Intense competition, sluggish cedent demand and an “onslaught” of alternative capital have left the global reinsurance sector with a negative outlook, according to Fitch.

The ratings agency expects prices will continue to fall and terms and conditions will weaken into next year across a growing range of business lines.

Fitch has held a negative outlook on the sector since January. 

However, it maintains a stable rating outlook. The agency expects most reinsurers will maintain adequate profitability and strong capitalisation over the next year to 18 months. 

“Any declines in earnings will be within ranges that current ratings can tolerate,” Fitch says.

Ratings for most reinsurers are expected to be unchanged, but there is “heightened risk” that a select group of smaller “monoline” companies could suffer downgrades.

Larger, more diverse reinsurers are better able to withstand softening market conditions.

Fitch has recently upgraded Hannover Re, Lloyd’s and XL, while Swiss Re, Scor and Arch Capital have positive outlooks.

Smaller reinsurers’ limited scale can reduce their ability to influence prices and terms and conditions, Fitch says. They also find it more difficult to withdraw from unattractive market segments or diversify into new lines.

Those with a bias towards property catastrophe are most vulnerable to a protracted period of price softening.

Fitch expects the sector to remain profitable next year but at a reduced level, with the combined operating ratio set to deteriorate to 95.7% from a forecast 89% this year and 85.5% last year.

Non-life reinsurers’ marginal reinsurance net premium written grew 2.6% in the first half of this year.