Global reinsurance capital rose 4.8 per cent to a record $805bn (£595bn) in the first half of 2025 and is on track to increase by eight per cent overall, thanks to continued strong profitability and additional non-life alternative capital, according to Gallagher Re’s half-year 2025 Reinsurance Market Report.
The industry has continued to grow despite an elevated level of losses.
According to Gallagher Re estimates, the first half of 2025 was the costliest since 2011, with global insured natural catastrophe losses of at least $84bn, 55 per cent above the decadal average.
However, despite losses, the influx of capital and rate softening in some segments, reinsurance giants are expected to maintain their recent run of robust profitability, according to the report.
Reinsurance capital continues to grow
Gallagher noted global reinsurance dedicated capital increased 4.8 per cent in the first half of 2025, driven by both traditional reinsurance capital (five per cent) and nonlife alternative capital (3.6 per cent).
Michael van Wegen, head of client & market insights international, Gallagher Re Global Strategic Advisory, told City AM: “While the growth percentage for alternative capital and traditional reinsurance capital isn’t too dissimilar in our half-year estimates, the absolute amounts are very different.
“For alternative capital, we’re talking about a single-digit US dollar billion number, while for the traditional reinsurance market, it’s close to about $33bn in the first half alone. So traditional reinsurance capital is still very much the significant driver of overall capital growth.”
Following this growth, the insurance giant has revised its full-year forecasts. It had previously expected growth of six per cent for 2025. After the strong first half, it’s now pencilled in growth of eight per cent in total global reinsurance capital for the year.
Gallagher’s INDEX companies, the world’s 45 largest public reinsurers, which contribute 82 per cent of the industry’s capital, recorded a capital increase of $31bn or five per cent to $660bn in the first half. The main driver of this growth was retained earnings, which at $15bn contributed half of the group’s capital growth.
The reported combined ratio of companies monitored by Gallagher increased to 87.5 per cent (2024 HY: 84.6 per cent), driven by a deterioration in the natural catastrophe loss ratio of +4.4 percentage points (ppts), and a weaker expense ratio (+0.9ppts), partly offset by higher prior year reserve releases (+2.2ppts).
Despite the higher combined ratio, return on equity for the subset of large reinsurers highlighted in the report came in at 17.7 per cent for the first half, down from 19.6 per cent in the same period last year, but still well above reinsurers’ weighted average cost of capital.
Michael van Wegen says this trend is likely to continue, as there has been a fundamental shift in how reinsurers view risk.
Michael van Wegen says: “Looking at their renewal updates, you can see that they’re willing to let some business go where they felt rates weren’t doing what they wanted. So, I think there’s an element of a conscious decision based on where the cycle is going.”
Investment portfolios help returns
The key insurers tracked by Gallagher reported a net income of $28bn in the first half, thanks to continued strong underwriting and investment profitability. Berkshire Hathaway’s National Indemnity’s realised investment gains added $3bn to net income as the US investor Warren Buffett continued to sell his stake in technology giant Apple following the stock’s recent performance.
The overall investment return for the subset of 45 companies monitored increased from four per cent last year, to five per cent in the first six months of 2025. However, the overall running yield of portfolios remained stable at 3.8 per cent as Bermudian companies derisked their portfolios.
Overall, the key companies returned 47 per cent of net income back to investors through dividends and share buybacks.
Despite softening in some areas of the market, Gallagher calculates it would take “a $115bn insured loss event, which equates to a circa 1-in-20 event in the vendor models, on top of normalised natural catastrophe losses to reduce the average industry ROE for the 2017-2025 period to a double-digit (10 per cent) level.”
Discussing the rate declines and loss environment, Michael van Wegen says: “We’re coming from extremely attractive underlying profitability as a starting point. So, the price declines we’ve seen this year don’t mean that the business is unattractive—it’s probably still generating pretty substantial returns.
“While there has been some softening, we’re still getting to a full-year headline ROE outlook of 17 per cent to 18 per cent and an underlying ROE outlook of 13 per cent to 14 per cent. Those are not bad numbers, whether you take them at an absolute level or in the historic context of the industry,” he concludes.