The global reinsurance industry’s outlook has remained stable, according to a report by the Fitch ratings agency.

It says underwriting, operating and capital trends in the next two years will support current ratings, although it is likely the industry will have to face cycle management as an important challenge.

Insurance Group Senior Director Chris Waterman says downgrades are likely for underperforming reinsurers, and business modes will suffer during the cyclical downturn.

“Fitch typically views significant merger and acquisition activity and expansion beyond core competencies as an indication that reinsurers may be experiencing difficulty coping with cyclical underwriting conditions,” he said.

The report says the positive premium rate development through this year is about to ease, and capital will enter and leave the market. Moderate rate reductions are predicted through 2007 and 2008.

Last year’s hurricane losses in the US boosted reinsurance rates and put many reinsurers back in line to raise capital.

“Most reinsurers that suffered material capital declines were able to raise capital quickly, filling holes created by the hurricanes, and to position themselves to take advantage of the current hard market.”