Fitch says renewal rates have “yet to reach a floor” and has maintained its negative outlook for the reinsurance sector.

The agency warns it may initiate negative ratings actions on some property and casualty (P&C) reinsurers if premiums continue to fall.

The flood of insurance-linked securities into the capital pool and weak investment yields will keep prices depressed, as seen at the crucial January contract renewals.

“The January renewal season demonstrated that market pricing for global P&C reinsurance has yet to reach a floor,” Fitch says.

“Current pricing levels only barely exceed some reinsurers’ cost of capital, so further material price drops, or disorderly competition in the market, could lead to negative rating actions on P&C reinsurers.

“The current macro operating environment is likely to extend beyond a normal soft market cycle, with the continued growth of alternative capital, changes in the purchase and distribution of reinsurance and increased regulatory costs creating significant challenges.”

Fitch expects investment returns to remain close to historic levels this year and mergers and acquisition activity to continue, particularly among smaller and mid-tier Bermuda-based specialist reinsurers.