S&P Keeps a Stable Outlook, but Expects Margins to Compress Through 2027

S&P Global Ratings holds its stable outlook on global reinsurance while forecasting ROE falling from 12-15 percent in 2026 to 10-13 percent in 2027 and a combined ratio drifting up to 94-97 percent. Strong fundamentals cushion the sector; pricing and terms do not.

Stable outlook, shrinking cushion

Reinsurance News reported on 2 September that S&P Global Ratings maintains a stable outlook on the global reinsurance sector, expecting strong fundamentals to offset tougher near-term market conditions. The agency’s benchmark group carries an average rating at the upper end of the ‘A’ category, with a stable outlook on 85 percent of names, positive on 10 percent and negative on 5 percent. The stability, however, is a statement about the starting point and not about the direction of travel.

What the forecasts actually say

S&P forecasts a return on equity of 12 to 15 percent in 2026, falling to 10 to 13 percent in 2027, and an undiscounted combined ratio of 92 to 95 percent in 2026 rising to 94 to 97 percent in 2027. It assumes reserve releases of one to two points and a net investment yield of 3.5 to 4.0 percent. Analyst Johannes Bender expects pricing to remain under pressure through 2027 given abundant traditional and alternative capacity, and sees reinsurers facing increasing pressure to loosen terms and conditions. Underwriting margins should still cover the cost of capital, but only if annual natural catastrophe and large man-made losses stay within budget. Geopolitical instability, social inflation and catastrophe losses are the named risks.

Two details deserve attention. First, a meaningful share of the 2026 return is investment income and reserve releases, neither of which is an underwriting skill. Second, S&P singles out a significant insurance gap in cyber, renewable energy and data centres as long-term opportunities, a reminder that the agencies reward reinsurers that find margin in protection gaps instead of competing for the same shrinking property-catastrophe spread. AM Best’s September view of Latin America points the same way: abundant capacity, flexible conditions, and growing cedant interest in life and health.

What it means for Power Re

A sector whose agencies themselves forecast compressing margins is not one in which a specialist should chase volume. Power Re’s focus on Group Life and Personal Accident in Latin America sits away from the property-catastrophe price cycle, and our underwriting is built on the opposite premise of the soft market: price to the exposure, retain only what we can reserve for honestly, and decline business whose margin depends on investment yield or reserve releases. Earnings that survive a combined ratio at the top of S&P’s range are the only earnings worth reporting.