against multi-peril events, contrasting with the pre-2023 aggregates that largely (and cheaply) protected earnings,” KBW added.
KBW’s report also stated that there was a consensus that the Florida legislative reforms – targeting assignment of benefits and one-way attorney fees – are working well to reduce claim frequency and severity.
However, there was a lack of confidence regarding large national insurers making a return to the Florida homeowners market imminently, with carriers reportedly waiting for a longer track record to ensure the reforms are durable and will not be rolled back.
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