Fitch sees 2027 soft market moving from price to terms

The 2026 renewals delivered a buyers' market that Fitch Ratings now expects to stretch into January 2027, according to a new report forecasting further softening in global reinsurance pricing with terms and conditions offering cedants 'growing flexibility' as excess supply outpaces modest demand growth. Property rates already declined by double digits at mid-year, while terms and conditions weakened at the margin, even if attachment points and retentions have mostly held; Fitch describes the mid-year renewals as challenging for reinsurers.

For ILS investors, the terms are the tell, as this publication argued on Tuesday. The softening is being financed by the industry's own record returns: exceptional profits since 2023, higher investment income and equity gains have lifted capitalisation to record levels. Supply remains robust enough to meet somewhat increased demand, with some companies reinvesting savings to buy more coverage; that is the heart of the current cycle, with the buyers' market funded by the sellers' past successes.

Fitch still sees a cushion: reduced pricing and easing terms should support a risk-adjusted ROE in the low-teens, above an 8%–9% cost of capital, assuming underwriters keep discipline and allocate selectively, though it expects competition to intensify amid macroeconomic, trade and geopolitical uncertainty, keeping conditions soft through January. For ILS investors, that cushion looks thinner. Their returns come from spreads and terms directly; if attachment points eventually follow rates south, the risk transfer becomes less efficient exactly when capacity is most plentiful.

The cycle is not uniform: casualty rates largely increased to keep pace with social inflation loss costs, though Fitch cautions rate adequacy could fall in 2027, while specialty price decreases were more modest, leaving select underwriting opportunities. Property is leading the slide; casualty is still catching up.

The watch item for January is whether attachment points and retentions hold. Fitch's 'growing flexibility' is a warning that the next phase of softening could reach the structural terms that have, so far, held the line; for ILS allocators, that is the difference between a price cut they can model and a terms change they will feel for years.