Fitch: Improved Pricing, Performance In 2023
“Bermuda [re]insurers expected improved underwriting performance in 2023 will be driven by accelerating premium rates with a market reset in pricing, terms and conditions, even amid heightened catastrophe losses, inflation and economic uncertainties,” according to Fitch Ratings.
A statement from the ratings agency said, “Underwriting performance is poised to improve further this year, as accelerated premium rate increases outpace loss-cost inflation. The hardening market is supported by deteriorating loss-cost trends with high economic and social inflation. [Re]insurers have demonstrated very strong underwriting discipline in an effort to improve sustainability of underlying profitability, having suffered poor performance since 2017 amid elevated catastrophe losses.
“For eight Bermuda-based [re]insurers that Fitch follows, the 2022 combined ratio will approximate 93%-94%, slightly better than the 95.0% posted through 9M22 and 95.9% in 2021. Catastrophe losses will represent 10–11 percentage points on the 2022 combined ratio, primarily from Hurricane Ian.
“Fitch expects pricing to remain favorable through midyear 2023 renewals, particularly in the dislocated Florida market exacerbated by Hurricane Ian. Market pricing surged at the January 2023 reinsurance renewal, shifting to a true hard market in property and some specialty lines with supply constrained and demand growing. Importantly, terms and conditions saw structural changes that benefited [re]insurers.
“Shareholders’ equity declined 22% in 9M22 from YE 2021 as underwriting gains were more than offset by net unrealized investment losses on bonds as interest rates rose. However, most companies hold bonds to maturity and would thus not expect to realize losses, except under a stress liquidity event.
“Bermuda sector M&A was muted in 2022, as companies favored organic growth amid increased reinsurance volatility. However, M&A could resume on favorable performance in primary specialty lines and robust reinsurance renewals that improved expected returns for catastrophe risk and supported [re]insurers’ equity market valuations.
“Fitch maintains neutral fundamental sector outlooks on both global reinsurance and U.S. property/casualty insurance. These sectors include coverage for Bermuda market [re]insurers.”
