Fitch Ratings is expecting the Bermudian re/insurers it tracks to post a Combined Ratio (CR) of approximately 100% for 2018, down from the 106.9% posted after the volatile cat events of 2017.
The improvement reflects a reduced cat loss burden of roughly 10% on the 2018’s CR, compared to 20.2% in 2017, although above the five-year average of 6.6%.
Fitch says in its report that the Bermuda market remains resilient to ongoing market pressure due to its strong global position demonstrated underwriting expertise, robust and effective regulatory backdrop and Solvency II equivalence.
Meanwhile, smaller players have exited the market due to profit and growth challenges, while larger ones see increasing difficulties in attaining organic growth.
Fitch states that tax reforms have eroded Bermuda’s pricing advantage relative to the U.S. With the economic incentive to internally cede business to Bermuda substantially diminished, Bermuda-based (re)insurers have changed the structure of offshore operations, retaining more business and capital in U.S affiliates.
Re/insurance industry capital remains very strong, however. Allowing the majority of firms to absorb near-term volatility.
Fitch says global insured cat losses for the re/insurance industry reached $80 billion in 2018. While this fell 75% from the $140 billion from 2017, it remains meaningfully above the 10-year and 30-year inflation-adjusted averages of $61 billion and $41 billion, respectively.
Fitch adds that, as alternative capital increasingly competes with traditional capital, the extent of cyclical price changes following severe cat losses will be reduced.
However, rates could potentially increase at midyear 2019 following a capacity pullback by the insurance-linked securities (ILS) market.
