Global reinsurers' underwriting results deteriorated in H1 2014 due to increased non-catastrophe-related property losses and a higher underlying run-rate loss ratio, according to a newly-published Fitch Ratings report.
However, results were still profitable due to continued manageable catastrophe-related losses and sustained favourable loss reserve development.
The group of reinsurers that Fitch tracks generated a calendar-year reinsurance combined ratio of 87.4 percent in H1 2014, up from 85.9 percent for the comparable half-year earlier and 85.5 percent at year-end.
The weaker results also reflect a shift in business mix by traditional reinsurers away from the property catastrophe business, which historically has the highest margins, as competitive market pressures have pushed property catastrophe premium rates to inadequate levels.
Shareholders' equity showed a solid 13.9 percent increase over its H1 2013 position and growth of 5.2 percent since year-end 2013.
The adverse changes in the unrealised investment gain/loss position on fixed maturities during 2013 have largely reversed or turned favourable for non-life reinsurers in H1 2014, relieving some of the pressure from anaemic premium growth.
Fitch's global reinsurance sector outlook is negative, as the fundamentals of the reinsurance sector have deteriorated with declining premium pricing and weakening of terms and conditions across a wide range of lines.
Current market conditions have been deemed unlikely to improve in the near future by Fitch, “given the continuing competitive reinsurance market environment”.
This bleak outlook is also shared by A.M. Best, which revised its outlook for the reinsurance sector to negative earlier this month, citing the significant ongoing market challenges that could hinder the potential for positive rating outlooks and upgrades.
