The costliest wildfire in history failed to halt the reinsurance market's two-year softening cycle, as surging catastrophe bond issuance and abundant capital drove property rates down across major markets in 2025, according to Juniper Re's 2026 State of the Market report.
California's Palisades and Eaton Fires caused US$40 billion in insured losses in January 2025, accounting for 71% of global first-quarter insured disaster costs, research from industry analysts shows.
Yet KBW noted the catastrophe had "little impact on reinsurance pricing" beyond loss-affected California accounts, which "probably points to sustained weak investor sentiment toward the reinsurance space."
The muted market response underscores how dramatically capital dynamics have shifted. Catastrophe bond issuance surged 45% year-on-year to US$25.6 billion in 2025, shattering all previous records and pushing the outstanding cat bond market to US$61.3 billion by year-end, Artemis data shows.
A record 15 first-time sponsors entered the market, attracted by what Guy Carpenter described as "favorable pricing, broadening terms and conditions, and excess capacity."
US property catastrophe reinsurance rates declined 12% at the January 1, 2026 renewals, according to Guy Carpenter's index, while continental European rates fell 15%. France, Italy, Switzerland and the UK recorded the steepest reductions of 15% to 20%, whilst Germany experienced more moderate softening of 8% to 11%.
KBW analysts warned that expectations have deteriorated to the "upper teens" for remote layers that remained loss-free through 2025. Guy Carpenter noted pricing "was largely stable in working layers" but declined "at the top end of reinsurance programs where there was plenty of capacity available."
Despite consecutive years of softening, rates remain elevated historically. Guy Carpenter's US property catastrophe index sits approximately 70% above 2017 levels, and the global index stands roughly 20% above the full-market cycle mean.
The sector's average combined ratio increased to 87.6% in the first half of 2025 from 83.7% during the same period in 2024, the Juniper Re report shows. Net income held relatively steady at US$12.036 billion compared to US$12.517 billion year-over-year.
Investment income climbed to US$12.05 billion in the first half of 2025, up from US$10.554 billion in the prior-year period, offsetting underwriting margin pressure. Return on capital employed measured 11.5% in the first quarter of 2025, down from a 12.5% peak in 2024 but still exceeding the weighted average cost of capital, Juniper Re found.
Property catastrophe excess of loss buyers secured approximately 15% risk-adjusted rate decreases for 2026, the report shows. Reinsurers relaxed structural requirements, reducing return-period thresholds for first-event attachments to approximately eight to 12 years.
Industry capital is projected to reach US$114 billion heading into 2026, with third-party capital contributing substantially to overall capacity. Reinsurers target mid-40s expected loss ratios for property-catastrophe business, and despite 2025's catastrophe activity, industry analysts estimate calendar-year ceded loss ratios landed between 25% and 30%.
