Mega loss of $75bn needed to turn this market—Fitch

But, after the ‘unprecedented’ catastrophe losses that occurred mainly in the first quarter of this year and knocked profits badly, the credit rating agency said that it expects profits to ‘gradually recover’ in 2012, so long as catastrophe losses ‘normalise’. Fitch’s rating outlook for the global reinsurance sector remains stable, announced Fitch. The main reason for this is the strength of the industry's capital coupled with projected underwriting and operating trends over the next 12-24 months. The agency added that the reinsurers' resilience to this year's catastrophe losses reflects the ‘sizeable capital buffers’ accumulated from earlier profitable years and the effective use of retrocessional protection.hideFitch said that the most likely trigger for a negative rating outlook would be catastrophic losses big enough to erode over 10% of the reinsurance industry's capital combined with a shortage of replacement funds. The rating agency reckons that for that to occur, losses from a single event would probably need to exceed $75bn and capital markets would need to lose confidence in the sector, at least temporarily. “Such a combination would be rare,” stated Fitch. The agency added that two or three years of material underwriting losses outside of normal cyclical variations, or severe dislocations in the capital markets impacting reinsurers’ financial flexibility over longer periods, could also result in a negative outlook. “Moderate elevated catastrophe losses, or underwriting performance within normal cyclical variations, are typically not triggers for a negative outlook,” added Fitch. "Reinsurance pricing is at a crossroads, and an upturn in pricing is the factor most likely to improve the sector's medium-term earnings prospects," said Chris Waterman, Head of EMEA Insurance ratings at Fitch. "Reinsurers' ability to raise prices into 2012 will mainly depend on the extent of catastrophe losses occurring during the remainder of the year. The recent downward revision of economic growth expectations by several major economies is expected to reduce demand for primary insurance and therefore makes it less likely that reinsurers will be able to raise rates," he continued. "Fitch does not view Hurricane Irene as a market-changing event, but the storm adds to the unprecedented catastrophe losses incurred so far in 2011," said Martyn Street, Director in Fitch's insurance team. "It is unclear whether insurers will achieve meaningful premium price increases outside loss-affected lines," he continued. Fitch forecasts that the global reinsurance industry's combined ratio will deteriorate to 107.9% in 2011, from 94.7% at the end of 2010, based on its analysis of a group of reinsurance companies that it monitors. A full report on the outlook for the global reinsurance industry will be published in the coming days in time for the Monte Carlo Rendez-Vous, the annual meeting of the European and international insurance and reinsurance industry where discussion begins about the year-end reinsurance renewals. • Commercial Risk Europe will be at this year’s Rendez-Vous and will provide readers with the latest news and analysis from the meeting to help corporate insurance buyers work out what will ultimately happen to the terms and conditions they can secure in the coming months. Sign up for your free regular weekly web news and updates from key industry events from the CRE team here.

Mega loss of $75bn needed to turn this market—Fitch

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