As reinsurers, we live with the constant tension between long-term structural risks and the cyclical dynamics of our market. Climate change is unquestionably reshaping the future of risk. Yet, while the long-term outlook demands vigilance, the more immediate and pressing challenge for our industry is the ongoing softening of the market.

Climate Change: A Long-Term Driver of Demand
We see firsthand how climate change is altering the risk landscape. Rising global temperatures, heavier rainfall, stronger windstorms, and increasingly destructive wildfire seasons have translated into higher insured losses over the past decade. In theory, this trend should support long-term growth in our business. More volatility and more severe events naturally create demand for reinsurance as cedents and insurers seek to protect balance sheets and narrow the protection gap.

For us, this long-term structural driver is not abstract — it is visible in our underwriting data, in the models we refine, and in the claims we pay. Climate change is not a distant challenge; it is already here. But paradoxically, it is not the most urgent issue influencing profitability today.

Overcapacity and the Return of Softening
Our immediate concern lies in market dynamics. After a sustained period of firming, the reinsurance cycle has begun to soften once again. This is not unusual. Strong pricing, as we experienced following the significant loss years of 2017 and 2021, tends to attract new capital. That influx eventually restores capacity and applies downward pressure on rates.

Today, alternative capital — particularly through ILS and catastrophe bonds — has reached record highs. These inflows, coupled with a period of relative stability in catastrophe activity, have introduced the same forces of overcapacity that we know too well. The effect: declining prices, compressing margins, and greater competition for risk.

As reinsurers, we recognize the cyclical nature of our business. We do not view the return of softening as surprising, but we do view it as a critical challenge that will shape profitability over the next several years.

The Cycle We Have Lived Through
Looking back, the past decade illustrates how quickly conditions can shift. After years of soft pricing between 2014 and 2017, it took the devastating hurricane season of 2017 to begin turning the market. By 2021, following Hurricane Ida and other severe events, the firming accelerated. For seven years, we operated in a relatively favorable pricing environment.

But as always, cycles turn. What we are now facing is the natural consequence of abundant capital meeting moderated catastrophe losses. We can already see this reflected in slower price improvements, and in some regions, risk-adjusted pricing is turning negative.

Earnings Pressure Ahead
For reinsurers, the implication is clear: earnings pressure will intensify. As premium run-off works through our portfolios, we expect to feel the full effect of softening over the next two to three years. Compounding this challenge is the prospect of lower investment yields if interest rates continue to ease in line with softer inflation. With underwriting margins and investment returns both under pressure, the industry must prepare for plateauing profitability in the medium term.

Balancing the Present and the Future
Our role is to strike the balance between immediate cycle management and long-term preparedness. While softening demands tactical discipline — prudent underwriting, selective deployment of capital, and active portfolio management — climate change requires strategic vision.
We cannot afford to manage one without the other. If we ignore cycle dynamics, we risk eroding profitability. If we overlook climate risk, we risk undermining our relevance and resilience in the decades ahead.

A Reinsurer’s Outlook
From our perspective, the next few years will test the industry’s ability to navigate softer conditions while keeping an eye on the larger structural risks that will define our future. The protection gap remains wide, and climate volatility will continue to create opportunities for reinsurers who manage capital and risk intelligently.

But in the immediate term, our focus must remain sharp: capacity discipline, pricing adequacy, and risk selection. Only by managing today’s cycle responsibly can we position ourselves to meet the long-term demands of a changing climate.