In a report published yesteday, Standard & Poor's Ratings Services said it expected reinsurers' excess capital to continue to drive modest rate rises, and that macroeconomic uncertainty, continued low investment returns, and diminished benefit from reserve releases would continue to put pressure on the sector's earnings for the next two to three years.
The rating agency added " We anticipate that reinsurers will have to seek out areas in which to generate profitability and differentiation, or risk being marginalized should the future bring pricing improvements or widespread hard market conditions. In our view, the global reinsurance sector has found itself in something of a holding pattern. For the most part, companies adopted a protective position to weather the conditions, but they cannot be complacent in the medium term if they are to thrive.
2011 presented the sector with several challenges, including record catastrophe losses around the globe, difficult investment markets, updates to vendor catastrophe models that raised questions about the way the industry viewed risk, and an increased regulatory burden. Despite this, the industry has remained strong. We believe that companies now have the opportunity to seek out areas of profitability and growth in an otherwise stagnant market. In the short term, reinsurers can provide solvency relief to cedants and exploit pockets of pricing dislocation, while in the long term, they could look to support the industrialization of emerging economies with insurance products."
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