Bermuda re/insurers are expecting improved underwriting performance in 2023, driven by accelerating premium rates, even amid heightened catastrophe losses, inflation and economic uncertainties, according to Fitch Ratings.
Its latest market update forecasts “a market reset in pricing, terms and conditions”, with underwriting performance poised to improve further this year due to premium increases outpacing rising losses.
“The hardening market is supported by deteriorating loss-cost trends with high economic and social inflation,” its analysis states. “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 the eight Bermuda-based re/insurers it follows, Fitch expects the 2022 combined ratio to be 93%-94%, an improvement on the 95.0% posted in the first nine months of 2022 and 95.9% in 2021. Catastrophe losses will represent 10-11 percentage points on the 2022 combined ratio, primarily from Hurricane Ian.
It predicts pricing to remain favourable through midyear 2023 renewals, particularly in the “dislocated” Florida market.
According to Fitch 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,” it said
Despite improving premiums, shareholders’ equity declined 22% in the nine months to September 2022 from the year-end 2021, with underwriting gains more than offset by net unrealized investment losses on bonds as interest rates rose. Bermuda sector merger and acquisition activity was muted in 2022, with companies favouring organic growth “amid increased reinsurance volatility”, the analyst said.
“However, M&A could resume on favourable performance in primary specialty lines and robust reinsurance renewals that improved expected returns for catastrophe risk and supported (re)insurers’ equity market valuations,” it added.
underwriting, re/insurers, Fitch, losses, performance, catastrophe, Bermuda, pricing, reinsurance, inflation, premium