Soft market to drive lacklustre margins for P&C reinsurers in 2026: J.P. Morgan

Core Viewpoint - The property and casualty (P&C) reinsurance market is expected to experience "lacklustre margins" in 2026 due to price cuts during January 1 renewals and a softening trend for mid-year cycles [1] Group 1: Market Conditions - Increased capital in the reinsurance market is driven by two years of robust returns and higher alternative capacity, leading to heightened competition and downward pressure on pricing [3] - The LA wildfires in Q1 2025 increased reinsurance demand but did not significantly alter pricing trends, serving more as a tailwind for demand [3] - Global/European renewals in January 2025 and Japan/Asia renewals in April 2025 saw price cuts of approximately 5-15% [4] Group 2: Pricing Trends - Reinsurance prices are estimated to have declined by an additional 15-20% during the January 1, 2026 renewals, with expectations of continued softness through mid-year 2026 renewals [5] - Analysts project return on equity (ROE) for reinsurers to compress closer to 10% in 2026, although top-tier underwriters like ACGL and RNR may perform better [5] Group 3: Catastrophe Losses - The U.S. insurance industry is expected to incur catastrophe losses of around $5 billion in Q4 2025, a decrease from $10 billion in Q3 2025 and $30 billion in Q4 2024 [6] - Major drivers of U.S. catastrophe losses include severe convective storms, winter storms, and floods across various regions [7] - Primary insurers are anticipated to bear a significant portion of these losses due to higher attachment points and retentions [7] Group 4: Company-Specific Insights - Companies such as Allstate Corporation (ALL) and Progressive Corporation (PGR) reported catastrophe losses below initial estimates, prompting J.P. Morgan to revise their loss projections for Q4 2025 [8] - Among the companies analyzed, ALL and Travelers (TRV) are most exposed to U.S. catastrophe risk, while RenaissanceRe (RNR) and Arch Capital Group (ACGL) have the highest exposure among reinsurers [9] - AIG (American International Group) and Chubb (CB) are identified as the most exposed to international catastrophe losses [10]