Another tough year looms for reinsurers after the sector failed to achieve significant rate rises in the January renewal season.

The result will be even more mergers and acquisitions, moves by reinsurers into more profitable arms of the industry and a focus on getting closer to customers.

S&P Global Ratings says in a report released today that global pricing in aggregate was flat to 3% up, dealing a blow to reinsurers’ hopes of a strong boost from two straight years of above-average natural catastrophe losses.

Last year ranked as the fourth-highest loss year on record. Natural catastrophes racked up $US80 billion ($112 billion) in insured losses, and reinsurers will absorb about a quarter of the bill.

“During the past two years, the global reinsurance sector had no respite,” S&P says. “The global reinsurance sector continues to weather unfavorable and continuously difficult business conditions.

It says any of the minimal rises experienced in the January renewals were “not strong enough to alleviate some of the competitive pressures, as soft pricing endures and the influx of alternative capital will continue to test reinsurers' business models”.

The difficult environment, compounded by the continuing influx of capital from large investors like pension fiunds, has forced the sector to rethink its strategies for the short and long term.

Many reinsurers have pursued mergers and acquisitions, axed under-performing units and diversified into less-commoditised lines of businesses.

“To defend their competitive positions, reinsurers have pursued transformative and tactical bolt-on acquisitions while enhancing their value propositions, a trend we expect will continue [this year],” S&P says.

“The top reinsurers have succeeded by focusing on client relationships and recognising the need to act as both a capacity provider and a risk partner, with the ability to offer customisable solutions to clients.”

S&P expects the catastrophe bond market to continue growing, with investors becoming more comfortable with new risks such as wildfire and flood.

There was about $US29 billion ($40.1 billion) of cumulative risk capital outstanding at the end of last year, up from $US25 billion ($35.1 billion) in 2017.

“The catastrophe bonds' terms and conditions are converging with those of the traditional reinsurance market, with upward pressure on pricing expected given the recent losses,” S&P says.