Ratings agency Standard & Poor’s (S&P) says continued rate increases in the global reinsurance market have failed to stem the downward pressure on ratings, and the market outlook remains negative for the sixth successive year.

Despite further price increases on 2003 renewals, “the market continues to suffer from a diminished quality of capital, reduced financial flexibility, prior-year liabilities, the overhang of reinsurance recoverables and the likelihood that many companies’ operating performance will fall short of expectations,” S&P analyst Stephen Searby said in London.

“To compound the pressure on ratings, the hard market conditions of recent years have proved difficult for reinsurers to capitalise on. While participants need to rebuild and restructure their capital bases and put in place foundations to reduce future loss volatility, the ease of entry for new players and increased competition in the market have dampened the ability of existing players to recover.”

The performance of the big four reinsurance groups – Munich Re, Swiss Re, Employers Re, and General Re, representing 32.3% of the market – has been lackluster he said. But there is a “broad divergence in the fortunes of the industry”.

“Many established Bermuda-based operations have fared much better than the big groups, and these in turn have been outperformed by the more recently formed companies,” Mr Searby said. “The results indicate that the ability to write business opportunistically is a key competency for success, with those reinsurers that have been able to step in and out of business lines faring well.”

By contrast, the larger groups which have tended to be more relationship-based have been slower to move out of unprofitable lines of business and have been impeded by longer lines of communication.

Rates in many casualty classes continue to rise, but there are already signs that certain sectors of the global market have peaked. “US property, global property/catastrophe, retrocession, and aviation lines have reached or passed their peak,” he said.