Full Year 2025 (Re)Insurer earnings overview: Transitioning beyond the hard market

A market in transition

The pricing cycle has turned. January 2026 renewal premiums decreased by 4.2%, with the overall change on renewal down 1.4% compared to a 3.5% increase the previous year, confirming a shift in the cycle. Price declines were most pronounced in non-proportional reinsurance as competition among reinsurers intensified, although terms and conditions remained broadly intact. The market is now clearly beyond the initial softening phase, with pricing pressure emerging even as underwriting discipline holds.

"2025 marked a turning point. Rates softened across many lines, cessions recovered, with gross-net outcomes now moving in cedents’ favour. Growth continued, supported by disciplined underwriting, strong investment income and rising capital levels. Reserve releases also contributed, in spite of strengthening in some liability lines. Overall, the industry benefitted from a benign cat year, increased deal activity and constructive January renewals,” said Michelle To, Head of Business Intelligence, Howden Re.

Rates-on-line are easing from a position of historical strength, yet the underlying profitability of the sector remains intact. This continues to support the case for constructive, strategic reinsurance solutions.

“The market is in a very healthy spot. When you think about catastrophe activity, including wildfires, and a significant amount of cedent losses occurring in 2025, insurers and reinsurers still achieved relatively strong combined ratios. When you think about the basic laws of supply and demand, we reached a point where both insurance and reinsurance profit was in excess of costs of capital, it's natural that supply and demand mean that prices come down,” commented Tim Ronda, CEO, Howden Re.

Capital strength and the opportunity for clients

Reinsurers have reported another year of strong earnings and capital growth in FY2025, with sector returns expected to exceed cost of capital for a third consecutive year. Strong investment and underwriting results drove capital growth, even as dividends and share buybacks increased. The total outstanding notional amount of property and cyber catastrophe bonds has reached an all-time high, and the alternative capital market is wide open.

Strong capitalisation is creating more room for dialogue at renewals, although market conditions continue to evolve. "We are now firmly in the softening phase in most lines of business, yet the financial health of the sector remains robust. Balance sheet strength is strong; profitability, both in terms of underwriting and investment, remains high. This is in spite of reserves strengthening in some liability lines. During this phase of the cycle, risk selection remains key, especially as markets soften and capital management comes to the fore. Reinsurance is an important contingent capital tool in that process., said David Flandro, Head of Industry Analysis and Strategic Advisory, Howden Re.

Underwriting performance and combined ratios

The 2025 average combined ratio improved on both a GAAP and IFRS basis, driven by lower catastrophe losses and net favourable prior year development. Reserve releases remain a material contributor to overall profitability: on a composite basis, the global P&C industry’s average prior year development ratio improved to -2.38% in 2025, from -1.53% in 2024.

Historically, M&A activity has correlated with rising industry return on equity, a pattern last seen at this scale in the period before 2007. As competition for growth intensifies during soft market cycles, the current environment is precisely the kind of set-up preceding a (re)insurance M&A wave.

Catastrophe loss loads: a structural shift

Catastrophe loss loads doubled from 2.7% in 2000 to 2004 to 5.4% in 2020 to 2025. Holding all other factors equal, projected softening would compress underwriting margins from 6.6% to approximately 3.0%, with some models pointing to further compression in a prolonged soft phase. Catastrophe exposure is becoming more expensive structurally; softening magnifies the profitability impact, a dynamic demanding careful risk selection as the cycle turns.

The Strait of Hormuz: stress across specialty lines

The effective closure of the Strait of Hormuz is creating acute stress across multiple specialty lines. Pricing is extremely elevated in some areas, with mass cancellations, significant coverage restructuring and growing business interruption exposure falling outside traditional war risk coverage.

For those renewing at 1.4, quotes to-date suggest no exclusions and a generally cooperative environment, although reinsurers are focussing on regional coverage where Middle Eastern exposures exist. Structurally, this situation differs from the Russia-Ukraine conflict: the critical new variables are the scale of trapped asset exposure, with over $25 billion hull value in the Gulf, and the single-point geography of the risk. Howden Re are also monitoring the macro transmission channel, as sustained energy disruption raises the risk of inflationary pressure, higher interest rates and broader capital impairment.

Outlook

It is clear that the pricing cycle has turned. The market is firmly in the softening phase across most lines of business, and the financial health of the sector remains robust. Profitability, both in terms of underwriting and investment, remains high, even as reserve strengthening continues in some segments. Collectively, these factors signal a healthy, growing sector. Optimal risk selection is now key as the pricing tailwind abates, placing greater importance on technological advancement, portfolio strategy, and the intelligent use of reinsurance as a contingent capital tool.

“There is a strong correlation between cession rates, volatility and gross-net combined ratio spreads across the composite, reinforcing the idea that reinsurance remains a key tool for volatility management,” said Michelle To, Head of Business Intelligence, Howden Re.

“One of our objectives at Howden Re on behalf of our clients, is innovate new product, bring new risk and bring new capital to solve problems most efficiently and meet our clients' needs. I think a really strong reinsurance market is a perfect scenario for us to do that,” concluded Tim Ronda, CEO, Howden Re.