The soft market will fuel further mergers and acquisitions among reinsurers this year, according to Fitch Ratings.

Smaller, less diversified players are seeking to merge or acquire to gain scale and diversity, it says.

Apart from rates pressure, other factors encouraging greater scale include centralised purchasing by large insurers and increased regulation pushing up costs.

“Reinsurers have seen a rise in fixed costs as they develop modelling and risk management expertise to manage oversight and reporting requirements for incoming risk-based solvency regimes, including Solvency II,” Fitch says in a report.

The ratings agency forecasts further price softening this year in the absence of major losses.

In January XL Group announced it will acquire Catlin, and Axis Capital and PartnerRe agreed to merge.