Abundant capacity gives credit reinsurance buyers leverage at 1/1: Willis Re

Abundant reinsurance capacity is expected to favour buyers of credit, surety and political risk protection at the 1 January 2027 renewals, according to Willis Re.

The reinsurance broker said it expects reinsurers to differentiate increasingly between cedents as underlying risks build amid competitive soft market pressure.

The broker’s “Built for cycles: heading into 1/1 2027” market view said record reinsurance capital and new treaty capacity are putting downward pressure on terms even as loss experience becomes more challenging.

Willis Re said it expects proportional ceding commissions to be broadly stable to modestly higher for clean portfolios, but warned that the softening is being driven by capital supply rather than improving underlying losses.

James Loggie, head of credit, surety and political risk at Willis Re, said: “Capacity is abundant and that sets the tone for 1/1. Buyers have the advantage, but reinsurers are still reading the detail.

“The cedents who explain their portfolios well will get the best support.”

Much of the new capacity is following rather than leading programmes, limiting its direct influence over pricing but increasing competition for lines.

The report identifies Ageas Re, Silverflame Re, Oak Re, QBE Re, Aurinko Re and Conduit Re among recent entrants or businesses adding capacity, while noting there were no exits from credit, surety or political risk reinsurance during 2025-26.

“Most new capacity is following rather than leading, so it isn’t setting terms itself,” Loggie said. “But the extra capacity in the market is what’s helping to improve terms for ceding companies.”

Severity replaces frequency as the challenge

Trade credit itself remains profitable, with loss ratios gradually returning towards historical averages after exceptionally benign experience between 2021 and 2023.

Coface’s net combined ratio rose 7.6 percentage points to 73.1% in 2025, before improving to 71.3% in the first half of 2026. Atradius data showed UK claims in August running 8% above the prior year, with financial-sector claims up 30% year to date.

Willis Re said: “Margins remain healthy. Having banked substantial profits over the last five years, credit insurers and their reinsurers are well placed to absorb some narrowing as loss ratios return to normal.”

The greater concern for reinsurers is severity.

The report points to the collapse of First Brands, estimated by Morningstar DBRS to potentially cost credit insurers $300m-$600m, alongside corporate restructurings in Brazil and large renewable-energy failures.

A record 2,466 Brazilian companies entered judicial recovery in 2025, up 13%, while Germany’s Enerparc entered preliminary insolvency with around €3bn of liabilities.

Pine Gate Renewables’ US Chapter 11 proceedings also affected around $1.85bn of surety bonds and surety-backed letters of credit, according to Moody’s.

“The trend in insolvencies has been rising for five years, and forecasts suggest they will stay at historically high levels into 2027, particularly in construction, chemicals, retail and transport,” Loggie said.

“Credit insurers are well used to this kind of environment. They manage limits actively as conditions change, and we’d expect loss ratios to stay within a normal range.”

The position is more complicated in US surety, where primary carriers continue to produce strong results but excess-of-loss reinsurers are disproportionately exposed to large contractor and project failures.

“Primary surety writers are doing very well, but reinsurers have absorbed much of the volatility from large losses,” Loggie said.

“We expect strong continued support, with price increases largely confined to programs that have had losses,” he added.

AI boom creates aggregation problem

Data centres represent perhaps the most significant emerging exposure.

Alphabet, Amazon, Meta and Microsoft have guided to more than $700bn of combined capital expenditure in 2026.

Meanwhile McKinsey estimates global data-centre investment could reach around $6.7trn by 2030.

Banks financed some $170bn of data-centre projects in 2025 and are increasingly looking to distribute those exposures through significant risk transfer and credit insurance.

“Data centres are the exposure question of the decade for our market,” Loggie said.

“The hyperscalers themselves are strong credits, but the risks around them need more care, from second-tier tenants and the contractors and suppliers further down the chain to securing power and adequate insurance for these projects,” he continued.

The issue for reinsurers is often transparency rather than the credit quality of the technology groups themselves.

Many projects are financed through special-purpose vehicles, meaning the obligor appearing in a ceded portfolio may not reveal the hyperscaler, sponsor or underlying data-centre project.

The report itself said: “A reinsurer reviewing its portfolio may not be able to tell that the risk is a data center at all, let alone whose lease stands behind it.”

It cited rating agency Moody’s estimates that hyperscalers had around $969bn of lease commitments at the end of 2025, including $662bn linked to leases that had not yet begun.

Aggregation can also occur across different policies, Willis Re emphasised, with a single project generating credit exposure through financing, surety exposure through contractors and further property, construction and cyber risks.

“Taken together, a reinsurer’s exposure can be far larger than any one treaty suggests,” Willis Re’s paper added.

Sovereign risk adds another pressure point

Political risk capacity is abundant at treaty level, but Willis Re said limits are becoming constrained in individual high-demand countries.

Direct insurers are regularly reaching country aggregates in markets including Angola, Côte d’Ivoire, Tanzania and Turkey.

At the same time, sovereign stress is increasing, according to the broker.

Berne Union members paid a record $11.1bn of claims in 2025, up 17%, Willis Re noted.

The broker highlighted exposures including Senegal, Iraq and the Kurdistan Regional Government, Mozambique and other low-income sovereigns.

Bank-market credit and political risk claims have nevertheless fallen from their 2021 peak, declining to around $350m in 2025 from approximately $1bn four years earlier.

China is also changing the geographical distribution of risk, the paper suggested.

Chinese exports increased 21% during the first nine months of 2026, according to the report.

Meanwhile emerging and developing economies accounted for 44% of exports in 2025, up from 37% in 2020.

Sinosure insured a record $1.1trn in 2025 and another $854bn during the first eight months of this year, Willis Re observed.

“As Chinese exports shift toward emerging markets, credit risk moves to buyers and sovereigns that are harder to analyze and more exposed to currency and energy shocks,” the report said.

“That makes the role of export credit insurers, and the reinsurance that supports them, more important.”

For Willis Re, the combination of plentiful capital and greater underlying complexity means 2027 is unlikely to be a simple soft-market renewal.

Loggie said: “This class is built for cycles. Reinsurers and cedents have been through many before, from the financial crisis to the Covid-19 pandemic.

“Today it’s a tougher macro backdrop, rising insolvencies and new exposures like data centres, and the right response is to understand and embrace those challenges, not retreat from them.” he added.