Global reinsurers achieved financial returns well above their cost of capital in 2025, marking a third consecutive year of robust outperformance across the international market. According to a comprehensive industry report published by credit rating agency AM Best, disciplined portfolio repricing, rigorous risk selection, and strategic de-risking across primary underwriting portfolios served as the principal engines driving this sustained profitability.
The report, titled Reinsurers’ Returns Exceed Cost of Capital Despite Softening Market, highlights an ongoing shift in the industry’s financial architecture. The global reinsurance sector’s weighted average cost of capital expanded to 8.23 per cent in 2025, rising from 7.67 per cent recorded in 2024. This upward trajectory persisted into the early months of 2026, with the weighted average cost of capital climbing further to 8.63 per cent during the first quarter. Concurrently, an influx of fresh capital and expanding underwriting capacity across international financial markets has accelerated a softening rate trend throughout early 2026.
Despite these emerging pricing headwinds, reinsurers successfully defended their underwriting margins by upholding structural discipline across renewals. Helen Andersen, an industry analyst at AM Best, noted that strategic adjustments to reinsurance programme frameworks—specifically tighter contractual terms, narrower coverage limits, and substantially higher attachment points—held firm across renegotiated treaties. These structural barriers have proven indispensable in shielding balance sheets from the growing frequency and financial severity of secondary perils, including severe convective storms, localized flash flooding, and severe wildfire outbreaks.
The resilience of the sector was clearly mirrored in its bottom-line earnings. Most global reinsurers delivered strong results in 2025, recording a median return on equity of 16.3 per cent. Although this figure sits slightly below the historic peaks set in 2023, it demonstrates the structural effectiveness of recent pricing and contractual reforms. At the same time, the industry’s cost of equity rose for a fourth consecutive year to reach 9.6 per cent. This movement elevated overall capital costs across the global market, even as major central banks began easing monetary policy and lowering benchmark interest rates.
Reinsurance refers to the financial mechanism whereby insurance companies transfer portions of their risk portfolios to third-party reinsurers to reduce their likelihood of paying large obligations resulting from catastrophic losses. Secondary perils, such as localized hail, tornadoes, and wildfires, were historically considered minor secondary risks compared to primary hazards like major tropical cyclones or earthquakes. However, climate shifts and increased property development in high-risk regions have elevated secondary perils into primary loss drivers for direct insurers.
Looking ahead, the market sits at a delicate crossroads. Primary insurance companies continue to press for rate concessions and lowered attachment thresholds in response to expanding global capital capacity. Conversely, reinsurers remain determined to safeguard hard-won structural protections. Backed by consecutive years of strong retained earnings, reinsurers entered 2026 with formidable balance sheet reserves. Nevertheless, staying ahead of climbing capital costs will demand rigorous underwriting precision as market softening continues to test the industry’s operational resolve.
