2017 was a challenging year for global re/insurers and particularly hard-hitting for Bermudians who saw earnings dashed with $6.9 billion of losses causing combined ratios to rise to an average 108-109% with over 20% points from catastrophe losses, according to Fitch Ratings.
Underwriting results weakened significantly for the group of 10 Bermuda re/insurers to a combined ratio of 112.4% for 9M17 compared with 91.7% for the same period in 2016.
Fitch explained the Bermudian’s poor earnings performance was due to “$6.9 billion of catastrophe losses (24.7 points on the combined ratio) primarily from Hurricanes Harvey, Irma and Maria, compared with only $1.2 billion through 9M16 (4.6 points on the combined ratio).”
This shows strong year on year deterioration, owing to heavy losses – in 2016 catastrophe losses contributed only 5.3% points and average combined ratios were at a profitable 91.8%.
However, Fitch said Bermuda re/insurers reported favourable reserve development for the 12th straight year, improving the group’s aggregate combined ratio by 4 points in 9M17, down from 5.6 points in 9M16.
Recent accident years have shown a deterioration in overall reserve redundancies, in part due to reserve charges on UK liability business following the cut in the Ogden discount rate, which may be partially reversed in the future.
The record-setting 2017 catastrophe losses left Bermudians with a $0.8 billion net loss for 9M17, ROAE suffered at a 2% negative, down from a 9.7% ROAE for 9M16.
Thus expectations are for Bermudian’s earnings to be positive but pressured in fourth-quarter 2017, with the group likely to report a net loss for the full year.
Fitch added that given the scale of the catastrophe losses, “the drop in capital could have been greater had it not been for favourable 9M17 investment returns.”
However, despite the trials facing the Bermuda group, Fitch noted that capitalization “is expected to be flat to slightly down for full-year 2017, but remain strong. Most companies are well positioned to write additional business in 2018 as they rebuild capital through earnings and reduced levels of share repurchases.
“Net premiums written for Fitch’s Bermuda universe grew 5.3% through 9M17. However, this increase was aided in part by reinstatement premiums written following the third-quarter 2017 catastrophe loss events. Limited premium growth demonstrates the continuing difficulties Bermuda (re)insurers face from price competition and challenging market conditions.”
