Bermuda-based insurers and reinsurers might well be set for a more positive future after some challenging years, but solid underwriting discipline, effective risk selection strategies, and prudence in claims / reserve management will be key, according to S&P Global Ratings.
Analysts note how large nat cat losses, pandemic losses, Russia’s invasion of Ukraine and the subsequent inflationary pressures led re/insurers to reemphasise underwriting discipline, including their pricing strategies, and diversification into less volatile lines.
The ratings agency says that these efforts have not only enabled Bermudian re/insurers to absorb earnings volatility but also have yielded stronger underwriting profits.
The Bermudian re/insurers covered by S&P collectively posted a combined ratio of 93.5% in 2022. This is an improvement from 97% in 2021 and from its previous five-year (2017-2021) average of 101.5%. Further, this improved performance is despite the re/insurers absorbing 9.6 percentage points of natural catastrophe losses in 2022.
S&P has observed that the positive trend continued in the first half of 2023, with the combined ratio improving further to 85.9%.
“Nonetheless, Bermudian re/insurers could face numerous obstacles, such as heightened frequency and severity of catastrophe losses influenced by the effects of climate change, inadequate loss reserve provisions, and financial market volatility,” says S&P.
According to the ratings agency, the past poor performance could give way to a more promising future for the Bermuda insurers and reinsurers in its universe.
“Notably, the underwriting and pricing conditions in the property and property catastrophe lines have shifted significantly in 2023 in light of the multiple years of underwriting underperformance. In our view, these changes will be favorable,” say analysts.
Adding: “However, considering the multitude of challenges, it will be key for Bermudian re/insurers to have solid underwriting discipline, employ effective risk selection strategies, and exercise prudence in claims/reserve management.”