Bermuda’s reinsurers are entering a tougher phase of the market cycle, with record capital and easing prices calling for more underwriting discipline, a new industry report has found.

Boston Consulting Group said the sector was moving beyond a period where improving prices and strong investment returns helped to drive performance. In the next phase, the consultancy said, the companies that create the most value will be those that can choose carefully where to deploy capital and when to walk away.

The findings build on concerns raised by analysts ahead of this week’s Rendez-Vous de Septembre in Monte Carlo, where reinsurers have arrived with near-record levels of capital and stronger balance sheets, but more and more difficult decisions about where to put the money.

Dan Hofmeister, associate director of analytics at AM Best, told The Royal Gazette last week that reinsurers had a lot of flexibility to redeploy capital into primary insurance and specialty business as property catastrophe reinsurance rates came under pressure. He said another double-digit fall in property-catastrophe pricing could mean an inflection point for the market.

BCG said dedicated global reinsurance capital stood at an estimated $648 billion at the end of 2025, up 11 per cent from a year earlier, citing Gallagher Re data.

Across a sample of 12 reinsurers, tangible book value rose from $119 billion at the end of 2022 to $162 billion at the end of 2025, representing annual growth of 11 per cent.

The build-up of capital follows a profitable period for the sector. BCG found that reinsurers generated average annual total shareholder returns of 19.1 per cent over the five years through 2025.

However, one-year total shareholder returns slowed to 14 per cent in 2025 from 29 per cent in 2024, although the latest figure was above the sector’s ten-year average.

The consultancy said the change in market conditions would put more weight on management decisions about risk selection, capital allocation, operating efficiency and portfolio flexibility.

“Success is not measured in premium growth, but value-accretive growth,” BCG said.

Its analysis of property and casualty reinsurers found an average return on tangible equity of 16 per cent between 2021 and 2025, made up of roughly seven percentage points from underwriting and nine percentage points from investment returns.

That performance was based on an average loss ratio of 66 per cent and expense ratio of 28 per cent, producing a combined ratio of 94 per cent.

BCG said those figures showed how limited the margin for error can be. A relatively small deterioration in pricing or loss experience can have a large effect on underwriting returns.

The report comes as the industry considers where growth remains attractive, including primary insurance, specialty lines and casualty. But AM Best has warned that the growing use of casualty sidecars and other insurance-linked securities structures also raises questions around long-tail risks, leverage and how much risk has genuinely been transferred from insurers’ balance sheets.

BCG said investors would examine headline returns and how sustainable they are through the cycle, including the contribution from underwriting, investment income, reserve development and catastrophe losses.

Its conclusion was that companies should return capital to shareholders when they cannot find opportunities that meet their return thresholds.

“In a market where capacity is abundant and pricing is under pressure,” the report said, “sometimes the most value-creating decision is to say no.”