The divisional director, reinsurance, at Westfield Specialty International has said the year ahead will be defined by ongoing excess capital in the sector.

Christopher Gray examining the reinsurance market for the year ahead said he expects the overall direction of travel to still be dominated by the current leading factor of excess capacity.

“At present there are too many reinsurers chasing too few buyers, and this is keeping rates down and the market soft overall,” he explained.

To counter this, reinsurers will need to maintain their underwriting discipline to succeed in 2026. Rate adequacy has broadly been maintained overall, but margins are still under pressure, particularly in the area of property catastrophe.

“Further pressure is being heaped on reinsurers by the external economic environment, which offers the twin perils of low-growth economics in many countries, coupled with high inflation,” Gray added. “This has been the case for several years now and has become the ‘new normal’ but its presence and impact on underwriting margin and maintaining strong reserve adequacy marks a key differentiator between this and the last soft market for reinsurance pricing.

“We have also seen some significant losses in 2025, including $45-50 billion of losses from severe convective storms this year. These have offset the effect of a very benign North American hurricane season. This increases costs in a market where they cannot be recouped through rising reinsurance rates.

“At the same time, we can already see an active M&A environment within insurance, which is normal for this part of the cycle. This does bring further reinsurance capacity pressure. Put simply mergers and acquisitions reduce the reinsurance client base for us reinsurers.”

However, Gray said there were opportunities.

“Where margin pressure forces the sale or restructure of an underwriting portfolio, a creative reinsurer can see opportunities to deliver RITC solutions, Loss Portfolio Transfer opportunities, or ADC (Adverse Development Cover),” he explained. So, creative is my 2026 reinsurance buzz word.

“Reinsurers will need to be smart thinkers to succeed in 2026. They will need to offer multiclass expertise and cross-class relationships with the ability to develop new products. They will have to start really listening to exactly what the client wants to purchase and consider providing a solution to that rather than delivering a standardised commodity product.

“A great example of this is around the field of AI. Westfield Specialty is currently actively discussing with several insurers how the transition to a more AI-led underwriting operation will change their risk profile, and whether there is a need to reinsure away some of that risk for that portion of their book.

“Where an insurer is creating an algorithmic portfolio, the risks change, and this is a niche that reinsurers can cover.  This is an interesting solution to a new problem – exactly the sort of thing that the London reinsurance market is famed for.”

Grey concluded: “As I look ahead to 2026, one fact really stands out. To succeed in this complex and challenging environment, reinsurance needs to prove its value. Clients will retain more risk if they don’t see a value in what they are buying. Let’s work hard to deliver that value as we head towards a challenging but exciting year ahead.”