The third quarter of 2026 has underlined a growing tension in the global insurance market. Capital is plentiful and pricing is becoming increasingly competitive, but the risks that insurers are being asked to cover are becoming more interconnected and difficult to predict.
Property and catastrophe pricing continues to soften, while US casualty remains under pressure. Insurers and reinsurers are reporting strong underwriting results, yet falling rates, higher energy costs, geopolitical disruption and rapidly evolving AI risks are creating new challenges. For brokers, MGAs, insurers and insurtechs, this makes disciplined underwriting and access to specialist capacity as important as ever.
The UK and Global Economy
- UK growth continues, but inflation has moved higher. UK GDP grew by 0.4% in Q2 2026 and by 0.4% in July alone, while GDP in the three months to July was also 0.4% higher than in the preceding three months. However, CPI inflation rose from 2.9% in July to 3.1% in August, with motor fuels making the largest upward contribution. Petrol averaged 161.3p per litre in August and diesel 181.8p, their highest levels for several years. Higher fuel, energy and input costs matter for insurers through repair costs, business interruption, claims inflation and the wider affordability of insurance. (Sources: UK Office for National Statistics on GDP and inflation)
- Interest-rate expectations have shifted as energy prices rise. The Bank of England held Bank Rate at 3.75% in September, but senior policymakers subsequently warned that persistent energy-driven inflation could require tighter monetary policy. For insurers, higher-for-longer rates can support investment yields, but can also create volatility in fixed-income portfolios while increasing financing costs for businesses and households. (Source: Reuters)
- The global economy has proved more resilient than expected, although risks remain substantial. The Organisation for Economic Co-operation and Development (OECD) now expects global GDP to grow by 2.9% in 2026 and 3.0% in 2027. Strong AI-related investment has helped offset some of the effects of higher energy costs, although long-term interest rates in many economies have reached their highest levels for at least 15 years. For the insurance sector, this creates a mixed environment of continued exposure growth alongside higher financing, replacement and operating costs. (Source: OECD)
Insurance Industry Developments
- Commercial insurance pricing is softening faster. Global commercial insurance rates fell by an average of 6% in Q2, following a 5% fall in Q1 and marking the eighth consecutive quarterly decline. Property rates dropped by 12% globally and by 11% in the UK. Casualty remained the exception: global casualty pricing increased by 2%, with US casualty rates up 7% as claims severity and litigation continued to influence underwriting. The description “soft market” therefore hides increasingly different conditions between classes and territories. (Source: Insurance Journal)
- Competition is beginning to affect underwriting terms as well as price. Increased capacity has allowed some clients to obtain broader coverage, higher limits and lower retentions. However, catastrophe accumulations, systemic risks and casualty severity remain areas of close scrutiny. For brokers, stronger market competition creates opportunities to reconsider programme structure as well as negotiate premium reductions. (Source: Insurance Journal)
Underwriting Performance
- Lloyd’s of London produced another strong underwriting result despite falling rates. Gross written premium reached GBP £34.7 billion in the first half of 2026, up 6.9% year on year, while underwriting profit increased to GBP £1.9 billion. The combined ratio improved from 92.5% to 90.8%, helped by relatively modest major losses. However, Lloyd’s underlying combined ratio increased from 82.1% to 84.0% as risk-adjusted rates declined by 6.7%. Profit before tax fell from GBP £4.2 billion to GBP £3.5 billion, partly because higher bond yields created unrealised fixed-income losses. (Source: Lloyd’s)
- US P&C underwriting profitability has also strengthened considerably. The US property and casualty sector generated a net underwriting gain of USD $31.7 billion in the first half of 2026, compared with USD $11.6 billion a year earlier, while after-tax net income rose 53% to USD $77.8 billion. Policyholder surplus increased to USD $1.30 trillion. However, excess liability, umbrella and commercial auto continue to face pressure from claim severity, large court awards and medical costs. (Source: Insurance Journal)
Tech, Cyber and AI Developments
- Autonomous AI is creating a new cyber-insurance wording challenge. Insurers are reviewing how policies respond when an autonomous AI agent causes damage without a conventional human attacker or an obvious initial security breach. Industry discussions increasingly focus on whether AI should be treated simply as another tool used in a cyber incident, or whether some autonomous actions and systemic AI failures require distinct cover. With the global cyber insurance market estimated at almost USD $15 billion and forecast to approach USD $28 billion by 2030, wording clarity is likely to become increasingly important. (Source: Reuters)
- AI is also changing the economics of cyber attacks. IBM’s 2026 Cost of a Data Breach research found that one in four malicious breaches studied were AI-enabled, 56% more than in the previous year. These incidents cost affected organisations an average of USD $6 million, compared with a global breach average of USD $4.99 million. At the same time, organisations using AI and automation extensively in security operations achieved substantially lower breach costs. This makes AI both an emerging exposure and an increasingly important risk-management tool. (Source: IBM)
- The regulatory framework for AI is becoming more tangible. Transparency obligations under the EU AI Act began applying on 2 August 2026, alongside enforcement of several other provisions affecting providers and deployers of AI systems. Insurers, brokers and MGAs using customer-facing or operational AI increasingly need to consider compliance alongside cyber security, data governance and professional liability. (Source: European Commission)
Reinsurance Market
- Record capital is increasing competitive pressure. AM Best estimates dedicated reinsurance capital has grown from USD $607 billion in 2024 to USD $663 billion in 2025, and is projected to reach around USD $705 billion by the end of 2026. Unlike some previous soft cycles, much of that additional capital has been generated through retained underwriting profits, investment returns and third-party capital rather than large numbers of new reinsurers entering the market. That may help preserve underwriting discipline, but competition for attractive business is increasing. (Source: Insurance Journal)
- July renewals provided further evidence of falling prices. Munich Re reported a 5.5% decline in the price level of its portfolio at the 1 July renewals and reduced the volume written by 9.1%, declining business that did not meet its pricing or terms requirements. The experience illustrates the balancing act facing reinsurers: competing in a well-capitalised market while maintaining technical adequacy. (Source: Munich Re)
- Further softening appears likely ahead of 2027 renewals. In a Fitch survey, 60% of respondents expected property catastrophe reinsurance rates to fall and 86% expected terms and conditions to loosen. Cedants may therefore have opportunities to buy additional protection or restructure programmes, although loss-exposed and difficult risks will remain more selectively treated. (Source: Artemis)
Natural Catastrophes
- The first half of 2026 was relatively benign, but the underlying loss trend has not disappeared. Swiss Re estimates global insured natural-catastrophe losses of USD $42 billion for H1, the lowest first-half figure since 2020 and below a trend estimate of USD $66 billion. Severe convective storms remained the largest insured-loss driver at around USD $28 billion. However, growing asset values, urbanisation and changing hazard patterns continue to increase long-term exposure. (Source: Swiss Re Institute)
- European wildfires highlighted an important protection gap during Q3. Severe fires affected several European countries over the summer, with estimates that fires in France could cause EUR €10–15 billion in total economic losses, including several billion euros of insured losses. Across Europe, only around a quarter of climate-related losses between 1980 and 2024 were insured. As wildfire exposure extends into areas without a long insurance-loss history, modelling, pricing and affordability are becoming increasingly important issues. (Source: Reuters)
- Modelled catastrophe-loss expectations continue to rise. Data firm Verisk now estimates that insurers should be prepared for modelled average annual global insured catastrophe losses of around USD $171 billion – which is USD $19 billion higher than its previous annual estimate. This is a useful reminder that a relatively quiet individual year or hurricane season does not necessarily represent a reduction in underlying risk. (Source: Insurance Journal)
Geopolitical Risks
- Marine war-risk insurance became significantly more expensive during Q3. Quoted war-risk premiums for Saudi-linked tankers calling at the Red Sea port of Yanbu rose from below 1% of vessel value in early July to around 3% in September, while quotes for some ports further south reached 7%. Comparable premiums for Strait of Hormuz voyages were reported at 6–9%. With war-risk pricing commonly reviewed every 24 hours, marine insurance costs can change rapidly alongside security conditions, adding complexity for shipowners, cargo interests and global supply chains. (Source: Reuters)
- Conflict continues to affect industrial assets and trade routes beyond shipping itself. Repeated attacks led steelmaker ArcelorMittal to halt operations at Ukraine’s largest steel plant in September, with the company expecting to recognise a non-cash impairment charge of around USD $1 billion. Ukraine is also considering alternative export routes through Baltic ports as disruption to Black Sea ports increases logistics costs. These developments reinforce the relevance of political violence, property, business interruption, cargo, trade credit and political-risk solutions for businesses with complex international exposures. (Sources: Reuters on industrial disruption and trade routes)
Looking ahead: Market needs and insurance gaps
As the market heads towards 2027, abundant capital should continue to create opportunities for insurance buyers. But several areas still require investment, product development and specialist underwriting expertise:
- AI-related coverage clarity: Autonomous AI challenges conventional assumptions about who or what causes a loss. Cyber, technology E&O, professional indemnity, intellectual property, crime and D&O policies will increasingly need clearer treatment of AI-generated events and potential accumulation across multiple covers. (Source: Reuters)
- Climate resilience and the protection gap: Wildfire, flood, severe convective storm and other climate-sensitive perils continue to expose gaps between economic and insured losses. Better modelling, mitigation incentives, parametric products and public-private approaches could all play a greater role as conventional insurance becomes more difficult or expensive in some high-risk areas. (Source: Swiss Re Institute)
- Casualty capacity: Property buyers are benefiting from significantly greater competition, but US excess liability, umbrella and commercial auto remain comparatively difficult. Rising claim severity means casualty is likely to remain an area where experienced underwriting and carefully structured capacity are particularly valuable. (Source: Insurance Journal)
- Marine, political violence and supply-chain risk: Q3 demonstrated how quickly disruption to a strategic shipping route or energy asset can alter insurance costs and supply chains. Flexible marine war, cargo, political violence, trade credit and business interruption solutions will remain important as clients seek protection against risks that can change much faster than an annual insurance cycle. (Source: Reuters)
Overall, Q3 2026 has been characterised by strong insurance-sector balance sheets and increasing competition, but also by a widening range of complex and interconnected risks. In this environment, lower premiums alone do not necessarily represent better insurance. For brokers, insurers and MGAs, the opportunity is to use increased capacity to improve coverage and programme design while maintaining the underwriting discipline needed for risks that continue to evolve rapidly.
If you would like to discuss what these developments could mean for your placement strategy, renewal planning or access to specialist capacity, 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.
