The P&C (re)insurance industry delivered another set of discouraging results for the final three months of 2016, as carriers reported contracting underwriting margins, depressed returns and competitive pricing.
One of the quarter's themes was higher catastrophe losses, which resulted in elevated costs for primary insurers while also penetrating reinsurance layers.
Hurricane Matthew and the Kaikoura earthquake in New Zealand were the most significant events in the period, in some cases impacting combined ratios by double-digit percentage points.
Cat burdens spanning tens of millions to hundreds of millions of dollars fell on Bermudians, Londoners and continental reinsurers, while US specialty carriers were less exposed.
However, following the round of reserve strengthening at certain carriers in the third quarter, most eyes were on reserving positions, especially after AIG's $5.9bn charge on its back book.
And indeed, releases weakened from the prior-year period, signalling thinner reserve buffers.
This, in turn, triggered speculation around the healthiness of the industry's future returns, which have long been supported by positive reserve developments.
The industry generated pleasing quarterly returns given the soft market conditions, but the fourth quarter results highlighted that they remain on a downwards trajectory.
In Bermuda, annualised operating returns on equity shrank by a third. Margins were also eroded at global reinsurance players in the year, while losses were reported for the second half of 2016 in London.
And with investment yields still in the low single digits, most of the blame fell on the underwriting side of the balance sheet.
This triggered concerns over the quality of underwriting, with many carriers reassessing their exposures in less profitable lines of business and choosing to hold back on top line growth.
This strategy was also supported by the largely uneventful January renewals, which saw minor pricing improvements on the prior year.
Q4 top line growth weakens
Gross written premium (GWP) growth moderated in the fourth quarter of the year at most of the companies in our analysis, as carriers switched their focus away from growing their businesses towards honing their existing books.
The biggest year-on-year expansion was in Bermuda, where (re)insurers increased their total GWP by 10.3 percent in Q4 2016, down from 23.6 percent growth in the corresponding period the year before.
Some Bermudians chose to write less, with Axis posting an 8.6 percent top line drop, while Aspen and RenaissanceRe shrank their GWP by 4.5 percent and 3.9 percent respectively.
It should also be noted that the prior-year quarter's growth rate was M&A-driven, with deals including Endurance-Montpelier, RenaissanceRe-Platinum and XL-Catlin all artificially inflating top lines.
Bermudians' appetite for writing insurance business dropped drastically in Q4 2016, with the top line rising by just 6.7 percent, down from 22.6 percent growth in the prior-year period.
Meanwhile, the composite reported that reinsurance premiums written were up 23.6 percent year-on-year - a growth rate in line with Q4 2015, albeit in a low-volume quarter.
But reinsurance premium growth wasn't quite as strong in global reinsurers' non-life P&C portfolios.
The cohort's Q4 GWP growth rate stood at 2.1 percent on a currency-adjusted basis, down from 4.9 percent in the same period a year before, in the fourth consecutive quarter of softening GWP expansion.
But the reinsurers revealed a rise in demand for structured reinsurance deals at the January renewals, which was also where they redirected their focus.
In conference calls, executives bemoaned the presence of under-priced lines of business and emphasised their willingness to walk away.
For example, Munich Re noted that it had continued to reduce its exposure in property lines due to declining profitability, whereas its appetite for casualty business was greater owing to less intense pricing competition.
Meanwhile, global reinsurers concentrated on developing alternative products and strengthened relationships with core clients through structured reinsurance.
Swiss Re's CFO David Cole mentioned that the company's "ability to write large and tailored transactions is a strong differentiator" - and was a major source of premium growth.
Moving to London, top line growth for the second half of the year was 13.2 percent - but the figure was heavily buoyed by favourable currency movements.
London-based carriers stressed that they had been selective in their underwriting, and had reduced exposures in marine, aviation and energy lines while opting to grow in the US - particularly in US property.
There were also significant increases in reinsurance writing in H2, which was up by 56.9 percent from the same period a year before at Beazley and by 25.4 percent at Brit. However, overall, both carriers remained heavily skewed towards primary business.
US specialty carriers were the only ones to report robust GWP growth in the final three months of the year, with the growth coming amid a softening market.
The largest rise was at Navigators, where the top line was up by 13.6 percent. At the other end of the scale, WR Berkley's premiums were flat year-on-year.
WR Berkley CEO Rob Berkley said on the firm's Q4 conference call that property lines continued to be very competitive, caused to a certain extent by the reinsurance market, which "remains as irrational as ever from our perspective".