Hard market is 'past its peak': Fitch Ratings
The hard market is "past its peak" for Bermuda re/insurers, and rates pressure and increased losses are likely to squeeze underwriting profits, according to Fitch Ratings.
The agency's 2025 outlook said it expected strong investment returns should offset some of the deterioration on the underwriting side.
As a result, Bermuda re/insurers will continue to produce favourable returns in 2025 as underwriting discipline is maintained.
The report said the industry’s combined ratio would approximate 90% for 2024, an increase from 86.5% in 2023. Catastrophe losses will represent 7-8 percentage points on the 2024 combined ratio, up from 3.2 points in 2023.
“The January 2025 reinsurance renewal demonstrated that the reinsurance market cycle is past its peak, with stable to softening pricing as increased supply was more than adequate to meet higher demand,” the report said.
“Fitch expects market conditions to soften further at the 2025 midyear renewals, although risk-adjusted returns will remain favourable as underwriting discipline is maintained.”
Fitch said Guy Carpenter’s Global Property Catastrophe Reinsurance Rate on Line Index declined 6.6% at the January 2025 renewals, the first decline in eight years. However it said, the index remains favourable, just below the level reached after the pricing reset in January 2023. It grew 71% between 2017 and 2024.
The report said Bermuda market will have “a meaningful share” of insured losses from the recent California wildfires for both primary business and reinsurance.
“However, we do not expect ratings to be affected given plentiful capital levels,” the agency added. “The potential impact on reinsurance renewal pricing from the fires will depend on the ultimate level of loss and the remoteness of such an event relative to catastrophe loss expectations.”
The report was guardedly optimistic on the insurance-linked securities market, saying it was expected to see further growth in 2025 after a strong 2024.
“Barring significant losses, the ILS market is anticipated to be resilient over the near term,” the report said. “However, emerging risks, such as cyber, may grow but will lack meaningful participation until confidence in modelling these threats improves.
“ILS capital support remained very strong in 2024. Increased alternative reinsurance capacity reflected the exceptionally favourable rate environment for property catastrophe risks in 2024, following the significant price correction in the prior year and the corresponding attractive expected returns available in the market.
“Catastrophe bond returns were particularly strong in 2024, with investors benefiting from attractive yields on recently issued transactions and the generally higher positioning of the catastrophe bonds in cedent catastrophe reinsurance towers.
“Limited recent loss activity for catastrophe bonds with per occurrence triggers reflects the generally remote attachment points used in the market. However, ILS capacity supporting aggregate reinsurance has come under pressure from heightened severe storm activity in the US and, more recently, wildfires in California.”
Shareholders’ equity grew 18% at after the first three quarters of 2024 compared to December 31, 2023 due to underwriting gains, solid investment income, and equity and bond market gains, partially offset by an increased return of capital to shareholders.
ROAE will be favourable in 2024 at near 18%, although down from the superb 25.4% in 2023.
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