Reinsurers are likely to see their profitability decline next year as reinsurance rates continue to soften while capital remains abundant, say analysts at S&P Global Ratings.

However, the industry’s strong fundamentals and some significant growth opportunities mean the sector will remain resilient, the ratings agency concludes in its Global Reinsurance Sector View 2026.

S&P Global Ratings maintains a stable view of the global reinsurance sector.

The report, titled “Reinsurers face balancing act”, comes as the reinsurance community prepares to gather at the Rendez-Vous de Septembre in Monte Carlo, from September 5 to 9.

S&P said reinsurers had entered this year’s hurricane season in a position of strength, supported by “record-high capital adequacy and strong year-to-date operating performance”.

The reports states: “Abundant capacity and lower-than-expected catastrophe losses in recent years suggest that reinsurance pricing will remain under pressure through 2027.

“As a result, reinsurers are likely to face increasing pressure to loosen terms and conditions, while property and casualty reinsurers’ underwriting margins and overall profitability will gradually compress over 2026-2027.

“That said, we believe underwriting margins and overall profitability will remain sufficient to cover the sector’s cost of capital. This reflects still healthy P&C reinsurance combined ratios, solid net investment income, and strong life reinsurance earnings, provided annual natural catastrophe and large man-made losses remain within the annual budgets.”

Reinsurers’ combined ratios — expressing the portion of premium dollars spent on claims and expenses — hovered around the 90 per cent mark in 2023, 2024 and 2025, indicating healthy profitability.

For 2026, S&P expects the industry’s combined ratio to deteriorate to 92 per cent to 95 per cent, and in 2027 to worsen to 94 per cent to 97 per cent.

The report cites natural catastrophes, geopolitical conflict and social inflation as trends that will require robust risk management.

It also pointed out growth potential for the industry emanating from protection gaps in areas including cyber-risk, renewable energy and data centres.

S&P’s reinsurance benchmark group includes a number of Bermudian reinsurers, including Arch, Ascot, Axis, Convex, Everest, Pelagos, Hiscox and Lancashire.

The report also included findings of a survey on artificial intelligence, which found most reinsurers were investing in AI.

Efficiency improvements, including automation to boost productivity, were at the core of reinsurers’ AI strategies.

“An increasing number of reinsurers use AI to analyse large data sets in areas such as underwriting, claims processing, and real-time operational monitoring,” the report states.

All respondents in the survey had established or were developing AI governance frameworks, and all had processes in place to identify, monitor, and mitigate failures or breaches of AI models.

All the surveyed reinsurers identified vulnerabilities in data, models, or the supply chain as key risks to their AI initiatives.

Key risks identified included the lack of transparency in AI decision-making (100 per cent) and the risk of AI providing false information (75 per cent).