Michael van Wegen, author of Gallagher Re’s full-year reinsurance market report, highlighted in a recent interview with Reinsurance News that capital redeployment will be the biggest challenge facing reinsurers in 2026.
The report shows that total dedicated reinsurance capital will increase to a record US$648 billion in 2025, an increase of 11% from the previous year and the second strongest year of capital growth in more than a decade.
Van Wegen noted that capital accumulation has outpaced business growth. Since the market began to strengthen in late 2022, traditional reinsurance capital has increased by 50%, while revenue has increased by only 20%.
He commented: “This imbalance is a key factor behind changes in supply and demand dynamics and favors such changes in favor of insurers rather than reinsurers. This really highlights the pressure on reinsurer management teams to address capital redeployment issues.”
Although traditional reinsurance capital growth is expected to slow from double digits to around 4%, below historical growth levels of around 6%, the capital glut is expected to continue.
“Not only is there a massive accumulation of excess capital, but it’s also starting to impact profitability. A deterioration in underlying return on equity in 2025, and yes, a deterioration in the underlying combined ratio could be a factor in that, but the key element there is just continued capital accumulation. That’s the most important driver of a deterioration in underlying return on equity in 2025,” Van Wegen explained.
He continued: “I think the redeployment of capital will be the key challenge, finding the right growth opportunities. Beyond that, what do you do with the excess capital? So we expect payout to increase to 51% in 2025 from 47% in 2024, and we expect it to increase further to around 60%.
“But even then, you’re still going to get too much capital build, so it’s not enough to stop the problem. So, what happens next? I think that’s going to depend on the reinsurers and the management teams.”
Van Wegen explained that some reinsurers are looking to diversify into new geographies, new lines of business, and some of them are diversifying beyond reinsurance.
“Different companies will take different approaches, but I think the key objective for management teams is to find appropriate opportunities to put excess capital to work. If they can’t do that, then find a way to distribute it to shareholders,” he said.
Van Wegen said capital redeployment challenges are likely to continue beyond 2026, but this will depend on how the cycle evolves.
