Bermuda Re/Insurers Fight Strong Undercurrent
“Despite its best efforts, negative trends in the results of Bermuda market insurers and reinsurers have become increasingly evident, with the average return on equity continuing a steady decline since 2013 to 7.0% in 2016,” according to a new A.M. Best briefing.
The Best’s Briefing, titled, “Bermuda Market [Re]Insurers Continue To Fight the Strong Undercurrent of a Challenging Market,” states that the drying up of favorable reserve development slowly started to emerge in year-end 2016 results, as favorable reserve development as a percentage of net premiums earned fell below 6.0% for the first time in the current five-year period. Additionally, return on revenue also is on a declining trend, showing that the Bermuda market is struggling to generate profits sufficient to cover the cost of capital.
“The Bermuda market is putting capacity to work and in 2016 it saw an 8.6% increase in property/casualty net premiums written, its largest uptick in the current five-year period,” the company said.
“Additionally, the Bermuda market’s total revenue and collective shareholders’ equity each increased by roughly $4 billion in 2016, even after returning approximately $4 billion to shareholders. Nevertheless, profitability has not been trending in the same direction. The market’s combined ratio showed a third straight year of deterioration, to 92.7 in 2016 from 91.1 in the previous year.
“A.M. Best maintains a negative outlook on the global reinsurance sector. Potential merger & acquisition activity still looms over the Bermuda market, as conditions remain ripe for another spurt of activity, although, timing of it is difficult to predict.
“Questions as to how the market will turn linger, with participants largely conceding that hardening across most lines of business is unlikely. In the absence of some market-changing event, the Bermuda market will need to balance innovation and discipline for the foreseeable future.
