‘Deteriorating’ outlook sees ‘pricing power shift from reinsurers’ – Fitch

The reinsurance sector should expect “deteriorating” market conditions in 2025’s second half and into 2026 as softening conditions lead to “pricing power increasingly shifting from reinsurers to insurers and higher competition [pushing] pricing down”, according to Manuel Arrive, director at credit rating agency Fitch Ratings, speaking at RVS 2025.

Speaking at Fitch Ratings’ briefing event in Monte Carlo, Arrive stated that the reinsurance market’s “best days” were currently in the rearview mirror, with the credit ratings agency spotting a moderate decline from “peak conditions”.

He explained the drivers behind Fitch Ratings’ move to change its 2026 market outlook this month from neutral to deteriorating. He said: “First of all, we have less favourable supply and demand dynamics.

“There is abundant capacity, with traditional and alternative capital at [a] record high, and we expect capital supply to keep building and outpacing incremental growth in demand from cedents. As a result, pricing power is increasingly shifting from reinsurers to insurers and higher competition pushes pricing down.

“Here we’re talking about a moderate softening trend, with risk adjusted prices declining from a monthly year high and that would put pressure on revenue growth in 2026. Claims costs continue to rise due to higher natural catastrophe becoming more frequent, severe and predictable.

“[There is also the impact of] social inflation, which affects US casualty lines, and the threat of higher inflation due to tariff and policy incidents.”

Arrive noted that these “negatives” outweigh the neutral and positive factors influencing current market conditions, confirming Fitch Ratings’ “deteriorating” outlook decision – especially considering that pricing pressure increased at the last renewal date, with more reductions recorded than in prior years.

He cited neutral market influences as sluggish global economic growth, interest rate and market volatility and supervision.

As for the positive factors that the reinsurance market can expect as it heads into 2026, Arrive explained: “There are reinvestment rates, which remain high, underwriting discipline is maintained overall – although we expect to see more flexible terms in 2026 – and finally, there is a strong and structural demand for reinsurance across the board, driven by increased risk awareness, as well as higher values of goods.”

He added: “We have passed the peak of the reinsurance market and the softening is led by property cat [and] non professional treaties.”

Although Arrive believes the signs of a soft market are “clear”, he added that this has been “manageable so far” for reinsurers because of varying prices across different lines of business. For example, US property loss free, US general liability loss emergence and Florida property loss free all recorded flat pricing in June to July 2025.

A more challenging line, however, would be natural catastrophe, where Arrive thinks prices will “continue to increase as a steady pace” – driven by secondary perils “which are not so secondary anymore”.

He added: “But the good news is that we think most of [the nat cat risks] will continue to be retained by primary insurance.”

Financial forecasting

Brian Schneider, senior director at Fitch Ratings, summed up the morning session by telling the room how the credit rating agency believes 2026 will pan out for reinsurers financially.

Primarily, he observed that softer conditions will hamper premium growth, while catastrophe losses will rise following hurricane season. He added that reserve development will also decline, driven by property reinsurance.

Fitch Ratings also predicts a worsening combined operating ratio (COR) across the 19 reinsurers it analyses, with the calendar year COR moving from 89.9% in 2024 to an estimated 92.8% for 2025’s year-end and then reaching 93.2% in 2026.

Net income return on equity (ROE) is also forecast to fall, according to the firm – from 18.4% in 2024 to 16.4% by the end of this year, before a further drop to 15.5% for 2026.

Schneider added, however, that these ROE figures should still “remain above the cost of capital, which is around 8% to 10%”.

To download the full Monte Carlo RVS 2025 annual issue of GR, click here.