Fitch: Global Reinsurers' 1H17 Results Reflect Pricing Pressure

Global reinsurers' 1H17 results provide further evidence of continuing pressure on pricing and earnings, Fitch Ratings says. Intense competition among global reinsurers and the abundance of capital invested in the sector mean pricing will continue to weaken, with low investment yields putting further strain on profitability. The sector outlook remains negative and we expect consolidation as reinsurers have little opportunity for organic growth.

Non-life reinsurance underwriting profits fell in 1H17 due to lower surpluses from prior-year reserves. Most companies were hit by the cut in the Ogden discount rate for UK liability business, which will lead to higher lump-sum payments being calculated for long-term care costs or lost earnings.

But underwriting was still profitable, helped by lower catastrophe-related losses. Worldwide natural catastrophe insured losses were USD19.5 billion, 39% down on 1H16 (USD32 billion) and 33% below the 10-year first-half average (USD29 billion).

Shareholders' equity grew by 2.5% in 1H17, with underwriting profits slightly exceeding share repurchases and shareholder dividends. Reinsurance capacity remains ample.

There was record issuance of catastrophe bonds in 1H17, driven by demand from capital market investors attracted to reinsurance risk to diversify their exposure.

The rating outlook for the global reinsurance sector remains stable, driven particularly by very strong capitalisation. But further deterioration in profit metrics could result in negative rating actions.

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