Property catastrophe reinsurance rates expected to decline: KBW

Bermuda-based reinsurers expect property catastrophe rates to decrease by between 5% and 15% during the January 1 renewals, according to Keefe, Bruyette & Woods analysts.

KBW drew this conclusion following its recent bi-annual Bermuda tour, where the investment firm’s analysts met with reinsurance executives.

The executives also said there was some uncertainty around the effect of the Bermuda Corporate Income Tax, which is due to be implemented on January 1.

The report added that pricing should rise for loss-impacted cedents and be close to flat for lower coverage layers. Retrocessional reinsurance rate decreases are expected to be around 20%.

European catastrophe reinsurance rates are expected to drop by up to 10% rates are likely to rise in the Canadian market following a record year for Canadian catastrophe losses. 

Terms and conditions are not expected to change, with reinsures maintaining per-occurrence attachment point increases. 

The report said rate decreases are due to supply or capacity growth as a result of almost two years of strong retained earnings. 

The report said renewals are running later than usual, due to doubts about the accuracy of Hurricane Milton’s insured loss estimates.  

The report said there was near-term uncertainty about the Bermuda CIT over the ability to use or retain all or part of the deferred tax assets and whether other taxes, like payroll and property taxes, will decline to offset the corporate income tax.

“We cannot predict how these decisions will play out; one prominent reinsurer CFO thought a full DTA unwind was unlikely, and – in part reflecting the lower premium growth prospects embedded in current pricing trends – we don’t think any of the companies we cover will be remotely capital-constrained,” said KBW.

“We believe that Bermuda’s government is very interested in preserving its status as a preferred domicile and will do as much as it can to keep (re)insurers on the island, which, regardless of the DTA question, should translate into lower payroll and/or property taxes, which are currently included within the companies’ operating expenses. In the near term, though, (re)insurers’ 2025 earnings will probably include both higher income taxes and higher tax-driven operating expenses.”

KBW said it believed Bermuda reinsurers’ drops in their share prices due to larger-than-expected catastrophe rate decreases and tax-related uncertainty were overdone.

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