Reinsurers head-to-head with P&C cycle

Managing the property and casualty cycle is said to be the most difficult endeavor that reinsurers will face throughout 2006 and 2007, according to a recent report published by Fitch Ratings Agency.
The report “Reinsurance Review and Outlook: Cycle ManagementA Bumpy Ride Ahead,” says that over this two-year period, operating and capital trends “will generally support reinsurers’ current ratings.” However, it also says that the reinsurance market will find it difficult to identify at what point a line of business is no longer truly profitable, at which point the business line would need to be “exited or de-emphasized.”
Depending on the average general catastrophe experience, the report indicates that the reinsurance sector will have strong 2006 results that will, for the most part, be driven by the current pricing environment and the prospect of “comparatively modest” adverse reserve development.
The reinsurance industry has, Fitch says in the report, been very resilient even after last year’s mega catastrophe losses.
Currently, Fitch says the trend is to model their exposures to more severe and frequent catastrophic events. This, Fitch adds, means reinsurers may have moved away from proportional reinsurance covers to excess of loss protection. The reason for this move, Fitch reports, is that in excess of loss reinsurers can retain more control over pricing and coverage.