Price rises will gain momentum in April and June: Fitch

Market pricing will gain momentum in April and June 2020, according to rating agency Fitch, after a disappointing January 2020 renewal season for reinsurers.

Fitch said the upcoming renewals dates will involve accounts that suffered greater catastrophe losses, meaning greater pressure on pricing. The global re/insurance industry suffered natural catastrophe losses of $52 billion in 2019, Fitch noted, down from the $86 billion losses experienced in 2018 and near the 10-year and 30-year averages.

The island should also see alternative capital in the re/insurance sector rebound, Fitch predicted, after capital fell by $4 billion in the first nine months of 2019, to $93 billion, according to Aon Securities.

“Investors appear hesitant and are seeking higher returns, given concerns over loss reporting and trapped capital,” Fitch said in its latest Bermuda market update for 2020. It said this slowdown is likely to prove temporary, with investors eventually returning to the ILS market.

Fitch also reported the combined ratio for the nine Bermuda-based re/insurers it rates was approximately 96-97 percent in 2019. Catastrophe losses will add 6-7 points to the combined ratio, it said, with favorable prior-year reserve development of less than 1 point. That could turn adverse in 2020 as casualty reserves weaken, Fitch warned.

Bermuda re/insurers’ aggregate common shareholders’ equity grew by 15 percent in the first nine months of 2019, due to underwriting gains and higher total investment returns. Falling interest rates and narrowing credit spreads drove unrealised gains on fixed maturities, while equity markets generated robust returns.

The rating agency also predicted M&A activity in Bermuda could pick up again when softer conditions prevail, with entities that failed to take advantage of the firming market environment likely to be vulnerable to takeover.

Bermuda’s re/insurers have been more focused on organic growth opportunities than growth through acquisitions over the past 12 months, Fitch said.