Returns will remain favourable for Bermuda reinsurers in 2024, says Fitch

Global ratings agency Fitch expects returns to remain favourable for Bermuda reinsurers in 2024 amid still attractive market conditions, with the underlying combined ratio anticipated to stabilise or improve slightly on the 85%-86% for 2023.

According to Fitch, Bermuda reinsurers’ underwriting profitability is “likely peaking at current levels,” as price increases decelerate and loss-cost inflation persists.

But while the meaningful underwriting improvement seen in 2023 is expected to be limited this year on the back of more moderate price increases, Fitch says that “returns will continue to be favorable as market conditions remain attractive, with the negative effect of natural disasters on catastrophe claims reflected in pricing in 2024.”

January 1st, 2024, reinsurance renewal reports from the broking community revealed that the hard reinsurance market environment continued, although with flat to up seen in the majority of lines of business and a narrower supply / demand imbalance, it was reportedly more orderly than last year.

Fitch expects market conditions to remain favourable at the mid-year renewals, although with stabilising rates as the firm sees pricing as generally sufficient. The ratings agency also expects reinsurers to mostly maintain the tighter terms and conditions negotiated in 2023.

In terms of profitability, Fitch says that the underlying combined ratio will either stabilise or strengthen slightly in 2024. For 2023, the company expects the combined ratio of the Bermuda-based reinsurers it follows to approximate 85% to 86%, which is a significant improvement on the 92.7% seen in 2022. The stronger combined ratio for 2023 is supported by a lower level of catastrophe losses for the group of 3%-4% on the combined ratio, compared with 9.8% in 2022.

Of course, it was still an active year in terms of natural catastrophe activity and subsequent insured losses, with one broker recently pegging the 2023 total at $123 billion. However, much of this was driven by the severe convective storm peril, and as a result of higher attachment points secured by reinsurers throughout 2023, the primary market retained more of these losses than in previous years.

Fitch also reports that shareholders’ equity grew 23% at 9M23 from year-end 2022, with ROAE comfortably above the cost of capital, and expected to approach 20% in 2023.

“Returns were driven by increased underwriting and investment income, equity market gains and stabilization of unrealized bond losses. Capital levels were supported by common equity issuances to support growth, and reduced return of capital,” says Fitch.

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