Fitch: Global reinsurance outlook remains stable

By Rebecca Zuill

Fitch Ratings have forecast that insurance pricing will decline, while their outlook for global reinsurance sector ratings is stable. The agency expect to affirm most of their current reinsurance ratings in 2014.

Capital strength and continued profitability are the reasons for their confidence in the reinsurance sector. "In the absence of a major catastrophe, a persistent, low-yielding investment environment and falling prices are the key factors that could lead to a deterioration of the sector’s credit profile," they stated.

"In order to trigger a sector outlook revision from stable to negative, a single loss event of $60bn, coupled with a sudden spike in interest rates of 300bp or more and an inability for reinsurers to replenish lost capital would be necessary.

"This would likely result in negative rating actions." Fitch said they considers such a combination to be rare.

"The investment environment is likely to provide the greatest challenge to the reinsurance sector in 2014," says Martyn Street, co-head of Reinsurance at Fitch. "We expect continued low interest rates, which will make it more challenging for reinsurers to achieve similar 2014 profitability to that forecast for 2013."

Fitch stated they expect broader softening of prices at the key January 1 2014 renewal and beyond, assuming no significant loss events take place, due to surplus underwriting capacity.

While premium growth is likely to continue into 2014, in the absence of a major loss event, prices are expected to fall.

"There is likely to be a disparity in overall pricing movements, but soft market conditions are likely to broaden to more product classes," says Brian Schneider, co-head of Reinsurance at Fitch. "While Fitch expects prices to remain adequate across major classes, underwriting discipline will be tested.

"We also expect continued competition between traditional and alternative reinsurance."

Fitch expects reserves to develop favourably overall, but the level of surplus is expected to decline somewhat, adding pressure to run-rate profitability.




Source: The Royal Gazetteonline