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Fitch maintains negative outlook on reinsurance

Fitch Ratings' fundamental outlook on the reinsurance sector remains negative, while Moody's has a stable outlook on the sector.

Recent catastrophe losses representing a meaningful percentage of capital for some reinsurers led to negative outlooks for several companies' ratings, Fitch said in a report. The majority of reinsurer ratings outlooks remain stable, but Fitch's fundamental outlook for the reinsurance sector is negative as it expects low prices and low investment yields to pressure reinsurer profitability.

Fitch does expect reinsurance rates to rise somewhat, particularly in U.S. catastrophe-exposed lines and in the retrocessional market, as a result of major catastrophe events in the third quarter. But the extent of the rise in prices will depend on how well the insurance-linked securities market can invest more capital in reinsurance, Fitch said.

Moody's has a stable outlook on global reinsurers despite the heavy third-quarter losses, reflecting their strong capital positions, the rating agency said separately. A Moody's survey of reinsurance buyers showed that global reinsurers are also "more optimistic" about pricing, since they expect rates to harden following the third-quarter losses, and more recently the California wildfires. About half of the respondents expect prices to rise about 7.5% or more for the 2018 renewal.

"Reinsurer balance sheets remain resilient, as reinsurers have maintained sizable capital buffers and reduced exposure to property-catastrophe risk in line with declining price adequacy," Brandan Holmes, a vice president and senior analyst at Moody's, said in a statement.

The stable outlook for reinsurers is also supported by the M&A activity within the sector, Moody's said, noting that it removed some smaller or weaker reinsurers from the market and lifted the average credit profile of the remaining companies.