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Reinsurer profits set to decline, Fitch warns

Profits among global reinsurers will decline year over yearin 2016 as mounting pressure in underwriting and investment results combinewith shrinking opportunities to deploy capital, Fitch warned.

However, the sector will likely remain profitable overall,the rating agency said in a May 5 report.

The underlying accident-year combined ratio excludingcatastrophes should deteriorate in 2016 as premium rate pressures impactunderwriting margins, Fitch said. The combined ratio is a measure of insurerprofitability, calculated by adding operating costs and claims losses, anddividing them by premiums. Fitch expects the decline in premium rates tomoderate, however.

Nonlife reinsurers saw a modest decline in underwritingresults in 2015 but the sector was able to book profits as natural catastrophelosses ran below the average.

Capital declined over the year as a result of investmentlosses on fixed maturities and share repurchases, but reinsurance capacityremains ample.

Fitch has a stable ratings outlook for the reinsurancesector, anticipating sustained profitability by most insurers and balance sheetstrength over the next 12 to 18 months. Itsfundamental outlook on the sector has been negative since January 2014.