A report by S&P Global Ratings indicates Bermudian re/insurers are contending with a build-up of pressure on rates following a challenging 2017 which saw soft reinsurance pricing, heightened competitive environment, record influx of alternative capital and catastrophes totalling $138 billion in insured losses globally.
Furthermore, given the supply-demand imbalance and the resulting pressures on reinsurance pricing, recent momentum on rate increases could reverse and dissipate leading into 2019.
The report states that 2017 saw underwriting profitability slip into the red with reported $511.8 million net losses to shareholders’ equity, down from $5.3 billion of net income in 2016.
This was principally due to the historic level of catastrophe losses and lower favourable reserve development, partially offset by improved expense ratio and an increase in the net investment income.
For Bermudian re/insurers, the reported 2017 catastrophe losses from Hurricanes Harvey, Irma and, Maria, Mexico earthquakes, and California wildfires totaled $8.9 billion, contributing 19.9% to the combined ratio – a huge surge from $2.1 billion or 5.1% on the combined ratio in 2016.
Losses, the report says, were a reminder that a few benign years of weather-related losses don’t represent a long-term trend. As a result, Bermudian re/insurers reported a combined ratio, in aggregate, of 109.9% in 2017, up by 16.3% from 93.6% in 2016.
In addition, favourable reserve developments contributed only 4.3% to the combined ratio in 2017 compared with 6.8% in 2016.
Commentary all points to the reversal of the slowing pace of rate increases if the hurricane season is benign in 2018 and the reinsurance market remains free of major losses throughout the rest of the year.
