Fitch Sees Reinsurer Sector Ratings As Stable

Fitch Ratings' London office said over the next 12-to-18 months it expects ratings for the global reinsurance sector to remain stable.

The agency said it believes that individual companies' operating performance, capitalization and anticipated market conditions, despite their deterioration over the past year, will continue to support current ratings.

Fitch said it believes that the non-life reinsurance sector will generate an underwriting profit this year, assuming “normal” catastrophe-related losses.

The firm noted that non-life reinsurers have generally maintained underwriting discipline. Given pressures such as declining investment income and capital flows out of the sector, Fitch said it believes this discipline is likely to be maintained over the next 12-to-18 months.

Mark E. Rouck, senior director in Fitch's Insurance rating group, said: “While underwriting margins are likely to continue to erode over the near term, unless there is a major catastrophe event, the sector will continue to generate reasonable returns on capital. Fitch does not see a 'tipping point' in the foreseeable future at which reinsurers' operating performance and market conditions no longer support a stable rating outlook.”

Fitch also said it believes that market conditions and individual companies' performances will remain largely unchanged over the near term for life reinsurers.

The agency expressed “heightened concerns” about life reinsurers' asset quality in the face of deteriorating credit and financial market conditions but said these concerns do not appear significant enough to affect the rating outlook.

However, market conditions in both life and non-life reinsurance, Fitch said, are closer to those that would cause the firm to revise its rating outlook to negative than they were at this time last year.

In the opinion of David Stephenson, director in Fitch's Insurance Rating Group, “The reinsurance sector is not emerging from the last twelve months completely unscathed. Underwriting and investment conditions are clearly less favorable than they were a year ago, and capital cushions have been partially eroded.”

He said that while Fitch does not expect the cyclical deterioration in market conditions to be deep or prolonged enough to change its rating outlook to negative, “the deterioration is closer to such conditions than it was a year ago.”

For non-life reinsurers, conditions that could push the outlook to negative were listed as deep and prolonged soft market conditions, especially if coupled with investment market or “shock” catastrophe-related losses.

While Fitch said it does not believe that projected market conditions over the next 12-to-18 months constitute a “deep and prolonged” soft market, they are closer to such conditions than they were a year ago.

Fitch's special report, titled “2008-2009 Global Reinsurance Review and Outlook,” is online at www.fitchratings.com.