US-Bermuda reinsurers poised to sustain solid performance despite pricing pressure
The latest analysis from AM Best reveals that US and Bermuda reinsurers have maintained strong underwriting profitability for the fourth consecutive year, despite facing increased catastrophe losses and pricing pressures across various segments.
An AM Best composite of US and Bermuda-focused reinsurers continued its trend of favourable underwriting results while generating the group’s fourth consecutive year of underwriting profitability. While the 2024 combined ratio of 89.5 represented a 4.4-point deterioration over the prior year (Exhibit 1), this underwriting margin still represents a substantial improvement over levels reported for several years preceding 2023.
Overall profitability declined in 2024 compared with stellar results posted in 2023, when the composite generated the strongest underwriting margins in years. Peak underwriting results in 2023 were further supplemented by higher net investment income, as well as significant realised and unrealised investment gains and the positive impact of the Bermuda Corporate Income Tax Act of 2023.
The composite’s total net premiums written (NPW) grew 13.2% in 2024, up from 5.3% in 2023, when aggregate NPW growth for the companies was reduced by significantly higher reinsurance cessions from Transatlantic to Berkshire Hathaway affiliates.
Property and casualty (P&C) gross written premiums for the composite climbed by 12.3% in 2024, versus 10.5% in 2023 and 10.7% in 2022. The uptick in growth year-over-year largely reflects markedly higher premiums at RenRe, driven by the renewal of business acquired in the Validus acquisition. Excluding RenRe from both periods, the composite’s P&C gross written premiums growth scaled back to 9.5% in 2024 from 12.9% in 2023.
This larger trend of decelerating top-line growth reflects the diminishing pace of rate improvement in several lines of business, particularly property exposures, where pricing has eased in 2025, following very good results in 2023 and 2024. Property reinsurance pricing nevertheless remains at more attractive levels than prior to 2023, when rates rose sharply in property-exposed lines at each of the key reinsurance renewal dates. Importantly, reinsurance terms and conditions have been largely unchanged.
AM Best expects premiums for the composite will increase in 2025 at a slower pace than in 2024, reflecting the high ongoing demand for reinsurance capacity, partially offset by moderate rate softening in several business lines, notably property catastrophe, directors and officers and cyber reinsurance.
Strong underwriting margins despite higher catastrophe losses; less favourable reserve development
Natural catastrophe activity continued at an elevated pace in 2024, with estimated global insured catastrophe losses totalling approximately $140 billion, the third-highest year on record and exceeding $100 billion for the fifth consecutive year. Catastrophe losses contributed 6.7 combined ratio points for the composite in 2024, up from 4.0 points in the prior year.
The most impactful events of 2024 occurred in the second half, when hurricanes Helene and Milton made landfall in the south-eastern US and contributed $25 billion and $16 billion of insured losses, respectively. In addition to hurricanes, severe thunderstorms (also known as severe convective storms) caused significant damage. North America reported the overall highest share of global natural catastrophe losses in 2024. Despite the high rate of natural catastrophe activity, the composite’s 2024 accident year (excluding prior year reserve development) combined ratio of 89.8 was only a point higher than 88.8 in 2023 and still represents a marked improvement from the 94.4 accident year combined ratio posted in 2022. AM Best attributes this result to continuing rate increases in many non-catastrophe lines, as well as the enduring benefits of improved reinsurance terms and conditions that tightened significantly, starting from the January 1, 2023, renewal period.
Reported underwriting margins in 2024 included 0.3 points of favourable loss reserve development, compared to 3.7 points of favourable development in 2023. Five of the seven companies in the composite reported favourable net reserve development in 2024, whereas each of the seven companies reported favourable reserve development in 2023. In 2024, total net reserve development trends were impacted by Everest, which reported more than $1.3 billion in net adverse development for the year, driven predominantly by US casualty business in its primary insurance portfolio. Everest’s reinsurance business also reported unfavourable reserve development in US casualty lines, albeit to a lesser degree than its primary business. Excluding Everest from both periods, the composite’s combined ratio benefited from 3.3 points of favourable reserve development in 2024 versus 5.0 points of favourable development in 2023.
The California wildfires put a significant dent in many of the reinsurers’ 2025 CAT budgets before January was over, with total insured losses estimated to potentially exceed $40 billion, with a substantial portion of that expected to be borne by reinsurers. Moreover, the National Oceanic and Atmospheric Administration and other widely respected weather forecasters have projected another active Atlantic hurricane season in 2025. If the season is as active as predicted, the US-Bermuda reinsurance composite could struggle to duplicate its strong underwriting performance of the past two years. However, AM Best believes the composite will generate an underwriting profit in 2025, unless catastrophe activity in the second half of the year far exceeds levels seen in 2023 and 2024. If that is the case, the softening trend could pause or reverse, depending on the magnitude of insured losses.
Strong investment performance augments underwriting income
For the second year, significant realised and unrealised investment gains and higher net investment income bolstered earnings in 2024. The composite posted a 16.8% return on equity in 2024 versus 23.0% in 2023, when substantial pre-tax realised/unrealised investment gains strongly rebounded from a negative performance in 2022.
The composite’s 2023 ROE also benefited from one-time accounting gains related to the transition to a global minimum tax regime in Bermuda. The 2023 ROEs of the four Bermuda-based reinsurers in the composite improved between 5% and 8%, due to early recognition of the future tax benefits expected to be realised from operating tax loss carry-forwards (OTLCs). As a percentage of equity, deferred tax assets (DTAs) accounted for 6% to 9% for these four reinsurers as of year-end 2024.
While recognising DTAs are intangible assets that cannot be liquidated to pay claims, AM Best views DTA levels of less than 10% of total equity as manageable and expects these assets to be converted into tangible equity over time, as the OTLCs are used to offset taxes on future earnings.
Net investment income continues to benefit from significantly higher reinvestment rates on fixed income asset classes and has more than doubled in the past two years to almost $8.8 billion in 2024 versus $3.7 billion in 2022.
Underwriting and reserve leverage remain at manageable levels
The composite’s GAAP equity rose by 9.6% in 2024, slightly trailing increases in NPW and loss reserves. As a result, underwriting and reserve leverage rose slightly but remained at very manageable levels. The rise in equity in 2024 was driven primarily by underwriting profits and net investment income, partially offset by share repurchases and dividends paid. The group returned more capital to shareholders in 2024 than in 2023. Dividends and share re-purchases totalled over $5.8 billion in 2024, compared to less than $2.0 billion in 2023. AM Best views this trend as a prudent return of excess capital to shareholders following robust capital growth in 2023. AM Best expects that risk-adjusted capitalisation will remain sufficient to support organic growth opportunities into 2025.
New capital is not entering the market in a meaningful way
Despite the group’s very solid performance in 2023 and 2024, new company formation in the US-Bermuda reinsurance market has remained muted. In AM Best’s view, this trend reflects the abundance of capital as well as investors’ continued scepticism of whether reinsurers will be able consistently to meet or exceed their cost of capital. This hesitance among investors likely reflects ongoing challenges presented by climate risk and social inflation, as well as a higher hurdle rate for reinsurers to meet their cost of capital, given the elevated interest rate environment. AM Best expects capital flows to the reinsurance segment in the US and Bermuda market will continue to be driven by established franchises with strong track records, and opportunities for new company formations will remain limited.
Greg Dickerson is a director at AM Best. He can be reached at gregory.dickerson@ambest.com.
Antonietta Iachetta is an associate director at AM Best. She can be reached at antonietta.iachetta@ambest.com.
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