Negative outlook for global reinsurance sector: Fitch

The outlook on the global reinsurance sector remains negative, due to potential inability of reinsurers in the current economic environment to replenish capital if they suffered large catastrophe losses, according to Fitch Ratings.
Historically, this heightened vulnerability for the reinsurance sector has not existed to the same extent, says Fitch’s 2009-2010 Global Reinsurance Review and Outlook.
Because of this, the ratings agency says it believes there is an elevated possibility reinsurers could be forced to operate for a prolonged period with weaker capital basis.
“Fitch’s concern about restricted capital market access is a consequence of global economic weakness and the significant disruption to capital markets over the past 12 months,” the report notes. “These were key considerations in Fitch’s October 2008 decision to revise the reinsurance sector’s rating outlook to negative from stable.
“Volatile conditions in capital markets persist and continue to create uncertainty over the availability and affordability of new capital in the event of significant need.”
Nevertheless, Fitch still believes the sector will be among the first in its universe of coverage to return to a stable rating outlook.
“In general, reinsurers have weathered the severe financial storm better than their primary market peers,” the report points out. “Fitch attributes this to reinsurers’ generally high-quality investment portfolios and low asset leverage.”