The biggest challenge facing reinsurers over the next one to two years is managing the property/casualty cycle, claims a report by Fitch Ratings.

According to the report, entitled “Reinsurance Review and outlook: Cycle Management – A Bumpy Ride Ahead”, over this period, operating and capital trends “will generally support reinsurers’ current ratings.”

However, “reinsurers will be challenged to identify when lines of business are no longer technically profitable and therefore need to be exited or deemphasised, a skill that has proven to be elusive for many in the past,” claims Fitch.

The report says that “subject to average catastrophe experience, Fitch expects the reinsurance sector to post strong results in 2006, mainly driven by the current pricing environment and the prospect of ‘comparatively modest’ adverse reserve development.”

The report notes that the reinsurance sector “proved extremely resilient” despite last year’s catastrophe losses.

In addition, it notes that “reinsurers are modelling their exposures to more severe and frequent catastrophic events” and that they have moved away from proportional reinsurance covers to excess of loss protection, “where they have more control over pricing and coverage.”