Bermuda re/insurers are likely to see continued price firming in 2020, with surplus growth and modest gains in underwriting profits driven by organic growth opportunities and solid capital levels, according to Fitch Ratings.
The rating agency noted that the market’s financial performance has recently been supported by higher unrealised investment gains and lower catastrophe losses, with companies generally maintaining robust risk management and solid business profiles.
However, downside risks include intense pricing competition and low investment yields despite heightened levels of capital, which will continue to limit profitability over the medium term.
For casualty reinsurance specifically, Fitch expects reinsurance pricing to improve at mid-year 2020, but is unsure whether rate increases will be adequate to cover the rising loss cost severity from social inflation and escalating jury awards.
Overall, analysts believe the Asia-focused April renewals and Florida-focused June renewals will yield more sizeable rate increases for Bermuda re/insurers than the somewhat disappointing January period.
At 1/1, European property rates were mostly flat to down due to limited losses and abundant capacity, while for US property meaningful rate increases were limited to loss-affected areas.
Given the expectation of a favourable pricing environment, most Bermuda re/insurers have been focusing on organic growth, with little M&A activity announced recently.
Rising valuations of re/insurers have also made acquisitions less attractive, with a dwindling pool of potential targets following years of consolidation.
Fitch expects capitalisation to remain robust as underwriting gains, increased investment contributions, and strong equity markets continue to support returns.
Bermuda re/insurers’ equity grew 15% in during the first nine months of 2019, providing most individual insurers with resources to absorb near-term volatility and the effects of adverse events.
