The second quarter of 2026 has reinforced a clear message for insurers, brokers, MGAs and insurtechs: capacity is available, but risk is becoming more complex. Commercial insurance and reinsurance pricing has continued to soften in many areas, particularly property and catastrophe-exposed programmes, yet this is not a simple return to easy-market conditions.
Insurers remain focused on underwriting discipline, accumulation control, geopolitical exposure, cyber aggregation, AI-related uncertainty and long-tail casualty trends. For buyers, the market offers opportunities to improve structure, pricing and coverage. For carriers and brokers, the challenge is to grow profitably without relaxing standards just as risk is becoming harder to model.
The UK and Global Economy
- The UK economy showed modest growth, but inflation and interest rates remain important for insurers. UK real GDP grew by 0.7% in the three months to April 2026, while CPI inflation was 2.8% in May, unchanged from April. The Bank of England held Bank Rate at 3.75% in June, noting that higher energy costs could still feed through into inflation. For insurers, this keeps reserving, claims inflation, investment income and affordability under close scrutiny. (Sources: ONS GDP, ONS inflation, Bank of England)
- UK political uncertainty also increased during the quarter, with Prime Minister Sir Keir Starmer announcing his resignation on 22 June. Markets and businesses will be watching the leadership transition closely for its implications for fiscal policy, investment and wider confidence. (Source: Reuters)
- Global growth expectations have weakened. The OECD’s June outlook projected global growth slowing from 3.4% in 2025 to 2.8% in 2026 under its time-limited disruption scenario, with the US at 2.0%, the euro area at 0.8% and China at 4.5%. The IMF’s April World Economic Outlook also highlighted the effects of commodity prices, firmer inflation expectations and tighter financial conditions. For the insurance market, that points to a slower demand backdrop, but one with continued volatility in energy, trade and financing conditions. (Sources: OECD, IMF)
- The US remains resilient, but uneven. US first-quarter GDP was revised up to an annualised 2.1%, but consumer spending was revised down to 0.5%, suggesting that headline growth is stronger than household momentum. The Federal Reserve held its policy rate at 3.50%–3.75% in June, while later inflation data kept rate uncertainty alive. For global insurers, the US remains attractive, but casualty severity, legal costs and inflation-sensitive reserving remain key watch-points. (Sources: Reuters [1], [2])
Insurance Industry Developments
- Commercial pricing continues to soften, but not evenly. Global commercial insurance rates fell 5% in Q1 2026, the seventh consecutive quarterly decline. Property rates dropped 9%, while casualty rates increased 3%, driven largely by challenges in the US. In the UK, commercial insurance rates declined 8% in Q1, marking the ninth consecutive quarter of rate decreases. Buyers with good data, clean loss experience and well-managed risk are seeing improved options, while difficult casualty and distressed risks remain more challenging. (Sources: Marsh [1], [2])
- Specialty insurance consolidation remains a major theme. Beazley shareholders approved Zurich Insurance Group’s GBP £8.1 billion cash takeover in April, with Reuters reporting 99.9% shareholder support. The transaction, still subject to final approvals, would create a major global specialty platform with significant cyber, marine, aviation, space and fine art expertise. For brokers and MGAs, this points to continuing consolidation around specialist underwriting, data, distribution and balance-sheet strength. (Source: Reuters)
- Lloyd’s of London is focused on discipline through the softening cycle. Lloyd’s Q2 Market Message highlighted market conditions, capital setting, risk-based oversight and Middle East exposure. The market is entering a more competitive phase while still facing elevated geopolitical, cyber and catastrophe uncertainty. In a softer market, profitable growth is likely to depend on discipline rather than volume alone. (Source: Lloyd’s)
- UK regulators are also looking at simplification and resilience. The FCA’s insurance priorities include work on simplifying rules, including consultation on the Consumer Duty’s application to non-UK business and a review of the international scope of ICOBS and PROD 4. The PRA’s 2026/27 business plan also points to greater use of technology in supervisory processes, including authorisations, internal model approvals and the Senior Managers and Certification Regime. (Sources: FCA, Bank of England/PRA)
Underwriting Performance
- Lloyd’s of London remains strongly profitable, but margins need protecting. Lloyd’s reported 2025 profit before tax of GBP £10.6 billion, gross written premium of GBP £57.9 billion and a combined ratio of 87.6%. These are strong results, supported by underwriting and investment returns. However, as pricing eases, the challenge is to maintain underwriting performance while avoiding exposure creep, wording drift or excessive competition for marginal risks. (Source: Lloyd’s)
- US P&C underwriting improved sharply in Q1. The US property/casualty industry recorded a USD $16.3 billion net underwriting gain in Q1 2026, compared with a USD $1 billion underwriting loss in the prior-year period. Lower catastrophe losses were a major factor, but the improvement also reflects rate action and stronger underwriting in parts of personal and commercial lines. The question for the rest of 2026 is whether those gains can survive renewed storm activity and casualty pressure. (Source: AM Best)
- The market is becoming more segmented. Property, financial lines and cyber have seen increased competition, while casualty, healthcare liability, political violence, marine war and other volatile classes remain much more selective. That creates opportunities for brokers who can present risk clearly and access specialist markets, but it also makes broad “market softening” statements less useful than class-by-class analysis. (Source: Aon)
Tech, Cyber and AI Developments
- AI is now a direct cyber and insurance issue. In June, the Five Eyes intelligence alliance warned that advanced AI models could rapidly increase both offensive and defensive cyber capability. For insurers, this raises several issues at once: faster attack development, automated vulnerability discovery, AI-enabled social engineering and greater uncertainty around aggregation risk. (Source: Reuters)
- Lloyd’s has warned that AI is adding uncertainty to cyber underwriting. Reporting on Lloyd’s Q2 Market Message noted that AI is creating complexity both through its use by threat actors and through questions about whether emerging AI-related liabilities are covered or excluded. This is likely to increase demand for clearer wordings, affirmative cyber and technology cover, and more robust accumulation modelling. (Source: Reinsurance News)
- Cyber frequency remains high, even where some attack types have eased. The UK Government’s Cyber Security Breaches Survey 2025/26 found that 43% of businesses reported a breach or attack, with phishing affecting 38%. Ransomware was reported by 1% of businesses, down from 3% in each of the previous two years, but the broader exposure remains significant, especially for SMEs and supply-chain dependent businesses. (Sources: UK Government, Reuters)
Reinsurance Market
- Reinsurance renewals continued to favour buyers in Q2. April 1 renewals were orderly and competitive. For example, insurers in India secured some of the most favourable reinsurance terms in recent years, with risk-adjusted rate declines of up to 30%. This reflects abundant capital and strong reinsurer appetite, although capacity remains more selective for volatile or poorly modelled exposures. (Source: Reinsurance News)
- US catastrophe renewals remain a key indicator. Analysis points to improved Florida carrier results in 2025, reduced hurricane losses, legal reforms, increased demand for reinsurance and ILS capacity, and a below-average to near-normal Atlantic hurricane outlook. This suggests capacity is available, but reinsurers are still watching attachment points, loss trends and the quality of underlying portfolios. (Source: Guy Carpenter)
- Catastrophe bonds remain an important source of capacity. American Integrity and Safepoint secured $510 million of cat bond protection, with pricing down roughly 25% year-on-year. Gallagher Securities also reported strong Q1 2026 cat bond activity, with USD $5.88 billion issued and an additional USD $1.5 billion announced but not yet settled. This reinforces the growing role of capital markets in catastrophe risk transfer. (Source: Reuters)
Natural Catastrophes
- The Atlantic hurricane outlook is less severe than recent years, but not risk-free. NOAA’s May outlook gave a 55% chance of a below-normal Atlantic hurricane season, a 35% chance of a near-normal season and a 10% chance of an above-normal season. It forecast 8–14 named storms, 3–6 hurricanes and 1–3 major hurricanes. For insurers and reinsurers, a quieter forecast may support pricing pressure – but it should be noted that even a single landfalling storm can still materially alter loss experience. (Source: NOAA)
- Severe convective storms remain a major US loss driver. Gallagher Re data showed US severe convective storm (SCS) insured losses had already exceeded USD $22 billion by 18 June, making 2026 the 11th consecutive year with annual US SCS insured losses above USD $20 billion. Even though the total was below recent first-half averages, the persistence of this peril continues to challenge property pricing, deductibles, modelling and reinsurance structures. (Source: Artemis)
- The longer-term nat-cat trend remains upward. Earthquakes and heatwaves in Q2 underline the continuing human and economic volatility of natural catastrophe risk. Swiss Re estimated that insured natural catastrophe losses could reach around USD $148 billion in 2026 if they follow the long-term trend, with a peak-loss scenario as high as USD $320 billion. That underlines the continuing need for better exposure data, adaptation, risk mitigation and products that address the protection gap in catastrophe-exposed regions. (Source: Swiss Re)
Geopolitical Risks
- Middle East shipping risk has remained highly sensitive. War risk premiums for Strait of Hormuz transits rose sharply earlier in the year, while London market bodies stressed that insurance remained available subject to risk assessment and pricing. By late June, oil prices had fallen back towards pre-conflict levels as vessels exited the Strait and supply concerns eased, but safety, insurance and mine-clearance issues continued to affect confidence. (Sources: Reuters, LMA [1], LMA [2])
- Political risk insurance is becoming more important for reconstruction and investment. In June, the US International Development Finance Corporation and the World Bank’s Multilateral Investment Guarantee Agency agreed to establish a political risk insurance framework to support private investment linked to Ukraine’s reconstruction. This is a reminder that insurance is increasingly being used not only to transfer risk, but to unlock capital in fragile or conflict-affected markets. (Source: Reuters)
Looking ahead: Market needs and insurance gaps
The rest of 2026 is likely to be shaped by a tension between abundant capacity and complex risk. Buyers may find more competitive pricing in property, cyber and financial lines, but difficult placements will still require careful broking, strong data and access to specialist capacity.
Several areas stand out for future market investment:
- AI and cyber coverage clarity: Clients need clearer answers on what is covered, excluded or silently accumulated across cyber, technology E&O, professional indemnity, crime, D&O and media liability. This is likely to become one of the defining wording issues of the next market cycle.
- Catastrophe protection and resilience: Severe convective storm, wildfire, flood and hurricane exposure continue to expose gaps in modelling, affordability and take-up. Parametric insurance, public-private schemes and better mitigation incentives are likely to remain important areas for development.
- Marine, trade and political risk solutions: Recent Middle East disruption and the Ukraine reconstruction framework show the growing need for flexible political risk, marine war, cargo, trade credit and supply-chain solutions. Capacity exists, but pricing and appetite can move quickly when geopolitical risk changes.
- Specialty growth and innovation: Research suggests that the global insurance market may grow at an annual rate of 5.3% over the next ten years, with P&C growth at 4.7%. Much of that growth is likely to come from areas where conventional cover is not yet keeping pace with client need: cyber, AI, climate adaptation, critical infrastructure, energy transition, life sciences, digital assets and complex global supply chains. (Source: Allianz)
Overall, Q2 2026 has been a buyer-friendlier quarter in many parts of the market, but not a risk-light one. The best outcomes will continue to depend on specialist placement strategy, transparent underwriting information, disciplined capacity and insurance solutions that are designed for the risks clients actually face now – not just the risks the market has historically found easiest to insure.
If you would like to discuss what these developments could mean for your placement strategy, renewal planning or access to specialist capacity in 2026, please get in touch with Costero Brokers or explore more insights on our website.
Disclaimer:
This market report was developed for reference only, and any prospective statements about possible future events or performance are based on developing factors regarding economic and business activity relevant to financial and insurance markets. Such prospective statements involve risk as actual results may differ materially from those expressed or implied due to future changes in relevant factors. We are not responsible for the accuracy of the third-party information cited herein and undertake no obligation to update any such data or prospective statements, nor do we in any way intend to provide legal, financial, or insurance advice regarding any existing or future litigation or other matter discussed or projected herein. Please seek the advice of your own professional advisors or counsel regarding your specific circumstances.
