13th December 2017

Fitch updates Global Reinsurance 2018 Outlook to incorporate recent significant catastrophe losses
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Fitch Ratings has updated its Global Reinsurance 2018 Outlook to incorporate the significant catastrophe losses incurred from Hurricanes Harvey, Irma and Maria, coupled with the sizeable losses from the earthquakes in Mexico and wildfires in California.
The recent catastrophe losses represent a significant percentage of capital for some reinsurers, leading to negative outlooks for several companies' ratings. However, the very strong capitalisation of most rated entities means that they remain well positioned to take advantage of any pricing improvement at 1/1 renewals and beyond. Fitch believes however that significant development in loss estimates or additional large loss events before year-end could change the sector's rating outlook to negative from stable. The significant 3Q17 catastrophe losses will push the global reinsurance sector to an underwriting loss for the year, with a forecast 2017 aggregate combined ratio of 109.7 for Fitch's universe of monitored reinsurers, the weakest since 2011.
The majority of reinsurer rating outlooks remain stable. However, the ratings of XL Group Ltd and AXIS Capital Holdings Limited have recently been revised to Negative, while Lloyd's was maintained on Negative Outlook and Fitch believes that the 3Q17 catastrophe losses have placed further pressure on the Negative Outlook.
Fitch's fundamental outlook for the reinsurance sector remains negative. Intense market competition and the endurance of alternative capital have depressed prices in recent years. Low investment yields, which Fitch expects to persist, put further strain on reinsurer profitability.
Fitch expects reinsurance rates to increase as a result of the significant catastrophe events in 3Q17, particularly on US catastrophe exposed lines and in the retrocessional market. A key driver of the magnitude of future rate increases depends on the insurance-linked securities market's appetite to invest more capital in reinsurance. The amount of capital that remains "trapped" by lengthy claims settlements or protracted litigation, particularly in relation to Hurricane Harvey flooding losses, will also influence the degree that rates rise.
The full Outlook report is available at www.fitchratings.com

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