Global Reinsurers’ Price Hikes Not Sustainable But Profitability to Improve: Fitch

Fitch Ratings’ outlook for global reinsurance remains negative given intense market competition, the influx of alternative capital that continues to pressure pricing and persistently low investment yields that strain reinsurer profitability.

However, Fitch expects to affirm the majority of its ratings over the next 12 to 18 months given the strong capitalization of most rated entities, the analysts said.

Fitch sees reinsurer profitability improving in 2018, reflecting the normalization of catastrophe losses and marginally improved pricing. The global (re)insurance industry endured record catastrophe losses of $144 billion in 2017, driven by hurricanes Harvey, Irma and Maria, as well as California wildfires and Mexican earthquakes. Fitch forecasts the underlying accident-year reinsurance combined ratio excluding catastrophes to improve slightly to 92.1 in 2018 versus 92.6 in 2017, reflecting marginal price improvement.

Despite record catastrophic losses in 2017, rate increases were modest, and the softness of April renewals indicates that price improvement may not be sustainable. According to Fitch analysts, the influx of alternative capital limits cyclical price rebounds historically seen after periods of severe catastrophe losses.

Fitch said ROE should rebound in 2018, with modest growth in equity capital levels and an improvement in underwriting results. Investment results and earnings from outside non-life reinsurance should continue to offset potential underwriting losses, which were exacerbated in 2017 by high catastrophe losses and lower reserve releases.

Fitch said it sees continued mergers and acquisitions activity given limited organic growth opportunities and competitive market conditions, with larger (re)insurers as better positioned to succeed amid difficult market fundamentals.

Topics Catastrophe Pricing Trends Reinsurance