Tough market conditions have driven Bermudian re/insurers to explore new lines of business, with the most recent trend being a move towards mortgage re/insurance, said A.M. Best Senior Financial Analyst Scott Mangan, in the firm’s latest market trends report.
The rating agency previously reported a Bermudian market pivot towards primary and alternative classes of business and increased retrocession purchase and Mangen noted that despite the challenges ahead for Bermuda, the market was “nimble and well able to adapt to market conditions.”
Mangan commented that most market participants have seen modest to flat growth with “some quicker growth, but most of that is attributed to some previous M&As on an accounting basis flowing through to 2017.”
“I think that speaks to the underwriting pressure a lot of these companies are under and the lack of investment yield they’re facing with fixed income portfolios and low-interest rates,” he added.
2016 brought a gradual decline in favourable reserve development, and a more dramatic return on equity drop from about 12.3% in 2013 to 7% in 2016, according to A.M. Best.
And the much-anticipated market turn doesn’t appear to be materialising on the horizon in the near future, compelling Bermudian re/insurers to continue to compete in the innovation game:
Mangan said the market had seen “pockets of hardening in certain areas, but they generally tend to not last that long, I think that speaks to the capacity in the market, so as soon as there’s some favourable pricing, so many participants jump in that it tends to squash that favourable pricing trend.”
“So outside of some large event, that conventional wisdom has said might trigger a hardening, I think it would have to be something that’s outside of the modelling to shock the market a little and prevent some of that extra capital from going back in.”
Another factor rocking the Bermudian market boat is the soon-to-come introduction of President Donald Trump’s economic policies, which rating agency Stand & Poor (S&P) warned could contribute to a corrosion of Bermudian competitive advantage.
S&P analysts noted that while it’s too early to put a definite cap on how new U.S. policies would affect Bermudian re/insurers credit ratings, a reduction in U.S. corporate tax rates from 35% down to 15% could mean Bermudian companies will have to reassess their choice of tax domicile.
However, Bermuda’s captive market – the largest in the world – has been an exception to the sluggish growth trend, pulling through market conditions on a continued upswing: Ross Webber, Chief Executive Officer of the Bermuda Business Development Agency, said; “It’s important to note that Bermuda held its number-one position atop captive domiciles despite challenging market conditions that have reduced the year-over-year global total of captives registered.
“The market has seen numerous mergers, acquisitions and consolidations, in which corporations have taken cost-cutting steps to integrate multiple captives into single vehicles—a trend affecting all markets.”