The worldwide reinsurance industry is expected to remain profitable this year, but a series of challenges could prompt reinsurers to focus on underwriting discipline, a rating agency said in an analysis released Wednesday.

Fitch Ratings Ltd. said its outlook for reinsurers is stable and the industry is likely to remain profitable this year.

In the report, Fitch Ratings said it expects the industry, which had a combined ratio of 100.6% for the first half of the year, to post a combined ratio below 100% for the year—absent any major catastrophes.

The first half of 2010 saw the largest insured loss of any first-half in recorded history at $22 billion, said Chris Waterman, a managing director at Fitch Ratings in London.

Despite the losses and the uncertainty surrounding potential liability claims stemming from the April sinking of the Deepwater Horizon oil rig, the market has continued to be soft except in lines and geographical areas directly affected by losses, according to Fitch.

Reinsurers’ earnings are, however, expected to come under increasing pressure against a background of softening rates, a reduction in prior-year reserve releases, and low interest rates, Mr. Waterman said.

A loss of about $30 billion to $40 billion could have a material effect on the reinsurance industry and prompt an increase in rates, said Mr. Waterman, who added that the impact of Hurricane Earl was not yet known.

Low interest rates mean that it is becoming increasingly difficult for reinsurers to generate large investment returns. As a result, underwriting discipline will be a critical factor for reinsurance companies during the next two years or so, Mr. Waterman said.

In addition, there may be a “flight to quality” among cedents seeking to place their reinsurance programs with highly rated reinsurance companies as part of their response to the European Union’s Solvency II risk-based capital regulatory regime, the rating agency said.

Solvency II is slated for introduction in December 2012 and may prompt increased demand for insurance-linked securities, Mr. Waterman said.

The report, “Global Reinsurance Review and Outlook,” is available to subscribers at www.fitchratings.com.