TEXT-Fitch: global reinsurance outlook remains stable, pricing to stagnate

Fri Jan 25, 2013 11:45am EST

Jan 25 - Fitch Ratings says its outlook for the global reinsurance sector
remains stable, as capital, underwriting and operating trends are expected to
support reinsurers' current ratings over the next one to two years. Fitch
anticipates further strengthening of the sector's already-strong capitalisation
and continued premium growth into 2013.

"While 2012 earnings are likely to improve, low investment yields and questions
over the sustainability of prior-year reserve surpluses will make it more
challenging for reinsurers to maintain profitability levels in 2013," says Chris
Waterman, Managing Director in Fitch's EMEA Insurance rating group.

Fitch expects price increases to slow, with the supply of reinsurance forecast
to exceed demand across most classes in the next 12 months. However, in Fitch's
view, pricing remains adequate to support profitability across most reinsurance
classes.

Reinsurers are likely to maintain underwriting discipline in 2013 as they
continue to be cautious after the high losses of 2011 and uncertainty continues
about the global macroeconomic outlook. The high cost and difficulty of
replacing lost capital are also likely to reinforce caution among reinsurers.

Fitch expects reserves to develop favourably for most classes, but the level of
surplus being generated by prior years is expected to decline somewhat, which
will add pressure to run rate profitability.

"A further catastrophic loss coupled with an inability for reinsurers to
replenish lost capital is the most likely threat to the sector's stable outlook
at this time," says Martyn Street, Director in Fitch's EMEA rating group.
"Historically, this has been a rare combination."

A single loss event of USD60bn would be likely to trigger a sector outlook
revision, in Fitch's view. This estimate has been revised upwards from USD50bn,
reflecting the strengthening of the sector's capitalisation.

Additional information is available at www.fitchratings.com.
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