Bermuda reinsurers’ “returns peaking”, to remain favourable in 2024, the rating agency said.

Fitch Ratings has delivered a favourable outlook on the fortunes of the Bermuda reinsurance market in 2024.

Bermuda reinsurers’ underwriting profitability is likely peaking at current levels, as price increases moderate and loss-cost inflation persists, Fitch said.

Returns will continue to be favourable, as market conditions remain attractive, with the negative effect of recent natural disasters on previous catastrophe claims continuing to be reflected in 2024 pricing.

“Meaningful underwriting improvement” seen in 2023 will be limited in 2024 as premium rate increases decelerate, the New York-based rating agency said.

The hardening market continued at the January 2024 reinsurance renewal, with rates “flat to up” in most lines as the supply/demand imbalance narrowed, supported by relatively limited new capacity entering the market and deteriorating loss-cost trends from social inflation.

“We expect market conditions to remain favourable at the 2024 midyear renewals, although with stabilizing rates as pricing is generally sufficient. (Re)insurers are also expected to mostly maintain the tighter terms and conditions negotiated in 2023,” the firm said.

“The underlying combined ratio is expected to stabilize or improve slightly in 2024, as rate increases wane and loss-costs continue to increase. The combined ratio will approximate 85%–86% for 2023, a meaningful improvement from 92.7% in 2022. Catastrophe losses will represent 3–4 percentage points on the 2023 combined ratio, down sizably from 9.8 points in 2022,” Fitch continued.

“Shareholders’ equity grew 23% at 9M23 from YE 2022, with ROAE comfortably above the cost of capital, and expected to approach 20% in 2023. Returns were driven by increased underwriting and investment income, equity market gains and stabilization of unrealized bond losses. Capital levels were supported by common equity issuances to support growth, and reduced return of capital.

“Bermuda’s implementation of a 15% corporate tax will marginally reduce its economic advantage but the island’s established position in the global (re)insurance marketplace will likely endure. Additionally, the recent life insurer-focused solvency review also will help the domicile maintain its Solvency II (S2) equivalence with the EU.”