Leading rating agencies adjusted their outlooks for the global reinsurance sector yesterday, becoming in general a little more negative for prospects in the space and warning of higher competition.But still, the range of outlooks spans from positive, through stable, to deteriorating, suggesting uneven outcomes and that returns will still be attractive where discipline holds.Of course, this all comes just in advance of the annual Monte Carlo Reinsurance Rendez-vous event, when the industry meets to begin its discussions that ultimately lead towards the January 2026 renewal season.This year, the market is expected to be particularly competitive over the coming months and brokers and protection buyers are expected to seek out concessions from reinsurance capital providers, as they look to leverage the competitive market dynamics to improve their positions.

With pricing now off its peak and definitely softening in property catastrophe reinsurance, as well as some other lines, there is naturally also a focus on the tension between traditional and alternative capital sources once again.Which is reminiscent of the early to mid-2010’s and brings back memories of broad term relaxation across the market.Markets, both traditional and alternative, tell us that this time it is different.

That they have a focus on meeting hurdles and rate adequacy for the business they assume, while the way they calculate that is more sophisticated than it was fifteen years ago and relaxation of terms, while a negotiating factor for sure, is not on the cards in any meaningful way.However, there does seem some inevitability to the fact terms and conditions, including attachments, are set to be a meaningful focus of the discussions in Monte Carlo this year, so it’s going to be an intriguing event to watch the messaging from market participants.But back to the rating agencies, who generally feel the market is now well-passed its peak and perhaps on a downward slope, in pricing terms.

The outlier, for now, is AM Best, as this rating agency has maintained its Positive outlook on the reinsurance industry.However, even AM Best said “reinsurers face persistent headwinds” from factors including social inflation, climate change, as well as geopolitical tensions and trade disputes that have heightened volatility in financial markets, claims costs, supply chains, risk assessments and pricing.AM Best noted that These challenges underscore the importance of the market’s improved structural foundations and explain why AM Best’s outlook, though Positive, remains closely monitored.” AM Best also noted competition among capacity providers at the mid-year renewals, which it believes will persist, citing insurance-linked securities (ILS) capacity as a growth area and saying this has all helped to drive favourable pricing for cedents.

Moody’s Ratings has adjusted its outlook to stable from positive, so effectively a downgrade in the sector outlook for reinsurance, citing declining pricing and ample capacity in both traditional and alternative or ILS markets.“Capital inflows to the alternative markets, particularly catastrophe bonds, are also pushing prices lower,” Moody’s said, but also noted that, “Nonetheless, risk-adjusted returns in property reinsurance remain attractive and we expect profitability to be strong over the next year.” This is why competition is likely to be so fierce this year.We have a situation of abundant and still growing capital in the reinsurance space and declining prices that remain at still historically attractive levels, all of which suggests buyers and their brokers will be looking to gain more ground and that capacity providers will be tested on their discipline.

Moody’s Ratings said that, “Although attachment points are generally holding steady, we are seeing some signs of easing terms and conditions.We think property cat pricing will continue to drift lower absent a market-changing loss event.” S&P Global Ratings has maintained its stable outlook for the reinsurance sector, noting that it “expects a moderate decline in pricing for short-tail lines,” which it quantifies in the range of a 5% down forecast for the January 2026 renewal season, although with significant variation by line and region.But S&P also noted that it expects “global reinsurers will hold firm on terms and conditions,” which is an interesting forecast to make given the lack of visibility into this that is available at this time.

What gives, with respect to pricing and terms, is always challenging to predict.But is a 5% decline in short-tail reinsurance pricing enough to ensure terms can be maintained at their current levels? The outcome is months away still and there is a lot that can happen by then, so it’s going to be a fascinating period, and of course there is still a chance of major loss activity that could change the trajectory of both pricing and terms on a dime.But S&P also notes that rates remain at attractive levels and if the appetite remains to capitalise on this, in both the traditional reinsurance and ILS market, then prices are expected to soften further it seems.

With more capital and capacity available in the retrocession market, helped by the ILS funds, as well as in catastrophe bonds, and reinsurers having ample and growing capacity of their own, the market dynamic is expected to bring some tensions to the fore and drive competition.Cautious underwriting is advised in this market environment by all the rating agencies, especially in property catastrophe risks, and S&P noted that nat cat exposure has risen at all major reinsurers, although remains relatively stable across their portfolios as they grow elsewhere as well.Finally, Fitch Ratings has adjusted its outlook for the global reinsurance industry to “deteriorating” from “neutral”, saying that “Softer pricing conditions and rising claims costs will pressure underwriting margins, though profitability remains strong by historical standards.” Fitch expects capacity to remain abundant, citing rising competition across property and other lines, but against a backdrop of rising claims costs that could pressure underwriting margins.

Property catastrophe risks are an area expected to soften further at the January 2026 renewals, absent any major losses over the rest of this year.Prices are expected to be the main focus, but Fitch does also note in its outlook that it believes terms could loosen from the strict levels enforced since 2023.There is a lot of alignment in the rating agency outlooks, even though the terminology used ranging from positive to deteriorating may not suggest that.

Even AM Best’s positive outlook comes with all the same caveats around competition, capacity, discipline and challenges that face the industry.Coming off a historically high period of pricing, discipline and major losses seem likely to be the main threats to underwriting performance for the coming months and through 2026.ILS managers are warning of a need to maintain the equilibrium in terms of risk-sharing, although there is some acknowledgement that something may have to give if markets want to continue to grow their participation this year.

Striking a balance between meeting cedent needs for effective and affordable protection, and capital’s requirement for an adequate return over the cycle is going to be key through this year’s reinsurance conferences and meetings as we run up to the end of year renewals.It’s worth noting that all four of the major rating agencies do highlight an expectation that the market will remain largely disciplined this year, even under the expected competitive dynamics and with a likelihood of some juggling of price reductions versus loosening of terms.The stage appears set for competitive dynamics and we can certainly anticipate more rhetoric to emerge before it’s all over.

But, the returns possible from reinsurance remain attractive at this time and there will certainly be a motivation from all sides to sustain that.Even though the pressure from the buyer-side to give back more flexibility is likely to be significant.It’s going to be an interesting RVS event and a fascinating few months through to the renewal.

We feel it’s worth also highlighting that the dynamics that emerge in the reinsurance market over this period may also drive the pipeline of catastrophe bonds to a degree as well.Given some protection buyers and sponsors may be waiting to see what, if any, concessions they can get from traditional and alternative sides before making their placement decisions known..All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance can be accessed online.

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