Soft Reinsurance Prices to Continue Until Year-End – at Least: Fitch

The soft pricing in the global reinsurance market will continue, at least for the rest of the year, according to Fitch Ratings.

Fitch expects premium rates to continue declining due to large amounts of under-deployed capital and sluggish demand from reinsurance buyers following several years of below-average catastrophe claims.

“Even if the cost of major losses returns to its historical average, prices are unlikely to rise materially given the abundance of capital in the sector,” said Fitch, noting catastrophe losses rose in 2016 to their highest level since 2012 but were still only marginally above the 10-year (2006-2015) inflation-adjusted average of $53 billion.

As a result, reinsurance pricing is likely to remain challenging at the mid-year 2017 reinsurance renewals, said Fitch in its report titled “Global Reinsurers: 2017 Forecast and 2016 Results.”

The soft premium rates and low investment yields will take a toll on the sector and are expected to weaken profitability this year — factors reflected in Fitch’s negative outlook for the sector.

However, Fitch expects the global reinsurance sector to remain profitable this year, although Fitch forecasts the sector’s combined ratio to deteriorate to 92.0 percent in 2017 from 91.5 percent in 2016. (These are accident-year ratios excluding catastrophes.)

Despite these pressures, Fitch affirms that most reinsurers it rates have stable outlooks but less diversified, smaller reinsurers “face a greater risk of negative rating actions if prices drop much further, particularly as pricing has already fallen close to the cost of capital.”