Europe’s big four performed better than expected in the last soft cycle: J.P. Morgan

As the reinsurance market softens from the highs of 2023, with further pressure on pricing expected at the upcoming January renewals, analysis by J.P. Morgan reveals that for Europe’s big four reinsurers, results were better than expected in the last soft market.

If the final quarter of the year is as benign as the third quarter in terms of catastrophe losses, the expectation is that property / property cat reinsurance pricing will soften at the 1.1 renewals, although coming off of such a high base, numerous industry CEOs have emphasised that it’s still a good market with adequate rate in many areas.

Over the coming weeks, reinsurers will likely post strong underwriting results after the benign Q3 2025 cat loss experience, pegged as the lowest level of insured losses since 2006 by Aon, a no doubt welcomed experience after the heavy LA wildfire losses and impacts of severe convective storms in the US during the first half of the year.

In light of all of the commentary around market softening, the sustainability of reinsurer profitability heading into 2026 and beyond has been a growing topic, but analysis by J.P. Morgan reveals that, for Europe’s big four (Swiss Re, Munich Re, Hannover Re, and SCOR), while combined ratios deteriorated they were still strong in the last soft cycle.

“While the outlook for reinsurance pricing into 2026 seems all doom and gloom at present, underwriting results in the last soft market were strong overall. And that’s the problem. In the last soft cycle, combined ratio guidance deteriorated from 94% to 98% in 2017 on average for the European reinsurers,” says J.P. Morgan. “Despite weakness in pricing, the reported results of the group were excellent, therefore feeding the market softening. On average reported combined ratios 2013-16 came in almost 4ppts below normalised levels mainly due to lower than expected catastrophe losses and also reserve releases in some cases.”

Of course, it’s important to highlight that during the 2013-2016 period, the hurricane seasons didn’t drive significant losses, while reserve releases, in some instances, also bolstered results.

J.P. Morgan’s analysis emphasises that while normalised combined ratios came under pressure in the last soft cycle, they do not always equal reported combined ratios “in almost every instance.”

“A large part of the difference between combined ratio guidance and reported combined ratios comes from natural catastrophe claims or large losses. The European reinsurers set guidance for their catastrophe budgets on an annual basis, but in reality claims tend to come in either below or above expectations which can lead to volatility in reported combined ratios,” explains J.P. Morgan.

During the soft market period 2013-2016, the analysis shows that nat cat loses came in lower than expected and below budgeted levels for the four reinsurers, on average.

“Whilst we would not assume that these benefits are repeatable, it meant that the reality of poor margins was delayed in many cases, with a material source of upside versus normalised combined ratios,” analysts explain.

According to J.P. Morgan, it actually only took one year of cat losses coming in above expectations for the market to shift in 2018.

After years of minimal insured losses from Atlantic hurricanes, in 2017, hurricanes Harvey, Irma, and Maria drove $100 billion of insured losses late in the summer, which J.P. Morgan says pushed combined ratios on average around 9% worse than firms expectations.

“Interestingly it only took one year of losses coming in above expectations for prices to harden. The market had softened on an underlying basis for a number of years at that stage. Prices had having fallen materially and with few buffers to offset losses, the market began to slowly harden from early 2018 onwards. In fact, looking back over data to 2010, property catastrophe prices moved up the following year in almost every case when natural catastrophe losses were above budget for the European reinsurers,” says the report.

Of course, the 2025 Atlantic hurricane season, while past its peak, is ongoing, and there’s always a chance other significant catastrophe events happen between now and the end of the year, which if large enough, will impact pricing as well as supply and demand heading into 2026.

For the European reinsurers, the quiet third quarter would have helped any pressure on annual nat cat budgets following the active first half of the year, and only time will tell what Q4 brings and how budgets look come year-end, and what impact this has on market dynamics going forwards.