September 3, 2014 / 3:47 PM / 3 years ago

Fitch: Softening Market for Global Reinsurers Amid Intense Competition & Sluggish Cedent Demand

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(The following statement was released by the rating agency) Link to Fitch Ratings' Report: 2015 Outlook: Global Reinsurance here LONDON, September 03 (Fitch) Fitch Ratings says its sector outlook for the global reinsurance industry is negative, as intense market competition and sluggish cedent demand has resulted in a softening market for reinsurers. In addition, the high level of alternative capital leads us to expect that prices will continue to fall, and that terms and conditions will weaken into 2015 across a wider range of business lines. Despite growing headwinds, Fitch maintains a stable rating outlook. This assumes the base case scenario that over the next 12-18 months a majority of reinsurers will be able to maintain overall adequate profitability and strong capitalisation despite softening prices, and that any declines in earnings will be within ranges that current ratings can tolerate. While ratings for most reinsurers are expected to be unchanged, there is heightened risk a select group of smaller monoline companies, especially those with property catastrophe books, could be downgraded or have their Outlook revised to Negative. In aggregate, this may be offset by selective upgrades of a small group of well-established larger and more diversified players that are viewed as most resilient to market conditions. The persistence of low investment yields increases the risk of adverse investor behaviour as both reinsurers and investors seek higher returns. The inflow of alternative capital has included select use of hedge fund-based investment strategies, which not only impact their balance sheet quality, but are designed to provide a pricing advantage for the reinsurer that can aggravate softening markets. Alternative reinsurance and changes in reinsurance purchasing are likely to have long-term implications. The growth of alternative capital is viewed as a credit negative for traditional reinsurers' ratings, as a significant portion of capital-market funds is expected to remain permanent. Thus, Fitch views the current soft market as not just a normal cycle but a sign of a structural change. The full report, '2015 Outlook: Global Reinsurance' is available at www.fitchratings.com or by clicking the link above. Contact: Martyn Street Senior Director +44 20 3530 1211 Fitch Ratings Limited 30 North Colonnade London E14 5GN Brian Schneider Senior Director +1 312 606 2321 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: elaine.bailey@fitchratings.com. Additional information is available at www.fitchratings.com. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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