AM Best: Record Capital Tests Reinsurance's 87% Combined Ratio

The US and Bermuda reinsurance combined ratio improved from 104.4% in 2020 to 87% in 2025, and dedicated global reinsurance capital is estimated at roughly $705 billion for 2026 (AM Best, August 10, 2026). That combination looks like durable discipline. It is closer to a reserve cushion and a quiet catastrophe year doing the work that current-year rate no longer can.

Key Takeaways

• The 87% is a lagging indicator. Hard-market premium written in 2023 and 2024 is still earning through, while property catastrophe rates fell 15% to 20% at the April and midyear 2026 renewals, led by Florida.
• Swiss Re's large natural catastrophe losses ran nearly $670 million below budget in the first half, while its effective net price change was negative 4.6% once a 4.4% loss-assumption increase is set against a 0.2% nominal decrease.
• Munich Re's 24.9% first-half reinsurance ROE was flagged by its own management as unsustainable, in a half where it also cut full-year revenue guidance for softer pricing.
• The 79.2% European Big Four figure is not comparable to the US GAAP 87%. It is flattered by IFRS 17 discounting, worth roughly ten points on SCOR's own disclosure.

What Is Actually Carrying the 87%

An 87% combined ratio sounds like a market pricing well above its cost of capital, and on a raw earned-premium basis it is. But a reinsurer's earned book in any year is a blend of vintages. Premium written in 2023 and 2024 at genuinely hard-market rates is still running off through the earned side in 2025 and 2026, while the rate being written today has already turned soft.

Guy Carpenter's renewal data shows January 2026 property catastrophe placements posting double-digit declines, with dedicated capital growing an estimated 9% to $663 billion in 2025 on retained earnings. AM Best's April and midyear data pushes further, with property catastrophe reductions widely estimated at 15% to 20%. An earned 87% calculated against that blended book is not the number a reinsurer would post if every dollar were written at 2026 rates.

Benign catastrophe experience does a second, separate piece of the work. Swiss Re's property and casualty reinsurance posted a 76.7% combined ratio for the first half, improved from 81.1%, with large natural catastrophe losses of $169 million against a budget of $836 million.

At the same time Swiss Re raised loss assumptions 4.4% at renewal against a nominal price decrease of 0.2%, pushing the effective net price change to negative 4.6%. The rate actually being charged on renewing business is falling faster than headline renewal figures suggest, the mechanism the site flagged when those loss-pick increases first surfaced. A quiet catastrophe half-year is masking a book whose net-of-loss-trend pricing is already moving the wrong way.

The Reserve-Cushion Mechanism

What deserves more scrutiny than the headline ratio is the adequacy of the casualty and property loss picks booked for accident years 2023 through 2025. Those are the vintages a hard market was supposed to reserve conservatively, building margin against the severity surprise that hit the 2019-and-prior casualty years across the industry.

Two outcomes follow. If the margin is real, reinsurers can release it gradually over the next two to three years as those years mature, propping up reported combined ratios even as newly written business earns in at thinner margins. If the picks were set closer to best estimate than to a conservative hard-market load, the 87% has less runway than it appears, because there is no cushion left to smooth the transition once current-year adequacy erodes further.

Dan Hofmeister of AM Best framed the stakes in long-tail terms: "Casualty exposures often develop over many years, meaning that decisions being made today may not be fully understood until well into the next decade."

Munich Re shows the dependence directly. Its reinsurance division generated a 24.9% return on equity in the first half while cutting full-year revenue guidance to roughly €38 billion from €40 billion on softer volumes (Investing.com, August 2026), a combination the site traced from the volume side in its July renewal coverage. A return generated in a half where the company is cutting its own outlook signals results running well ahead of what current-year underwriting delivers.

The European comparison is flattered by something else again. AM Best puts the Big Four discounted combined ratio at 79.2% for 2025 under IFRS 17, against a US and Bermuda group in the mid-80s to low-90s under US GAAP. SCOR's own second-quarter disclosure quantifies the mechanism: the discount effect on its property and casualty result ran to negative 10%, against an attritional loss and commission ratio of 76.8% before that benefit. A ten-point benefit on a book already running an attritional ratio in the high 70s is a meaningful share of reported margin, and it has nothing to do with underwriting discipline.

Retained Earnings, Not New Capacity

Dedicated capital has grown from $607 billion in 2024 to an estimated $705 billion for 2026, but unlike prior hard-market cycles the growth came almost entirely from retained earnings compounding inside existing organizations rather than a wave of new entrants raising third-party capital. Gallagher Re's tally reaches a similarly elevated record, covered here in its dedicated capital estimate.

That distinction is a partial brake. New capacity chasing returns prices aggressively to win share, then exits when returns compress, which is the classic soft-market overshoot. Capital built from carriers retaining their own hard-market profits behaves differently: those balance sheets do not need to write at inadequate rates to justify their existence, and a management team defending a return in the 20s has less incentive to chase volume than a start-up proving a business model.

The brake is partial rather than reliable because the same reinsurers sit on top of a primary casualty market that is still finding its own picks wrong in real time. General liability writers posted an industry combined ratio near 114% in 2025 on picks regulators and rating agencies increasingly view as inadequate for the years being written (site coverage). Reinsurers carry that same severity trend through their treaty books.

That is what makes the 2023-through-2025 vintages carry more analytical weight than the headline ratio. A primary market discovering its casualty reserves were thin is not a market whose reinsurers can assume their own reserves from the same period are conservative by default, and the cushion currently holding the 87% together is booked against exactly those years.