The outlook for the global reinsurance industry remains stable, and reinsurance rates have begun to harden for regions and lines of business hit by natural catastrophe losses, Standard & Poor's Corp. said Tuesday in a report.

Despite record catastrophe losses in the first half, the reinsurance industry's capitalization remains strong, Dennis Sugrue, an analyst at Standard & Poor's in London, said during a briefing Tuesday.

But the recent losses will dent the sector's profitability in 2011, and continued reserve releases—which have helped boost reinsurers' profits in recent years—are unsustainable, S&P said.

Rate increases are being seen in regions and lines of business that have been hit hardest by catastrophes this year such as earthquakes, S&P said, but price hikes are likely to be “uneven” for the rest of the year.

“Pricing improvements have been spotty,” said Mr. Sugrue, but rate declines have ended in most lines of short-tail business, he said.

In addition, the recent changes to Risk Management Solutions Inc.'s hurricane model will contribute to rate hikes at Jan. 1 renewals, he added.

Reinsurers' returns are “uneconomic” on some long-tail classes, such as most casualty lines of business, S&P noted.

But the reinsurance industry is well-positioned to withstand further catastrophes, and Mr. Sugrue noted that there still is excess capital in the industry. In addition, reinsurers' enterprise risk management strategies have stood up well, and most have adequate reinsurance protection for the rest of the year, he said.

Challenges remain

While S&P's outlook on the sector remains stable, reinsurers do face challenges, Mr. Sugrue said, including low interest rates limiting investment income.

The increased frequency and severity of catastrophes coupled with low investment margins may mean that some investors would be reluctant to “reload,” or put more capital into reinsurers in the event of another major catastrophe.

It would likely take an event that wiped out 5% to 10% of reinsurers' capital to affect financial-strength ratings, Mr. Sugrue said.