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Global reinsurance outlook stable, investment environment remains a challenge: Fitch


August 29, 2013   by Canadian Underwriter


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Fitch Ratings issued a stable outlook for global reinsurance ratings on Thursday, saying it expects to affirm most of its current ratings in 2014.

Global reinsurance outlook stable, investment environment remains a challenge: Fitch

Capital strength and continued profitability have allowed for the outlook, the firm said. Apart from a major natural catastrophe, the key factors that could affect the sector include the persistent low-yielding investment environment and falling prices, Fitch added.

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

The firm also said it expects broader softening of prices at the Jan. 1 renewal period and beyond, assuming no major loss events. Premium growth is likely to continue into 2014, although prices are expected to fall in the absence of a major loss event.

“There is likely to be a disparity in overall pricing movements, but soft market conditions are likely to broaden to more product classes,” added 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.”

The firm also said it expects reserves to develop favourably overall, but the level of surplus to decline somewhat, adding pressure to run-rate profitability.

To move the outlook from stable to negative (with more negative rating actions), a single loss event of $60 billion, combined with a sudden interest rate increase, although Fitch said such a scenario would be rare.


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