With carriers poised to report their Q4 and full-year financials in the coming weeks, analysts at Fitch Ratings forecast underwriting profitability for Bermuda-based insurers and reinsurers in 2021, alongside a deceleration of rate increases through the June and July renewals.
Despite 2021 being another year of above-average catastrophe activity and subsequent re/insured losses – with some estimates being as high as $120 billion for the year – combined ratio improvement and persistent rate increases more than offset the nat cat impact, says Fitch.
For the eight Bermuda domiciled carriers in Fitch’s universe, the 2021 full-year combined ratio is expected to come in below the 99.1% reported for 9M 2021, and down from the unprofitable 103.4% seen in 2020.
Based on Munich Re’s $120 billion insured nat cat bill estimate for 2021 and the German reinsurer’s $82 billion estimate for 2020, Fitch says that cat losses will represent 13-14 percentage points on the 2021 combined ratio, against 13.6 points of catastrophe/COVID-19 losses in 2020.
Ultimately, Fitch feels that Bermudian re/insurers “should return to underwriting profitability in 2021.”
On the important January 1st, 2022, reinsurance renewals, Fitch notes that market pricing did increase, sustaining the overall rate increases that have persisted since the beginning of 2018.
However, as the market heads towards the mid-year renewals, Fitch expects price rises to decelerate with continued material differentiation based on loss experience.
It’s clear from 1/1 commentary that it was a late and challenging renewal season, with the most dramatic rate rises occurring in loss-affected lines, such as European property cat business.
The mid-year reinsurance renewals have a particular focus on the U.S. property catastrophe space, and it’s expected that the impacts of Winter Storm Uri and Hurricane Ida later in the year, alongside a number of high-profile secondary peril loss events, will boost rate momentum in this market.
“The 2022 fundamental sector outlook for global reinsurance is improving, while the sector outlook on U.S. property/casualty (P/C) insurance is neutral,” says the ratings agency.
“The improving outlook for global reinsurers reflects better expected financial performance from higher prices in a hardening market environment and a strong economic recovery, depending on the evolution of coronavirus variants,” it added.
