Strong first half results for Bermuda reinsurers driven by higher pricing & investment income: Moody’s

Bermuda reinsurers have reported robust financial results for the first half of 2023, driven by strong underwriting performance and investment returns, with increased pricing in the reinsurance market and higher investment income identified as key contributing factors, according to Moody’s.

During the first half of 2023, Bermuda reinsurers achieved an average combined ratio of 83.4%, an improvement from 85.5% in the previous year.

This positive development was attributed to rate increases that bolstered core underwriting results and a relative absence of severe weather events in the United States, thanks to higher attachment points for most excess of loss coverages.

Investment income also saw a significant boost due to higher yields and investments in floating rate securities, driven by increased short-term base rates.

Book yields across the industry increased, with some companies, such as AXIS Capital and Everest Group, experiencing year-over-year rises from 2.4% to 3.9%. The outlook for investment income remains optimistic, as lower-yielding bonds mature and are replaced with higher-yielding securities.

The Bermuda reinsurance sector experienced strong growth in gross premiums written (GPW), which surged nearly 12% in the first half of 2023 compared to the previous year.

Fidelis, Lancashire, and Arch Capital stood out with GPW growth rates of 27% and 26%, respectively. Nevertheless, some companies, including Aspen and AXIS Capital, witnessed GPW declines due to strategic underwriting actions.

Overall profitability within the industry soared, with operating income increasing by 47% year-on-year, thanks to favourable underwriting results and robust investment income. Moody’s expects pricing gains realised throughout the year to continue to drive profitability higher.

Looking ahead, the remainder of the Atlantic hurricane season will be pivotal for reinsurers, with Hurricane Idalia recently making landfall in Florida, causing initial insured loss estimates in the range of $2.5 billion to $5 billion.

The extent of catastrophe losses from wildfires and hurricanes, along with the upcoming January 1 reinsurance renewals, will be key factors influencing the industry’s full-year results and pricing trends for 2024, the report noted.

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