Reinsurance Market Softening Brings Benefits for Insurance Buyers
Commercial insurance buyers are set to benefit from a softening reinsurance market in 2027, with expectations of lower rates, flexible terms, and broader coverage. As the January renewal season approaches, reinsurance brokers anticipate further softening due to record capital levels.
According to Aon, global reinsurance capital reached a new high of $800 billion mid-year, while Marsh Re forecasts a 6% growth in 2026. George Attard, Aon’s chief strategy officer, stated, “Our industry enters the [January] renewal in a position of considerable strength.”
This softening market increasingly benefits corporate insurance buyers. Leopold Muhle, managing director at Krose, notes that greater capacity and improved terms allow primary insurers to offer competitive pricing, higher limits, and broader coverage. Industrial and commercial property is likely to be one of the biggest beneficiaries in 2027, with a more competitive facultative reinsurance market providing additional capacity for large and complex risks.
The current environment also allows buyers to revisit compromises made during the hard market cycle, such as retentions, coverage scope, and policy wordings. Muhle advises companies to strengthen risk quantification and reassess limits based on robust analytics rather than historical patterns.
The reinsurance market’s capital growth is driven by healthy underwriting and investment results, aided by benign cat losses in the first half of 2026. Aon reports that the average reinsurer combined ratio was just over 85%, a 10-percentage-point improvement from the previous year.
The influx of third-party capital has also played a significant role. Alternative capital has increased by more than two and a half times since 2013, reaching $123 billion in 2025. Catastrophe bonds now account for more than a quarter of some US insurers’ reinsurance purchasing, according to Aon.
Pricing Reductions and Strategic Opportunities
Record capacity is expected to drive further reinsurance pricing reductions for both property and casualty risks at the January renewals. Amanda Lyons, senior managing director at Aon Reinsurance Solutions, notes that in property, strong double-digit return on equity for reinsurers and pricing still 30% above the index at the height of the soft market, coupled with low catastrophe losses, will likely result in more savings, though not to the extent seen at 1/1 2026.
For casualty insurance, an influx of capacity, high interest rates, and higher primary casualty rates in the US should result in price reductions. Cyber reinsurance is also likely to see further reductions, despite primary market softening.
A notable trend is the expansion of third-party capital into casualty insurance. Investor interest in this sector is significant, according to Lyons, with discussions frequently focusing on this topic.
The real benefit of the softening market lies in greater choice for buyers, says David Flandro of Howden Re. This includes the ability to buy down retentions, add aggregate protection, and secure more flexible structures to manage volatility and support growth.
While US casualty risks may see limited relief due to claims inflation and liability losses, natural catastrophe risks are expected to benefit from increased capacity, leading to better pricing and greater competition.
Laurent Rousseau of Marsh Re emphasizes that the increasing capital supply is not a blip in the cycle.
The reinsurance market’s capital growth is further bolstered by low catastrophe losses in the first half of 2026, the lowest since 2019.
Mike Van Slooten, Aon’s head of market analysis, noted that reinsurers are on track for a fourth consecutive year of strong earnings. Despite softening, underwriting results benefited from relatively low ceded loss activity compared to last year, which was impacted by the California wildfires.
Gallagher Re estimates that reinsurers could absorb $50 billion to $75 billion in insured losses, in addition to normal second-half catastrophe losses, while still earning their cost of equity. AM Best calculates that the reinsurance industry holds $183 billion in excess capital.
Discussions with casualty insurers and reinsurers consistently highlight this trend.
Strategic Opportunities and Challenges
Muhle stresses the importance of using this capital to address existing protection gaps, particularly in natural disaster and cyber risk coverage, before focusing on new products.
