Fitch gives global reinsurance sector a “stable” outlook

Fitch Ratings’ has given the global reinsurance sector a “stable” rating outlook.
The agency says it “believes individual companies’ operating performance, capitalization and anticipated market conditions, despite their deterioration over the past year, will continue to support current ratings over the next 12-18 months.”
Fitch predicted the non-life reinsurance sector would generate an underwriting profit in 2008, assuming “normal” catastrophe-related losses.
“Non-life reinsurers have generally maintained underwriting discipline,” Fitch says in its report, entitled 2008-2009 Global Reinsurance Review and Outlook. “Given pressures such as declining investment income and capital flows out of the sector, Fitch believes this discipline is likely to be maintained over the next 12-18 months.”
Although underwriting margins are likely to continue to erode over the near-term unless there is a major catastrophe event, the sector will continue to generate reasonable returns on capital,” says Mark E. Rouck, senior director in Fitch’s insurance rating group. “Fitch does not see a ‘tipping point’ in the foreseeable future at which reinsurers’ operating performance and market conditions no longer support a stable rating outlook.”
Nevertheless, conditions now in non-life reinsurance are closer to those that would cause Fitch to revise its rating outlook to negative than they were at this time in 2007.
“The reinsurance sector is not emerging from the last 12 months completely unscathed,” says David Stephenson, the director of Fitch’s insurance rating group. “Underwriting and investment conditions are clearly less favourable than they were a year ago, and capital cushions have been partially eroded.
“While Fitch does not expect the cyclical deterioration in market conditions to be deep or prolonged enough to change its rating outlook to negative, the deterioration is closer to such conditions than it was a year ago.”
For non-life reinsurers, conditions that could push the outlook to negative include deep and prolonged soft market conditions, especially if coupled with investment market or “shock” catastrophe-related losses, Fitch says.