Fitch Rating has set a negative forecast for the year ahead in its 2017 outlook report, predicting a continued decline of premium rates, with soft pricing prevailing in the global reinsurance market.
The soft pricing is driven by a continued over demand of capital, sluggish reinsurance purchasing, and several years of below-average catastrophe claims – despite last year seeing catastrophe losses reach their highest level since 2012.
Profitability is predicted to be weakened, with combined ratios expected to deteriorate down to 92% from 91.5% in 2016 as premium rates and investment yields decline, but the agency believes most reinsurers are expected to maintain credit metrics and ratings despite the challenges.
“Most ratings therefore have Stable Outlooks. Some smaller reinsurers with limited business diversification could face negative rating actions if prices drop much further, particularly as pricing has already fallen close to the cost of capital,” said Fitch Ratings.
Increased share buy-backs, special dividends and M&A activity are on the cards for the year ahead, as soft market conditions make organic growth increasingly challenging, and Fitch Ratings noted that the trend of share repurchases continues on from last year; “led by Swiss Re, which doubled its buy-backs to the largest in the sector, ahead of Munich Re and XL. Notable M&A activity this year includes Sompo’s acquisition of Endurance, and Fairfax’s planned acquisition of Allied World.”
