[MONACO] Global reinsurance firms gathered in Monaco are hopeful premiums will stabilise in the coming year, although they expect competition to remain tough and returns low.
The US$600 billion reinsurance industry, which backstops insurers to help them pay for damage claims from hurricanes or earthquakes, faces its fifth year of falling premiums.
New investors are looking to compete for reinsurance business, including through so-called catastrophe bonds, amid low returns in more traditional investment markets.
That has put pressure on profits and prompted insurance companies - many of which are also in Monte Carlo this week to fix deals - to keep more risk, and profit, on their own books.
But Europe's top reinsurers said at their annual gathering on Monday that the worst was over.
Swiss Re and Hannover Re said they saw stabilisation in reinsurance prices, adding to Munich Re's view on Sunday that the pace of declines has been falling.
"The rate decreases have slowed down and we actually have seen a more flattish market," Ulrich Wallin, chief executive of Hannover Re, told a media briefing. "Things look a little more optimistic than a year ago...(but) we are not expecting a broad-based hardening of the market as yet," he added.
Ratings agencies, speaking ahead of the industry conference last week, said premiums could fall by up to 5 per cent next year, following similar price falls this year, which had hit returns.
Reinsurers' return on equity averaged 8.6 per cent at the end of June, down from 10.3 per cent at the end of 2015, ratings agency Moody's said in a report.
Given that pressure, ratings agency Fitch said on Monday that weak profitability would lead to a fresh wave of mergers and acquisitions globally in 2017, after high valuations had stalled deal-making in 2016.
"The worst-hit reinsurers are likely to be smaller, less diversified, and operating in markets where premiums have fallen to the point where they are barely covering the cost of capital," Fitch said. "These firms may become acquisition targets as stresses leave them more likely to accept lower valuations."