Fitch Ratings Statement On Bermuda Re/Insurers
“Bermuda [re]insurers’ underwriting profitability is likely peaking at current levels, as price increases moderate and loss-cost inflation persists,” Fitch Ratings says.
The ratings agency said, “However, returns will continue to be favorable as market conditions remain attractive, with the negative effect of natural disasters on catastrophe claims reflected in pricing in 2024.
“For Bermuda-based [re]insurers followed by Fitch, the meaningful underwriting improvement seen in 2023 will be limited in 2024 as premium rate increases decelerate. The hardening market continued at the January 2024 reinsurance renewal, with flat to up in most lines as the supply/demand imbalance narrowed, supported by relatively limited new capacity entering the market and deteriorating loss-cost trends from social inflation.
“We expect market conditions to remain favorable at the 2024 midyear renewals, although with stabilizing rates as pricing is generally sufficient. [Re]insurers are also expected to mostly maintain the tighter terms and conditions negotiated in 2023.
“The underlying combined ratio is expected to stabilize or improve slightly in 2024, as rate increases wane and loss-costs continue to increase. The combined ratio will approximate 85%–86% for 2023, a meaningful improvement from 92.7% in 2022. Catastrophe losses will represent 3–4 percentage points on the 2023 combined ratio, down sizably from 9.8 points in 2022.
“Shareholders’ equity grew 23% at 9M23 from YE 2022, with ROAE comfortably above the cost of capital, and expected to approach 20% in 2023. Returns were driven by increased underwriting and investment income, equity market gains and stabilization of unrealized bond losses. Capital levels were supported by common equity issuances to support growth, and reduced return of capital.
“Bermuda’s implementation of a 15% corporate tax will marginally reduce its economic advantage but the island’s established position in the global [re]insurance marketplace will likely endure. Additionally, the recent life insurer-focused solvency review also will help the domicile maintain its Solvency II [S2] equivalence with the EU.”
