Bermudian re/insurer’s profits expected to deteriorate further

Rating agency Fitch has said that it expects profitability for Bermuda reinsurers to continue to deteriorate as prices continue to fall and terms and conditions weaken.

In its dashboard report on Bermuda re/insurance, Fitch added that although it maintains a stable outlook on Bermuda market re/insurers, its outlook on the global reinsurance remains negative. This is because intense competition from traditional and non-traditional reinsurers and sluggish cedant demand has resulted in a softening market.

The rating agency summarised year-end financial performance for a group of 15 publicly traded entities with Bermuda operations. According to Fitch, the group posted favourable combined ratios (CR) of 86 percent in 2014 and 86.2 percent in 2013 driven by continued low catastrophe losses.

“However, return on equity declined to 11.2 percent in 2014 from 12.9 percent in 2013 with falling investment returns. Earnings are forecast to drop in 2015 as underwriting margins weaken from premium rate pressures and a potential return to normal catastrophe losses,” said the rating agency.

Net premiums written increased 4 percent for the group, with Arch Capital and Allied World Assurance Company leading the growth, and Platinum Underwriters and RenaissanceRe shrinking the most.

“Bermuda re/insurers’ expansion into specialty reinsurance and primary insurance lines was offset by declines in property catastrophe reinsurance as prices continue to drop,” said Fitch.