High capacity, decreasing demand bode ill for reinsurers: Moody's

The 2016 outlook for the global reinsurance sector is negative due to excess capacity and a drop in demand from primary insurers, Moody’s Investors Service Inc. said.

In its “Reinsurance – Global 2016 Outlook,” Moody’s said Wednesday that conditions in the reinsurance market remain challenging.

An “abundance of reinsurance capacity and decrease in demand from primary insurers,” together with “sustained pressure on pricing and erosion of terms and conditions,” support a negative outlook on the sector, Moody’s said.

At least part of that abundant capacity comes from alternative capital.

“Alternative capital is increasingly embedded and presents both a threat and an opportunity,” Moody’s said, without elaborating.

While reinsurers have released reserves in recent years to prop up results, such releases could become an Achilles’ heel, Moody’s said.

Further, “reserve releases and benign cat losses obscure the extent of deterioration in earnings,” Moody’s said. “Reserve releases can mask the impact of lower pricing and/or loss development trends.”