2007 reinsurance outlook stable

A.M. Best Co.s 2007 outlook for the global reinsurance sector is stable, changing from a negative outlook originally assigned nearly two years ago.This outlook revision implies that the majority of 2007 reinsurer rating actions are likely to be affirmations with stable outlooks and only a modest amount of anticipated rating or outlook changes, A.M. Best noted in a press release. However, should price deterioration and competition persist at a faster pace than anticipated, the outlook could be revised back to negative by the end of the year.A.M. Best said it changed its outlook in part because of the very strong 2006 full-year financial performance of reinsurers, with many carriers reporting record earnings. It is A.M. Bests expectation that the sector is poised for a profitable 2007, given the potential for favorable underwriting margins in many lines of business and reinsurers reporting strong operating cash flow that will likely fuel investment income generation, the ratings agency noted in a press release. Moreover, reinsurers are entering this softening phase of the market with replenished balance sheets due to earnings and improved loss reserving positions.While A.M. Best expects that 2007 should be another good year for the sector, the eventual outcome as always will be based on how well reinsurers manage their catastrophic exposures relative to capital at risk, given that the benign catastrophe season is unlikely to be repeated in 2007.There is an additional cautionary note, A.M. Best noted. The optimism for longer-term robust performance from the reinsurance sector is somewhat dimmed due to the resounding sentiment that market conditions will continue to deteriorate, particularly for non-catastrophic exposed business lines, it said. Additionally, many cedants enjoying the strongest industry results in decades continue to retain more risk, thereby reducing the overall demand for reinsurance.