Global reinsurers achieved financial returns comfortably above their cost of capital in 2025, recording a third consecutive year of strong profitability across international markets. According to a comprehensive research report published by credit rating agency AM Best, sustained portfolio repricing, rigorous risk selection, and targeted de-risking across primary underwriting books proved instrumental in driving these robust financial results.
The study, titled Reinsurers’ Returns Exceed Cost of Capital Despite Softening Market, underlines notable shifts in the industry’s financial mechanics. The weighted average cost of capital across the global reinsurance sector rose to 8.23 per cent in 2025, up from 7.67 per cent in 2024. This upward movement continued into early 2026, reaching 8.63 per cent during the first quarter. At the same time, an influx of fresh capital and expanding underwriting capacity across international financial markets accelerated a rate-softening trend throughout early 2026.
Despite emerging pricing pressures, reinsurers successfully defended their underwriting margins by maintaining structural discipline across contract renewals. Helen Andersen, an industry analyst at AM Best, highlighted that key structural modifications—specifically tighter contract conditions, reduced coverage limits, and substantially higher attachment thresholds—remained intact across renegotiated treaties. These structural mechanisms have shielded balance sheets against the growing frequency and financial severity of secondary perils, including severe convective storms, flash flooding, and severe wildfires.
The sector’s underlying strength was reflected in its overall earnings. Most global reinsurers achieved strong performance in 2025, posting a median return on equity of 16.3 per cent. While marginally below the historic highs of 2023, the figure underlines the ongoing effectiveness of recent pricing and contractual adjustments. Concurrently, the industry’s cost of equity rose for a fourth consecutive year, reaching 9.6 per cent. This increase elevated overall capital costs across the sector, even as major central banks began cutting benchmark interest rates globally.
Reinsurance functions as a financial safety net, allowing primary insurance companies to transfer portions of their risk exposure to third-party reinsurers to cushion the impact of catastrophic claims. Secondary perils—such as severe hail, tornadoes, and bushfires—were traditionally viewed as lower-tier risks compared to primary hazards like tropical cyclones or major earthquakes. However, changing weather patterns and rapid urban development in vulnerable regions have transformed secondary perils into primary loss sources for direct insurers.
The global market now stands at a delicate turning point. Direct insurance companies are pressing for lower rates and reduced attachment points amidst expanding global capital reserves. Reinsurers, by contrast, appear determined to protect their contractual terms and attachment levels. Backed by three years of solid retained earnings, reinsurers entered 2026 with healthy balance sheet reserves. Nevertheless, staying ahead of rising capital expenses will demand continued underwriting discipline as market softening gathers momentum.