In a recent report by AM Best, the composite of US and Bermuda reinsurers has showcased impressive growth in underwriting performance, despite facing challenges from investment losses.
The report highlights the key trends and projections for the composite’s financial landscape. During 2022, the composite experienced a significant boost in net premiums written (NPW), with a growth rate of 16%.
This follows a robust 20% increase in NPW during the previous year. The growth was primarily attributed to continuous rate improvements in various business lines, notably in property exposures.
Experts at AM Best project that this positive momentum will persist in 2023, as demand remains strong and rates continue to rise, especially in catastrophe-exposed business lines.
The composite’s underwriting results demonstrated improvement in 2022, with a combined ratio of 92.9%, which was 3.1 points better than the previous year.
Despite a decrease in the benefit from prior-year reserve releases, the reported underwriting margins improved, driven by various factors including the growth in NPW and rate improvements. It’s worth noting that General Reinsurance Corp accounted for a significant portion of favourable development in prior years.
On the investment front, the composite faced challenges in 2022 due to notable realised and unrealised investment losses. This led to an aggregate net loss for the year, in contrast to the positive net income observed in 2021.
The return on equity (ROE) dropped to -2.4% in 2022 from 10.8% in the previous year. However, a stronger performance in the capital markets during the first half of 2023 is expected to bolster investment results. The recovery in investment income is anticipated to be supported by higher reinvestment rates in fixed-income asset classes.
Despite the investment setbacks, the composite’s strong underwriting performance is anticipated to offset the challenges and maintain solid risk-adjusted capitalisation.
The composite’s net premiums written to equity ratio remains manageable at 0.9x, and AM Best expects a moderation in underwriting leverage in 2023. This projection is supported by the anticipation of continued NPW growth driven by pricing gains, along with a rebound in US GAAP equity growth fueled by operating earnings.
