Reinsurance: Pressure on premiums and AI opportunities

The Rendez-Vous de Septembre (RVS) reinsurance conference was held last week in Monte Carlo. This annual event began in 1957 and is the largest gathering in the reinsurance sector, bringing together participants across the insurance and reinsurance market for bilateral discussions ahead of annual renewals (with a major share of contracts renewing on January 1). The conference focused primarily on property and casualty (P&C) and macro reinsurance trends, rather than life insurance. This provides a good opportunity to recap some of the trends we have seen over recent years in this important part of the insurance market, and to offer a look ahead.

The role of reinsurance

Reinsurance is a critical function for primary insurers, which are the firms that provide insurance policies directly to end customers, be it property, casualty, or life insurance. These firms may wish to cede some of the risks they are taking for various reasons – freeing up capital for new business, reducing exposure to specific risks they are facing, or generally improving risk-adjusted return and capital positions, for example. Whatever the exact motives are, the primary insurer becomes a cedant when it transfers part of its risk to a reinsurer, which assumes these risks for a certain fee. The size of these fees will obviously determine how attractive the risk transfer is for the primary insurer. A so-called “hard market” is characterised by rising premiums and stricter underwriting rules, while a “soft market” means lower premiums and more relaxed covenants (this benefits the cedants as it is easier to get coverage).

In terms of market structure, the reinsurance market is moderately concentrated, but also diverse. According to AM Best and Atlas Magazine, the top five groups originate about 40% of global premiums and the top 10 hold 60%. There are some regional concentrations; for example, Bermuda is currently a very prominent provider of life reinsurance (though the focus of the conference is P&C) – not least due to the affiliation with private equity-owned US life insurance firms. Alternative capital and insurance-linked securities (ILS) such as catastrophe bonds (cat bonds) have also been growing in prominence, and insurance firms can tap these as an alternative source of risk transfer to traditional reinsurers.

Europe is an important centre for the reinsurance market, being home to four of the top five players in this sector (as measured by written premiums), namely Munich Re, Swiss Re, Hannover Re and Lloyd’s of London (Berkshire is the only entity in the top five not based in Europe). All these groups benefit from very high credit ratings, often though not always higher than those of primary insurers.

Downward pressure on premiums

The key trend emerging from this year’s conference in the P&C space was the anticipation of another year of downward pressure on reinsurance premiums, pointing to a soft market.

This softer backdrop has been supported by very few high profile loss events in the last three years and therefore benign losses on reinsurers’ balance sheets. Reinsurance firms have thus achieved very strong profitability in the last three years, but have been under pressure to reduce the high premiums that they have been charging. The first half of 2026 has again seen low losses, as highlighted by the Swiss Re Institute, and the National Oceanic and Atmospheric Administration (NOAA) predicts a below-average 2026 Atlantic hurricane season (peak activity late August to September). It is worth noting that, given rising global temperatures, NOAA predictions have tended to point to higher hurricane activity in recent years, making that expectation of a below-normal season rather unusual.

This does not mean there have been zero loss events, or that weather patterns have necessarily improved. We had wildfires and winter storms in Europe, landslides in Nepal, an earthquake in Venezuela, severe convective storms in the US, and obviously the US-Iran war. However, for P&C reinsurance, the primary concern is whether such events take place in densely populated areas with expensive housing stock. The September 11 attacks, Hurricane Katrina, Rita, and Wilma (2005), as well as Hurricane Ida (2021) and Hurricane Ian (2022), for example, were all major events that contributed to a hardening of the reinsurance market. As things stand, Kyle Menendez, Howden Re’s head of US property, believes it would take “a major hurricane well in excess of 2024’s Helene and Milton to impair the industry’s capital position”, while Gallagher Re has said the reinsurance sector “could absorb a $75 billion loss event and still earn its cost of capital”. For some context, in terms of single events, the last event with insured losses greater than $75bn was Hurricane Katrina, which remains the single largest insured loss event.

Influx of alternative capital

Another theme was the reinsurance sector’s recent influx of alternative capital and growth in ILS such as cat bonds and sidecars. Sidecars are separately capitalised special purpose vehicles that sit outside an insurance or reinsurance company's primary balance sheet. These can be seeded by outside providers of capital (e.g. sovereign wealth funds) and will absorb risks transferred to them from insurance or reinsurance firms.

According to a recent report by Aon, alternative capital reached a record $144.5bn on June 30 (out of total reinsurance capital of about $800bn), representing an annual growth rate of approximately 8.3% over the past five years. Low loss levels, strong returns, an improved ability to model loss events, and returns that are largely uncorrelated with broader markets, have all helped attract more capital to the sector.

Data centres a growing revenue channel

New risks are emerging and these present additional opportunities for insurers and reinsurers. This year in particular, data centres have received heightened focus. As Swiss Re highlighted in its recent report, the artificial intelligence data centres and renewable energy infrastructure alone could generate around $200bn in premiums between 2026 and 2030. The same investment boom is creating structurally correlated risks – large individual assets, geographic clustering, supply-chain dependencies, and shared physical and digital networks. New markets should create new volumes, while price discovery will present its own opportunities for insurers and reinsurers, much like we have seen in cyber insurance in the not-so-distant past.

All in all, as we head towards the renewal window in early 2027, the outlook is for the downward pressure on reinsurance premiums to continue. As the market softens, primary insurers will find this environment more beneficial, while reinsurers will be somewhat more exposed to large loss events. The rise of alternative capital reduces the reliance on traditional carriers, which has been a greater feature of the market in the past, thereby providing additional diversification in the reinsurance sector. (Re)insurers stand to benefit from new avenues for revenue, especially in the data centre space, where volumes are expected to grow significantly in the coming years.