Fitch Ratings sees no end in sight for soft pricing in the reinsurance market.

The credit rating agency believes the soft market will last through to the end of this year at least, driving more companies to seek merger partners.

“We expect premium rates to continue declining, due to large volumes of under-deployed capital and sluggish demand from reinsurance buyers following several years of below-average catastrophe claims,” Fitch stated.

“Even if the cost of major losses returns to its historical average, prices are unlikely to rise materially given the abundance of capital in the sector.

“Catastrophe losses rose in 2016 to their highest level since 2012, but were still only marginally above the ten-year (2006-2015) inflation-adjusted average.”

Fitch, which has a negative outlook for the sector, said it expected reinsurers’ profitability to weaken further as premium rates and investment yields decline.

Despite this pressure, Fitch has a stable outlook for most of the reinsurers it rates as it expects them “to maintain credit metrics in line with their ratings over the next 12 to 18 months, with capital typically above our rating guidelines”.

Fitch added: “Some smaller reinsurers with limited business diversification could face negative rating actions if prices drop much further, particularly as pricing has already fallen close to the cost of capital.

“Strong capital and lack of organic growth opportunities are likely to drive further share buy-backs, special dividends and mergers and acquisitions.”

The biggest deals of this year in the Bermuda market have seen Endurance acquired by Japanese giant Sompo and Allied World agree to be acquired by Canadian firm Fairfax.