LONDON, Sept 7 (Reuters) - Reinsurance premiums could fall by up to 5 percent next year and may continue to weaken into 2018, pressured by competition in the sector, ratings agency Moody’s said on Wednesday.
Reinsurers act as a financial backstop for insurance companies, helping them pay for large damage claims from hurricanes or earthquakes in exchange for part of the premium.
High returns in the sector in comparison with low interest rates in the developed world have encouraged new players to compete for reinsurance business. A relatively low number of major natural catastrophes has also depressed the prices households and businesses are prepared to pay for protection.
“Prices will continue softening through 2017 and possibly even 2018,” senior Moody’s analyst Brandan Holmes told a media briefing, adding price falls of up to five percent in 2017 would be similar to declines seen this year.
Holmes’ comments echo remarks this week from rival ratings agencies Fitch and S&P Global.
Low interest rates are also hitting insurers’ investment returns, putting additional pressure on profitability, Moody’s said in a report on Wednesday.
Reinsurers’ return on equity averaged 8.6 percent at the end of June, down from 10.3 percent at the end of 2015, Moody’s said.
Reinsurance industry executives gather in Monte Carlo next week for their annual meeting. (Reporting by Carolyn Cohn; Editing by Mark Potter)