Bermuda insurers still suffering from catastrophe losses

Bermuda (re)insurers are still suffering above-average catastrophe losses and combined ratios, said ratings agency Fitch.

The agency noted that the re/insurer group it looked at returned to underwriting profits in 2018 and saw moderate net income improvement. However, this was despite above-average catastrophe losses.

Net written premiums declined by 8.4 percent in response to the passage of the base erosion and anti-abuse tax (BEAT), said Fitch, adding that the increase in excise taxes in 2019 to 10 percent from 5percent is expected to inhibit 2019 net premium volume further.

Fitch said the 22 Bermuda (re)insurers in its sample reported a combined ratio of 99 percent for 2018, a strong improvement from 108 percent in 2017 but significantly higher than the 93 percent ratio average over the prior five years.

Catastrophe losses from Hurricanes Michael and Florence, Typhoon Jebi and the California wildfires contributed to this, despite being lower than 2017 losses from Hurricanes Harvey, Irma and Maria. Net income moderately improved for the group as underwriting improvement was offset by significant realised losses on investment amid weaker equity market performance in 2018. The group's return on equity improved to a still-below-average 3.4 percent in 2018.

"Earnings are poised to improve in 2019 as pricing trends shift across the market and catastrophe losses through the third quarter revert toward historical norms," said Ryan Ostrowski, analyst at Fitch. “Premium rate increases appear sustainable into 2020.”

M&A activity is having less influence, with no major deals announced in 2019 so far, said Fitch. Companies are focused on organic growth as price increases, terms and conditions get favourable uplift. At the moment, activity seems temporarily at a standstill, Fitch added. Get all the latest re/insurance industry news with our daily newsletter -  sign up here.

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