Ratings Agencies Expect Reinsurance Premiums to Continue Dropping in 2017

Reinsurance premiums are likely to continue to fall next year, ratings agencies said on Tuesday, following years of weaker prices due to competition in the sector and a lack of natural catastrophe losses.

Reinsurers act as a financial backstop for insurance companies, helping them pay for large damage claims from hurricanes or earthquakes in exchange for part of the premium.

High returns in the sector in comparison with puny interest rates in the developed world have encouraged new players to compete for reinsurance business, while a relatively low number of major natural catastrophes has depressed the prices households and businesses are prepared to pay for protection.

“The soft reinsurance market is a bit deeper and longer than many people expected a few years ago,” S&P Global Rating’s senior director Dennis Sugrue told a media briefing.

“We don’t see any real let-up in sight.”

S&P said in a report prices were likely to fall 5 percent in 2016, with Sugrue seeing price declines of up to 5 percent next year.

Fitch senior director Martyn Street told a separate briefing he expected “low single digit” percentage declines in prices in 2017.

Fitch said in a report published on Tuesday that lower pricing would contribute to “lower profits for a significant number of reinsurers in 2017.”

Reinsurance industry executives gather in Monte Carlo next week for their annual meeting.

(Reporting by Carolyn Cohn; editing by Mark Potter)