Global Reinsurers’ Earnings to Stay ‘Under Pressure,’ Fitch Says

Earnings of reinsurers such as Munich Re and Swiss Re Ltd. will probably remain “under pressure” as price increases become less likely because of the economic slowdown, Fitch Ratings said.

“Earnings prospects for the global reinsurance industry remain uncertain due to pressure on investment income, premium price adequacy and dwindling reserve surpluses,” the ratings company said in an e-mailed statement today. “After unprecedented catastrophe losses in 2011, Fitch expects earnings to gradually recover in 2012 if catastrophe losses normalize.”

Natural disasters, including the earthquake and tsunami in Japan, cost insurers and reinsurers, which help them shoulder risks for clients, about $70 billion in the first half of this year, according to estimates by Guy Carpenter & Co., the reinsurance brokerage of Marsh & McLennan Cos.

Fitch is keeping its outlook for the global reinsurance sector at “stable” because of the industry’s capital strength and projected underwriting and operating trends, it said.

“The recent downward revision of economic growth expectations by several major economies is expected to reduce demand for primary insurance and therefore makes it less likely that reinsurers will be able to raise rates,” said Chris Waterman, head of insurance ratings for Europe, the Middle East and Africa at Fitch.

Reinsurers will meet with clients in Monte Carlo from Sept. 10 to begin negotiations for the January renewals of annual property and casualty reinsurance contracts. Talks will continue in October in Baden-Baden, Germany.

“Reinsurance pricing is at a crossroads, and an upturn in pricing is the factor most likely to improve the sector’s medium-term earnings prospects,” Waterman said. “Reinsurers’ ability to raise prices into 2012 will mainly depend on the extent of catastrophe losses occurring during the remainder of the year.”

To contact the reporter on this story: Oliver Suess in Munich at osuess@bloomberg.net

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net Edward Evans at eevans3@bloomberg.net

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