Reinsurance Is Rebalancing. But the Floor Is Still Some Way Off

After two years of eye‑catching profitability, the January 1 reinsurance renewals marked a decisive change in direction. Rates fell sharply across most peak property lines. Capital was plentiful. Buyers had options again.

In conversation with The Voice of Insurance, David Flandro, Head of Industry Analysis and Strategic Advisory at Howden Re, describes this moment not as a collapse but as a rebalancing. A shift driven far more by capital supply and cost of capital than by any sudden improvement in underlying risk.

And crucially, he argues, the market is nowhere near the floor.

A Renewal That Will Be Remembered

Flandro places this renewal alongside those moments that genuinely shift markets not as dramatically as post‑Katrina, but significant nonetheless.

Headline numbers tell part of the story:

• * Risk‑adjusted property catastrophe pricing fell by approximately 15%
• * Property retro declined by more than 16%
• * London market casualty fell 5–10%
• * US casualty renewed broadly flat, with most treaties on expiring terms

“Those are big declines,” Flandro notes and they matter because they reflect a decisive shift in balance between supply and demand.

Capital Supply Did the Heavy Lifting

At the heart of this renewal was an expansion in reinsurance capital, not a collapse in demand.

Dedicated reinsurance capital increased by roughly 8% year‑on‑year, rising from around $463bn to more than $500bn, an all‑time high. For the first time, capital now exceeds the global amount of reinsurance premium.

That expansion came from several sources:

• * Strong retained earnings after two profitable years
• * Record levels of ILS issuance
• * Recovered balance sheets following the 2022 interest‑rate shock

In simple terms, the supply curve moved sharply. Demand moved too but not nearly as much.

Flandro agreed with podcast host, Mark Geoghegan’s observation that psychology played a part. Reinsurers wanted to write more business, and price was the variable they were willing to trade.

Buyers Are Making Rational Trade‑Offs Again

On the demand side, behaviour was far from uniform.

Some cedants increased their purchases, taking advantage of improved terms after being constrained for several years. Others chose to bank the savings instead, reassessing reinsurance against their own cost of equity and debt.

That distinction is critical.

Reinsurance, Flandro stresses, is contingent capital, and it competes directly with other balance‑sheet tools. For a large insurer with a relatively low cost of equity, falling reinsurance prices may still not yet be compelling enough to drive materially higher buying.

The result is what Flandro describes as “dry powder” on the demand side:  capacity to buy more, if and when pricing moves closer to the true economic floor.

Return on Equity Is the Wrong Lens

A central theme of the discussion and of Howden Re’s Rebalancing report is that return on equity alone is a misleading guide.

What matters is:

• * Return on invested capital
• * Minus the weighted average cost of capital
• * In other words: economic value add

By that measure, 2023 and 2024 were the “vintage years”:  peak profitability for reinsurers. That cushion is now being eroded.

But importantly, economic value add remains positive.

“We haven’t hit the floor,” Flandro says. “We’re still making positive economic value which, by definition, means you should still be underwriting.”

That puts today’s market a long way from the value‑destructive conditions seen at the 2017 trough.

Why This Cycle Is Different

History shows plenty of examples where falling rates failed to stop falling. So why might this time be different?

Flandro points to structural shifts:

• * Persistently elevated global risk premia
• * Heightened geopolitical instability
• * Higher baseline interest rates, even as they ease
• * Rising frequency of so‑called “secondary” perils

The 2022 market reset itself was not triggered by catastrophe losses, but by a 400‑basis‑point interest‑rate spike following geopolitical shock. That lesson, he suggests, has not been forgotten.

For rates to return to the extreme lows of the mid‑2010s would likely require a world of unusually low risk premia, disinflation and an inflation of capital. A scenario Flandro sees as possible, but unlikely.

Discipline Has New Reinforcements

Another difference from past cycles is transparency.

Today’s CEOs operate with vastly better data, modelling and market insight, and so do their investors. Destroying value by writing below the cost of capital is no longer something that quietly goes unnoticed until the pain is obvious.

In that environment, capital allocation decisions become central:

• * Do you underwrite more?
• * Buy back shares?
• * Increase dividends?
• * Consolidate through M&A?

Those choices themselves can help define where the floor ultimately sits.

Not a Return to Cheap Reinsurance

Despite falling rates, Flandro is clear: this is not a cheap‑reinsurance‑driven soft market.

Property catastrophe pricing, for example, has returned to around early‑2022 levels still elevated by long‑term historical standards, and comparable to pricing maintained through much of the late 2000s.

As one reinsurer put it to him: if this were the market for the rest of their career, they’d take it.

The Outlook: Momentum, With Limits

Absent major shocks, Flandro expects today’s conditions to persist through 2026. However the deeper question is not the next renewal, but what happens over a three‑year horizon and that depends far more on global macro conditions than on insurance dynamics alone.

Capital is abundant. Risk remains elevated. And reinsurance continues to play a vital role as contingent capital.

Rates may still fall but the structural forces shaping this market suggest we are unlikely to crash blindly through the floor.