Ratings agencies Moody’s and Fitch have lowered their global reinsurance sector outlooks as pricing eases in property following gains in recent years.

Moody’s has changed its outlook to stable from positive as the supply and demand balance shifts in favour of buyers.

“Capacity in the traditional market is plentiful and capital inflows to the alternative markets, particularly catastrophe bonds, are also pushing prices lower,” it says.

“Nonetheless, risk-adjusted returns in property reinsurance remain attractive and we expect profitability to be strong over the next year.”

Casualty prices continue to rise, although the adequacy of US loss reserves remains a risk amid higher claims from increased litigation and settlement costs.

Reinsurers’ strong balance sheets support their ability to expand in well-priced lines and provide a buffer against risks from severe catastrophe losses or significant loss reserve strengthening, Moody’s says.

Fitch has reduced its global reinsurance outlook for next year to deteriorating, from neutral this year.

Abundant capacity and competition are likely to bring gradual price erosion across most lines and looser policy terms in property, unless large loses in the second half deplete capital, it says.

“Softer pricing conditions since the 2024 peak and rising claims costs – notably from more frequent and severe catastrophe losses – will pressure underwriting margins in our base case. However, pricing remains high by historical standards, and resilient investment income still supports strong, albeit off-peak, profitability.”

S&P Global Ratings says despite pressure to broaden coverage and reduce attachment points, underwriting discipline has not wavered across the global reinsurance industry.

“Reinsurers also retained their robust capitalisation. These factors, combined with still favourable market conditions and the sector’s strong investment returns, support our stable sector view,” it says. 

S&P expects a moderate decline in pricing for short-tail lines in the upcoming renewals, but anticipates reinsurers will hold firm on terms and conditions.

The sector’s operating performance is forecast to remain strong through next year, continuing a trend started in 2023.

Despite natural catastrophes weighing on first-half results, the sector is expected to meet its cost of capital this year and the following year, S&P says.