In a market update released Monday, the ratings agency said the meaningful underwriting improvement seen in 2023 will be limited this year, as premium rate increases decelerate, and loss-cost inflation persists.
For 1 January reinsurance renewals, rate changes were “flat to up” in most lines of business, Fitch noted, as the supply and demand imbalance narrowed, supported by relatively limited new capacity entering the market and deteriorating loss-cost trends from social inflation.
The ratings agency acknowledged that pricing is “generally sufficient,” however, and expects market conditions to remain favorable at the 2024 mid-year renewals, despite stabilizing rates.
In addition, it also anticipates (re)insurers will “mostly maintain the tighter terms and conditions negotiated in 2023.”
The report comes in the midst of an earnings season where carriers are disclosing fourth quarter and full year results for 2023.
Fitch predicted the underlying combined ratio for Bermuda (re)insurers to approximate 85%-86% for 2023, which marks a “meaningful improvement” from 92.7% in 2022. Catastrophe losses are anticipated to represent 3-4 percentage points on the CoR, down from 9.8 points in 2022.
Regarding investor returns, shareholders’ equity grew 23% year on year for the first nine months of 2023, and return on average equity came in “comfortably above” the cost of capital. It is expected to approach 20% for 2023.
“Returns were driven by increased underwriting and investment income, equity market gains and stabilization of unrealized bond losses,” Fitch wrote.
Touching on Bermuda’s implementation of a 15% corporate tax, the agency noted that the measure will “marginally reduce its economic advantage” but is unlikely to change the island’s established position in the global (re)insurance marketplace.
