Fitch Ratings says its outlook for the global reinsurance sector remains stable, as capital, underwriting and operating trends are expected to support reinsurers’ current ratings over the next one to two years. Fitch anticipates further strengthening of the sector’s already strong capitalisation and continued premium growth into 2013. However, says Chris Waterman, managing director in Fitch’s EMEA Insurance rating group: “While 2012 earnings are likely to improve, low investment yields and questions over the sustainability of prior-year reserve surpluses will make it more challenging for reinsurers to maintain profitability levels in 2013.” Fitch expects price increases to slow, with the supply of reinsurance forecast to exceed demand across most classes in the next 12 months. However, in Fitch’s view, pricing remains adequate to support profitability across most reinsurance classes. Reinsurers are likely to maintain underwriting discipline in 2013 as they continue to be cautious after the high losses of 2011 and uncertainty continues about the global macroeconomic outlook.
The high cost and difficulty of replacing lost capital are also likely to reinforce caution among reinsurers. Fitch expects reserves to develop favourably for most classes, but the level of surplus being generated by prior years is expected to decline somewhat, which will add pressure to run rate profitability. “A further catastrophic loss coupled with an inability for reinsurers to replenish lost capital is the most likely threat to the sector’s stable outlook at this time,” said Martyn Street, director in Fitch’s EMEA rating group. “Historically, this has been a rare combination.” A single loss event of US$60 billion would be likely to trigger a sector outlook revision, in Fitch’s view. This estimate has been revised upwards from $50 billion, reflecting the strengthening of the sector’s capitalisation. Meanwhile, Aon Benfield has recently released the latest edition of its Aon Benfield Aggregate (ABA) report, which analyses the financial positions of some of the world’s leading reinsurance companies for the first half of the year. It is estimated that total global reinsurer capital totaled a record US$480 billion on 30 June, an increase of five per cent relative to 31 December 2011. The firm’s latest study found that capital reported by the ABS group of publicly reporting reinsurers rose by $15 billion to $286 billion. Further key findings of the study show that gross property and casualty insurance and reinsurance premiums written by the ABA rose by six per cent to $92 billion, while net premiums written rose by five per cent to $76.3 billion. Mike Van Slooten, head of Aon Benfield’s international market analysis team, said: “In stark contrast to the prior year, the relatively low level of insured catastrophe losses in the first half of 2012 allowed most ABA companies to report good earnings and consequent capital growth.”