Reinsurers delivered a 19.9% return on equity in the first half of 2026, the second-highest half-year result of the past decade, according to Gallagher Re’s September 2026 Reinsurance Market Report.

The performance was driven by materially lower-than-normal natural catastrophe losses and improving prior-year reserve development, according to the report, which tracks the Gallagher Reinsurance Composite of large Bermudian and Big Four European reinsurers.

Buoyed by the strong first half, Gallagher Re raised its full-year 2026 ROE estimate for the composite to 16.5%-17.5%, up from a prior estimate of 14%-15%, and well above the industry’s implied 11.4% cost of equity.

Capital Keeps Building As Premiums Retreat

Total reinsurance dedicated capital rose 5% in the first half to $688 billion, according to the report, though growth slowed from the pace seen in 2025. Traditional reinsurance capital grew 4% to $541 billion, with strong earnings increasingly offset by higher shareholder payouts; Gallagher Re now expects traditional capital to grow 6% for the full year, versus 4% previously projected.

Non-life alternative capital expanded 9% in the first half, or 17% annualized, to $147 billion, supported by catastrophe bond growth and net inflows that are increasingly extending into lines such as casualty, the report said.

Meanwhile, P&C reinsurance premiums for the reinsurer composite fell 6% in the first half, reflecting softening rates and active portfolio management, according to the report.

Bermudian reinsurers, which are more concentrated in property and catastrophe risk, felt the sharpest pressure: Arch and Lancashire swung from 14%-19% growth in the first half of 2025 to declines of 10%-11% in the same period of 2026, while Everest Re and RenaissanceRe also posted notable premium declines.

The Big Four European reinsurers, by contrast, kept revenues largely stable by redeploying capital into life and health reinsurance to offset shrinking P&C books, the report found. With capital rising 5% against a 0.2% decline in demand as measured by revenue growth, Gallagher Re said the imbalance between reinsurance supply and buyer demand has shifted further in favor of buyers.

Capital return to shareholders also accelerated. Payout ratios rose sharply, with Arch and Hamilton both increasing total payouts by more than 70 percentage points to above 90%, and Hannover Re, Munich Re and Swiss Re each returning slightly more than 100% of first-half profits to shareholders, according to the report.

Gallagher Re expects payouts across the reinsurer composite to average 75% for the full year, though it noted that higher payouts alone do not resolve the industry’s underlying excess capital position.

Underwriting Margins Soften Even As Cate Losses Stay Low

The composite’s undiscounted combined ratio improved to a record 85.8% in the first half of 2026, down from 92.1% in the same period of 2025, driven almost entirely by lower catastrophe losses, according to the report.

Natural catastrophe losses reduced the combined ratio by just 3.6 percentage points, down from 6.8 points in the first half of 2025, when California wildfire losses weighed heavily on results. Gallagher Re estimated global insured natural catastrophe losses of at least $46 billion in the first half of 2026, down from $84 billion in the same period of 2025 and 28% below the 10-year average of $64 billion.

Stripped of catastrophe losses and reserve development, however, the combined ratio deteriorated 1.1 percentage points to 84.7%, and the underlying ROE fell to 13.8%, down from 15.3% in the first half of 2025 and a 15.7% peak in the first half of 2024, the report said. Gallagher Re attributed the decline to softer rates and to capital growth outpacing revenue and earnings growth.

Reinsurance Resilient To Major Losses

Gallagher Re’s stress tests found the reinsurance industry could absorb an insured loss of $50 billion to $75 billion beyond normal second-half catastrophe activity and still earn its cost of equity in 2026.

It would take losses exceeding $150 billion, the report said, to erase the industry’s excess capital build and return the premium-to-capital ratio to 2023 levels, a scenario Gallagher Re said would more likely stem from multiple sizeable events or a major catastrophe combined with financial market volatility than from a single event.

Obtain the full report here. &

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