Berenberg analysts have suggested that the 2025 market softening stands apart from past soft cycles in its pace, discipline, starting point, and structural trends, potentially creating a more sustainable, risk-responsive environment, barring major loss shocks or behavioural shifts.
However, according to the firm, the 2025 softening market is unfolding far more gradually with stronger discipline and less capital-driven exuberance than the last soft cycle.
“This should lead to a more sustainable, risk-responsive environment unless future loss shocks or behavioural shifts trigger a sharper change, in our view,” Berenberg’s analysts said.
The report highlighted that capacity remains abundant in the reinsurance market, exceeding the growing demand for cover.
Alternative capital, including catastrophe bonds, sidecars, insurance-linked securities, collateralised reinsurance, and other structures, is also estimated to remain at a record high.
“In terms of alternative capital, one theme remains consistent: alternative capital has become an increasingly important component of the overall property catastrophe reinsurance limit, particularly as US cedants see value in diversified sources of capital,” Berenberg said.
With this in mind, the firm identifies a potential influx of alternative capital as one of the key risks for the sector, as it could undermine the pricing discipline of traditional reinsurance capital and trigger a new cycle in which participants compromise on pricing or loosen terms to pursue growth. Consequently, this pressure would likely trickle down to primary insurers.
“Nevertheless, the bulk of the increased capacity in the space still comes from incumbent reinsurers. This means that the overall terms and conditions are likely to remain firm, in our view, which has positive implications for the overall profitability of the sector,” Berenberg’s analysts added.
Highlighting further differences in the 2025 softening market, the report stated that property catastrophe is the biggest, and arguably most profitable, part of the property and casualty (P&C) reinsurance market.
Pricing in this segment is reportedly falling, although from a very high starting point, following the recent hardening of the market.
However, Berenber stated that this is still only one part of the P&C market, and pricing is falling mainly for the non-loss-affected areas.
“The dynamics in casualty, specialty and other P&C reinsurance areas provide some offset to the lowering property catastrophe pricing,” the report said.
The firm’s report continued, “Particularly for the big, diversified reinsurers in our coverage, the above-mentioned dynamic is visible from the fact that the overall pricing decline they have all reported so far for their entire book is lower than just the estimated decline in property catastrophe.
“As such, looking into 2026, when pricing is generally expected to soften further for property catastrophe, given the very benign wind season, the big reinsurers are likely to be affected less due to the diversified nature of their books.
“This means that, with a focus on margins and costs, they can sustain attractive, although moderating, returns on equity, in our view.”
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