For 2018, Fitch Ratings forecasts a return on equity (ROE) of 7.1% for its group of non-life reinsurance companies, which, while profitable, is only just above the estimated 6% to 7% cost of capital.
The international financial services ratings agency underlines persistent underwriting and investment stress for global reinsurers, exacerbated by the ongoing low interest rate environment and third-quarter catastrophe losses, the latter of which is expected to drive higher reinsurance rates at 1/1 2018, and beyond.
Net income ROE in 2017 for the group of reinsurers is expected to fall to 2.1% from the 8.5% reported in 2016, and while this is forecasted to improve, Fitch warns that positive earnings will likely barely be above the cost of capital in 2018.
Fitch discussed previously that the impacts of third and fourth-quarter catastrophe events meant it has maintained its negative reinsurance sector outlook, while its ratings outlook remains stable.
Fitch expects a 2018 combined ratio for the group of roughly 96%, based on an average level of market catastrophe losses.
“The underlying combined ratio should improve slightly in 2018 as reinsurance market pricing appears to have reached a bottom in 2017 and is expected to turn positive in 2018,” said Fitch.
