Moody’s Investors Service Inc. has changed its outlook for the global reinsurance sector to stable from negative, with balance sheet strength the key factor underpinning the stable outlook, the ratings agency said in a new report Wednesday.

Although “the operating environment for reinsurers remains negative, with an excess of supply over demand weighing on prices … we believe reinsurers are adjusting to these challenges, and that their sustained balance sheet strength and disciplined underwriting will support their current ratings,” New York-based Moody’s said in its Global Reinsurance Outlook report.

Capitalization will endure through pricing challenges, Moody’s said.

“Reinsurers are holding more capital for strategic reasons, ensuring that balance sheets remain strong,” Moody’s said. “We expect further deterioration in profits over the next 12 to 18 months, but that capitalization will remain robust.”

Capital strength makes reinsurers resilient, according to the Outlook.

“Our evaluation of reinsurers’ capitalization, including their economic capital models, is that they remain well capitalized and are resilient to a range of stress scenarios,” Moody’s said, adding that the “industry as a whole is sufficiently well capitalized to absorb the financial hit from Hurricane Harvey.”

There has been a continued influx of alternative capital into the industry, which has increased its share of total available capital to 14.2% as of the end of first quarter 2017, up from 8.7% at the end of 2012, according to Moody’s.

The pace of pricing declines is expected to slow, according to Moody’s.

“While reinsurance prices continue to decline, the pace of the decline has slowed, and we expect it to slow further in 2018,” Moody’s said, adding that the view is supported by its Reinsurance Buyer Survey, in which the majority of responding cedents said they expect “a continued slow decline in property reinsurance prices” of 0% to 5%.

The industry, however, has seen declining profitability over the past few years.

“Reinsurers’ profitability has fallen steadily since 2013,” Moody’s said. “The median ROE (return on equity) for our cohort of reinsurers fell to 8.1% for the 12 months ending 30 June 2017, from 12% in 2013.”