Fitch: Global Reinsurance Ratings Outlook Remains Stable

September 3, 2008

An analysis of the global reinsurance sector from Fitch Ratings London office concludes that the outlook “”remains stable.” Fitch said it “believes that individual companies’ operating performance, capitalization, and anticipated market conditions, despite their deterioration over the past year, will continue to support current ratings over the next 12-18 months.”

The rating agency also forecasts continued underwriting profits in 2008 in the non-life reinsurance sector, “assuming ‘normal’ catastrophe-related losses.” Fitch has concluded that despite “declining investment income and capital flows out of the sector,” non-life reinsurers have “generally maintained underwriting discipline,” which is “likely to be maintained over the next 12-18 months.”

Mark E. Rouck, Senior Director in Fitch’s Insurance rating group, added: “While underwriting margins are likely to continue to erode over the near-term, unless there is a major catastrophe event, the sector will continue to generate reasonable returns on capital,” says “Fitch does not see a ‘tipping point’ in the foreseeable future at which reinsurers’ operating performance and market conditions no longer support a Stable rating Outlook.”

For life reinsurers, Fitch said it “believes that market conditions and individual companies’ performances will remain largely unchanged over the near-term. The agency has heightened concerns about life reinsurers’ asset quality in the face of deteriorating credit and financial market conditions but these concerns do not appear significant enough to affect the rating outlook.

“Nevertheless, market conditions in both life and non-life reinsurance are closer to those that would cause Fitch to revise its rating outlook to negative than they were at this time in 2007.”

David Stephenson, Director in Fitch’s Insurance Rating Group, indicated: “The reinsurance sector is not emerging from the last twelve months completely unscathed. Underwriting and investment conditions are clearly less favorable than they were a year ago, and capital cushions have been partially eroded. While Fitch does not expect the cyclical deterioration in market conditions to be deep or prolonged enough to change its Rating Outlook to Negative, the deterioration is closer to such conditions than it was a year ago.”

For non-life reinsurers, conditions that could push the outlook to negative include deep and prolonged soft market conditions, especially if coupled with investment market or “shock” catastrophe-related losses. While the agency does not believe that projected market conditions over the next 12-18 months constitute a “deep and prolonged” soft market they are closer to such conditions than they were a year ago.

For life reinsurers, the outlook could change to negative if widespread declines in asset-quality or fundamental changes in factors affecting product demand, such as a significant change in regulatory reserving requirements or a dramatic increase in the use of substitute products, were expected. Although the agency does not believe that asset-quality will deteriorate to the point that it affects the rating outlook, asset-quality in the first half of 2008 has deteriorated.

Fitch’s special report, entitled “2008-2009 Global Reinsurance Review and Outlook” is available on its web site at:

Source: Fitch Ratings

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