Bermuda companies adding reinsurance capacity, says Amwins
New capacity has come into the reinsurance market from Bermuda in the last 12 months as platers seek opportunities in the hard marker, according to a new report.
Amwins, a global distributor of specialty insurance products and service, said in its 2024 outlook that there has been some overall moderation in treaty reinsurance renewals and facultative buying.
In a wide ranging report, it said: “Rate increases have continued in property, but there are signs that the market may be softening in some specific classes and geographies.
“Treaty renewals from July 1, 2023, were less contentious than previous cycles, and most accounts could be completed with available capacity, except for higher limits that are no longer available at discount prices.
“July 1 renewals were also much more organised and orderly, with fewer private placements and improved timing and concurrence around terms and conditions. Additionally, we have seen new capacity come into the market from London and, particularly, Bermuda, seeking opportunity in the current rate environment.”
Amwins said facultative buying remains at “unprecedented levels, with reinsurers offering capacity as long as pricing parameters are met”.
It added: “The ‘rightsizing’ of portfolios is almost complete, and there should be some semblance of stability going into 2024.”
It noted that carrier retentions had increased and noted most excess & surplus carriers were deploying relatively small limits on most accounts, both to manage catastrophe exposures and to protect balance sheets “in an environment of extreme uncertainty”.
“Despite the rate increases of the last four years, most reinsurers still view the current pricing on catastrophe property risks as insufficient, but additional increases going forward will likely be in the 10% to 20% range with exceptions noted in areas of greater exposure,” Amwins said.
“Facultative reinsurance premium volume has increased substantially, creating aggregate issues for several larger reinsurers, and leading them to be more particular on risk selection. This is especially related to exposures in Florida, the Gulf Coast and areas of serious convective storm potential.”
Amwins also warned that primary carriers will experience earnings volatility in 2023 and 2024 as they retain more risk through higher attachment points or retentions, particularly where lower layer capacity is constrained or expensive.
Amwins predicted that in property, the Bermuda market is likely to see rate increases in the coming year that range from 5% to 10% on clean, non-catastrophe accounts. It said catastrophe accounts may see higher rate increases, especially in Florida and California, “and it is unlikely that many companies will want to take on more aggregate in these states”.
It added: “Markets are anticipating premium growth of 10% to 15%, with most of this growth coming from rate increases on existing accounts, select markets deploying more capacity and increases in valuations due to inflation.”
In casualty, Amwins said: “There has been increased discussion regarding the casualty market over the past few weeks with several carriers addressing adverse development in accident years 2016–2020 in their third quarter earnings calls.
“We anticipate some additional firming of rates in 2024 in order to keep up with loss trends for target business. Long-tail classes, including residential construction, habitational and large trucking/auto-based risks continue to face a firm and unpredictable market.
“The market in Bermuda has stabilized during 2023 and continues to maintain a strong position in providing much needed excess capacity. Rate increases are still the norm but are now more likely to be in the range of 5% to 10%, although this may vary depending on class of business and loss experience.
“Continuing deterioration in loss trends, driven by social inflation and aberration verdicts, has resulted in some carriers withdrawing from certain classes such as Transportation. In keeping with the broader market, other carriers have reduced capacity from a high of $25 million to $5 million (or even lower), depending on the class of business and attachment.
“Underwriters continue to pay close attention to aggregate exposure and expect to see restrictions on limits deployed and/or aggregate limits, especially where a carrier has exposure to the same loss from multiple clients.
“Demand for alternative risk transfer solutions has not abated as insureds seek to offset the effects of renewal pricing and retention increases. Structured deals have become more popular, providing the opportunity for insureds with good loss experience to take risk while, at the same time, securing protection for worse than expected losses. Interest in captive and rent-a-captive (cell captive) solutions also remains high in Bermuda.”
It added that reinsurance treaty renewals during 2024 will be watched closely with some sources in Bermuda anticipating rate and retention increases as reinsurers react to deteriorating loss results from prior years.
Amwins said the appetite for public entity business remains strong in Bermuda and is expected to continue into 2024.
“With an increasing number of markets willing to deploy limits lower in the tower, Bermuda has become a source of much needed capacity for this class, especially in cases where gaps in the tower need to be filled,” Amwins said. “Rate increases should also stabilise, but each case will be taken on its own merits.
“Underwriters continue to be hawkish about exposures such as sexual abuse/misconduct and law enforcement liability, but will entertain these exposures if they are able to fully underwrite them, which is typically a function of the quality of the submission data – especially loss and exposure data.
“Aggregation of limits continues to be an issue with markets increasingly looking to limit their downside. A single aggregate limit is preferred, although markets in Bermuda will offer multiple aggregates depending on the circumstances and quality of account and submission data.”