The reinsurance industry is in a state of transition as unutilized capital and the threat of alternative reinsurance providers, combined with slowing premium growth and sagging investment yields, have pushed a surge in market consolidation that is expected to continue.

Executive Summary

While a reduction in capacity from further consolidation could be a slight credit positive for the reinsurance sector, individual deals may be too expensive and could lack true strategic rationale, Fitch's Brian Schneider notes, as he reports the conditions fueling the M&A fervor.

Favorably, industry underwriting results remain profitable. But further pricing pressure will add increasing difficulty for reinsurers to generate an adequate return on capital. Recent strong performance is driven in part by below-average catastrophe-related losses and sustained favorable loss reserve development. Inevitably, a large catastrophe loss event will materialize and reserve releases will run dry.

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