Global Reinsurers Outperform Capital Costs for Third Consecutive Year

Global reinsurers achieved financial returns significantly above their cost of capital in 2025, recording a third consecutive year of robust market outperformance. According to a new study published by credit rating agency AM Best, disciplined portfolio repricing and strategic de-risking measures across primary underwriting segments served as the primary drivers of this sustained profitability.

The report, titled Reinsurers’ Returns Exceed Cost of Capital Despite Softening Market, reveals that the industry’s weighted average cost of capital expanded to 8.23 per cent in 2025, up from 7.67 per cent in 2024. This upward trajectory continued into early 2026, with the weighted average cost of capital climbing further to 8.63 per cent during the first quarter. Simultaneously, an influx of capital and expanding capacity across global markets accelerated a softening trend throughout early 2026.

Despite these emerging pricing pressures, reinsurers maintained strong underwriting performance by preserving structural discipline. Helen Andersen, an industry analyst at AM Best, observed that strategic adjustments to reinsurance programme structures—most notably tighter contractual terms, reduced coverage limits, and substantially elevated attachment points—remained firm across renewed contracts. These structural shields have proven essential in insulating balance sheets against the rising frequency and financial severity of secondary perils, such as localized storm events, severe convective weather, and wildfire events.

The sector’s resilience was reflected in its bottom-line performance. Most global reinsurers delivered powerful earnings in 2025, registering a median return on equity of 16.3 per cent. While this figure sits marginally below the record highs achieved in 2023, it underscores the structural durability of recent pricing reforms. Meanwhile, the industry’s cost of equity rose for a fourth consecutive year, reaching 9.6 per cent. This shift pushed up overall capital expenses across the sector, even as central banks initiated monetary easing and lowered benchmark interest rates worldwide.

The market outlook reflects a delicate equilibrium. While primary insurers press for rate relief and lower attachment thresholds amidst expanding market capacity, global reinsurers appear intent on maintaining structural protections. Reinsurers entered 2026 from a position of exceptional balance sheet strength, backed by years of strong retained earnings. However, maintaining returns above rising capital costs will require ongoing underwriting precision as rate softening tests the sector’s long-term discipline.