In a recent report, Fitch Ratings noted that the insurance and reinsurance market is expected to weaken further in 2026, but profitability will remain strong and return on equity (ROE) will remain above the industry’s cost of capital.
Fitch forecasts that while returns on equity may fall into the mid-teens, around 15.5%, from the high teens in recent years, they will still be significantly higher than the estimated cost of capital, which typically ranges from 8% to 10%.
The ratings agency said: “Fitch expects market conditions to remain soft at mid-2026 renewals in April (focused on Asia) and June and July (Florida) as the competitive reinsurance environment intensifies and macroeconomic, trade and geopolitical conditions remain uncertain.
“Nonetheless, as reinsurers maintain underwriting discipline and selectively allocate capital into profitable opportunities, reduced pricing and slightly looser terms and conditions will still provide reinsurers with an attractive risk-adjusted ROE (in the mid-teens) that is well above the cost of capital (8%–9%).”
For real estate, catastrophe pricing softened significantly at reinsurance renewals in January 2026, continuing a downward trend that began at renewals in mid-2025.
Specifically, pricing for lower tiers of coverage remained relatively stable, with only flat to single-digit rate declines. In contrast, higher, more remote coverage tiers unaffected by losses saw the largest rate declines, reaching double-digit levels.
Fitch notes that this is due to sufficient capabilities at these levels from traditional insurers and alternative capital providers.
Terms and conditions have softened slightly as reinsurers compete for business growth. While generally held to a higher attachment point, overall and frequency event coverage increases (primarily from capital markets), providing protection from earnings volatility.
Reinsurance companies are also willing to participate in downstream projects where ceding demand is high.
U.S. real estate risk and catastrophe no-loss pricing fell by up to 20% compared to -10% to -10% a year ago, and even loss-making business fell by up to 5%. European risk and catastrophe no-loss rates also fell to 20%, but growth in accounts suffering losses was flat at 5%.
Unlike the real estate industry, where pricing is falling, casualty reinsurers are facing social inflation and abuse of the legal system.
Fitch notes that while there is clarity on losses from the soft market from 2015 to 2019, primarily commercial auto and general liability, uncertainty remains over the near-term scenario of enhanced reserves from 2021 to 2024.
“These factors will help drive casualty rates higher to keep pace with loss cost trends, although increased capacity in the casualty ILS market may depress pricing. Favorably, U.S. tort reform is expanding in several states and efforts to limit third-party litigation funding are gaining traction, which could improve the liability market environment,” Fitch said.
Finally, premium rates for specialty lines declined, primarily due to increased competition and higher reinsurer capital, although aviation rates firmed.
The rise in rates is due to aviation losses from 2024 to 2025 and a London court ruling in favor of a stranded Russian plane. Network rates fell 25% and commissions increased as ample supply met slowing demand and losses were limited.
For retrocession, pricing softening accelerated, with rates falling to 20% in January 2026, particularly for higher tiers, reflecting strong ILS capital and minimization of rollback losses in 2025.
Fitch notes that lower interest rates have led to increased retro demand from reinsurers, particularly in aggregate and frequency protection.
