Fitch reiterates negative outlook for global reinsurance sector

by Artemis on April 22, 2014

Fitch Ratings has reiterated its negative outlook for the reinsurance sector in a report today, citing developing market trends which have caused a deterioration of the reinsurance markets core fundamentals.

Standard & Poor’s was the first of the rating agencies to place a negative outlook on the reinsurance sector, saying that competition, high levels of reinsurance capital and the resulting softening reinsurance market would pressure reinsurers ratings as we move through 2014.

Fitch Ratings followed suit a few days later with a similar sentiment in a report on the Bermuda reinsurance market. Now Fitch has reiterated the negative reinsurance sector outlook for in a report on the global reinsurance sector published today.

While Fitch’s report states that reinsurers posted solid underwriting gains in 2013, saw low levels of losses and favourable loss reserve development, helping them to improve combined ratios, the rating agency warns that the outlook is not looking bright for global reinsurers.

Fitch notes that prices have continued to drop and that increased competition from alternative reinsurance capital from third-party investors is one of the factors pushing this decline. The fundamentals of the global reinsurance sector have deteriorated, said Fitch, citing declining premium pricing and the weakening of terms and conditions across a wide range of reinsurance lines of business.

Fitch said that it views current reinsurance market conditions as unlikely to improve in the near term given the continuing competitive reinsurance market environment. Hence the negative reinsurance sector outlook. However it should be noted that Fitch’s rating outlook for reinsurance remains stable, which means that it expects the majority reinsurance ratings will continue to be affirmed over the next year or so.

Fitch’s report is just the latest warning that the pressures facing reinsurers could be worsening. Fitch itself said a fortnight ago that it expects reinsurance prices to drop by double-digits at the upcoming June renewals. Rating agency Moody’s Investor Services also agrees that the outlook is looking tougher, saying recently that reinsurance downside risks are growing and that the June renewals will test reinsurers.

Read the report from Fitch Ratings via its press release here.

Here are a selection of recent articles from Artemis which discuss these reinsurance market trends and its outlook:

The capitalisation of the reinsurance business is changing.

Reinsurance downside risks grow, June renewals will test: Moody’s.

Consolidation ahead for smaller reinsurers: Munich Re CFO.

Reinsurance prices to drop by double-digits at June renewals: Fitch.

Alternative reinsurance capital grew 28% to $50 billion in 2013: Aon Benfield.

Capital market threat could be reinsurance game-changer: A.M. Best.

Watford Re, and start-ups, a blank canvas for reinsurance innovation.

Reinsurance renewal prices fall by as much as 20% across sector.

Alternative reinsurance capital to grow to $100 billion: BarCap.

April’s reinsurance renewals to show alternative capitals influence.

Traditional reinsurers challenged to compete on cost-of-capital .

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