Despite catastrophe losses, the outlook for the reinsurance market is stable, according to several rating agency reports issued last week.

The reports noted that reinsurers continue to face challenges but also continue to report adequate capital. In some cases, prices are rising.

For example, Oldwick, N.J.-based A.M. Best Co. Inc. noted in a report both “hopeful signs” and uncertainty affecting the sector related to developments such as catastrophes, regulatory changes and pricing.

Rates on large property catastrophe reinsurance programs have risen by up to 60% in Japan and Australia, according to Best. Jan. 1, 2012, reinsurance renewals in Europe may reveal more of the extent of the market turn from the effects of recent losses, and catastrophe modeler Risk Management Solutions Inc.'s new RiskLink Version 11 hurricane model will be factored into prices then, Best said.

Meanwhile, New York-based Moody's Investors Service Inc. revised its outlook on the global reinsurance sector to stable from negative. In a statement, Moody's said the change reflects “momentum for a hardening in reinsurance rates, a refocusing on the value of reinsurance, and the good risk management and discipline across the sector in response to recent catastrophe events.”

These positive trends look to neutralize the challenges facing the global reinsurance industry over the next 12 to 18 months, Moody's said in the report.

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

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.

Reinsurers continue to report adequate capital despite catastrophe losses, Aon Benfield Analytics said in a report last week.

The reinsurance unit of Chicago-based brokerage Aon Corp. analyzed the financial position of 28 global reinsurers, including Germany-based Munich Reinsurance Co. and Zurich-based Swiss Reinsurance Co. Ltd., as of June 30. The reinsurers collectively had a pretax profit of $809 million for the first half of the year, down 95% from the same period in 2010.

Nonetheless, the group of reinsurers in the Aon Benfield Aggregate—or ABA—reported capital totaling $242.4 billion as of June 30, a 1.7% decline since the end of 2010.

“Despite the elevated level of catastrophe losses over the past 18 months, financial-strength ratings have remained broadly unchanged, reflecting continued robust capital positions,” Mike Van Slooten, international head of Aon Benfield Analytics' international market analysis team, said in a statement.

Still, reinsurers face continued challenges. Best said several factors have given rise to uncertainty, including the possibility of delaying implementation of the new Solvency II risk-based regulatory regime. “Talk of a delay points to mixed consequences for global companies and their regulators,” Best said in the report.

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.