European reinsurance profitability sits well above long-term norms, raising the bar for any shock large enough to reverse current pricing trends, according to J.P. Morgan.
Analysts frame the situation bluntly. High margins support earnings, yet they delay any meaningful reset.
In a recent report, J.P. Morgan described current profitability as both supportive and restrictive. Profits remain elevated and still have distance to fall before reaching earlier cycle lows.
At the same time, strong margins dampen the urgency for price firming even if loss experience deteriorates.
European reinsurers recorded stronger ROE in 2024 and 2025, exceeding their cost of equity in three of the last four years, according to Goldman Sachs.
Between 2017 and 2022, the sector only met or exceeded this benchmark in two years. ROE lagged materially behind in 2017, 2018, 2020, and 2022.
Key pressures included large losses from hurricanes such as Irma, Harvey, and Maria in 2017, and Ian in 2022.
The bank expects European reinsurer profitability to stay high over the next several years. Given current earnings levels, a single adverse year would likely fall short.
A much larger loss event, or repeated losses, would need to land before the market shifts direction from its present soft phase.
J.P. Morgan points to combined ratio guidance as evidence. Since 2023, underwriting performance has strengthened sharply.
Average combined ratio guidance for P&C reinsurance in 2026E stands near 85%, compared with 94% at the prior cycle peak in 2013. The gap matters.
These included increased catastrophe losses excluding major events, higher secondary peril costs, US social inflation affecting casualty books, and rising capital levels through 2021.
Although reinsurance rates began increasing in 2017, they remained below loss cost trends for several years. Hurricane Ian in 2022 marked a turning point.
Rates rose sharply, coinciding with higher interest rates and a reduction in industry capital. Carriers responded by adjusting attachment points and reducing proportional business, which lowered exposure to frequent losses and improved combined ratios.
January reinsurance renewal premiums increased by 4.5%, primarily driven by volume. Reinsurers experienced stable reinsurance renewals at 1.1 due to greater prudence and selective focus in underwriting.
For underwriting results to slip into loss-making territory, losses would need to exceed expectations by more than 15 percentage points. According to Beinsure analysts, few recent periods approach that scale.
Historical context reinforces the argument. In 2017, catastrophe losses for the largest reinsurers ran roughly 15 points above budget.
Even applying that stress today, and stripping out discounting benefits, J.P. Morgan estimates the 2026 combined ratio would land around 92.5%. That still beats the 2013 peak.
Timing remains uncertain. Strong industry profits look set to persist into 2026, leaving the softening market without a clear catalyst. Pricing pressure continues, yet the margin cushion remains thick enough to absorb near-term shocks.
