Moody’s has maintained its negative outlook for the global reinsurance sector next year, as profitability buckles under the weight of intense competition.

The ratings agency says competitive pressures will push industry returns down towards or below reinsurers’ cost of capital.

It expects catastrophe rates to fall 10% and casualty reinsurance rates to drop by mid to high single digits.

“Traditional reinsurers are fighting over a declining number of contracts and at the same time losing market share to cheaper substitute products backed by alternative capital,” Moody’s VP and Senior Credit Officer Kevin Lee says.

“As a result, we don’t think the market is going to turn any time soon, barring some kind of large natural disaster or unexpected loss that changes buyers’ and sellers’ perception of risk.”

Reinsurers need a huge natural disaster or unforseen event to turn around their fortunes.

“Such events could either legitimise alternative capital or highlight its shortcomings, which would benefit the reinsurers – except many reinsurers have also bought protection from alternative markets.”