Gallagher Re, a leading player in the global risk underwriting industry, has reported that capital redeployment is set to be the biggest challenge for reinsurance companies in 2026,
This projection was made Michael van Wegen, author of Gallagher Re’s Full Year Reinsurance Market Report, during a recent interview with Reinsurance News.
According to the industry-focused online medium, the report showed that total dedicated reinsurance capital rose to a record $648 billion in 2025, representing an 11% increase over the previous year’s value, and marking the second-strongest year for capital growth in more than a decade.
van Wegen noted that the speed of capital accumulation had surpassed business growth rate, adding that since the market began hardening at the end of 2022, traditional reinsurance capital has grown by 50%, while revenue has only climbed by 20%.
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He said: “That imbalance is a key factor behind the change in supply and demand dynamics and tilting that into the favour of the insurers, instead of the reinsurers. And it really highlights the pressure on the reinsurers’ management teams to figure out capital redeployment.”
The report’s author said that while traditional reinsurance capital growth was expected to slow from double digits to about 4%, which is below the historic level of growth of around 6%, excess capital buildup is still expected to continue.
Van Wegen further clarified: “Not only is there a lot of excess capital built up, it is also starting to affect the profitability. The underlying ROE in 2025 deteriorated, and yes, the underlying combined ratio deterioration may be somewhat of a factor in that, but the key factor in this is just continued capital buildup. That is the most significant driver of the deterioration in the underlying ROE in 2025.
“I think that capital redeployment will be the key challenge, finding the right growth opportunities. Beyond that, what do you do with the excess capital? So, we see an increase in payout in 2025 already to 51% from 47% in 2024, and we expect a further step up to around 60%.
“But even then, you’re still getting excess capital build, so it’s not enough to stop that issue. So, what’s next? I think that will depend on reinsurer by reinsurer and management team by management team”, the industry expert added.
van Wegen explained that some reinsurers were looking for diversification, stepping into new geographies, new lines of business, while some of them diversify outside of reinsurance.
He, however, said anticipated that different companies will go about it differently, but maintained that the key objective for management teams would be finding the appropriate opportunities to put that excess capital to work, and if they cannot, they should look at ways to distribute that to shareholders.
van Wegen predicted that the capital redeployment challenge had the potential to persist beyond 2026, but that this will depend on how the cycle evolves.
