Bermuda re/insurers’ 2017 combined ratio jumps

Bermuda's major re/insurers will report elevated combined ratios for 2017, averaging around 108 percent to 109 percent, according to Fitch Ratings.

The figures include more than 20 percentage points from catastrophe losses and would exceed the 107.1 percent posted in 2011, the last year with significant insured losses from catastrophes, and compares with 91.8 percent in 2016, when catastrophe losses contributed only 5.3 percentage points, according to a Jan. 23 press release.

The large catastrophe losses of 2017 appear to have ended several years of soft pricing, with market data this month showing rate increases in most lines, particularly property and catastrophe business, Fitch noted. But the increases look modest and it is questionable whether there will be a longer-term shift to a harder market, given the still-strong capitalization in the global re/insurance market and extra capacity from the insurance-linked securities (ILS) market. The ILS market grew to a record size in 2017 ($82 billion at end-September, according to Aon Benfield), with growth in both catastrophe bonds and collateralized reinsurance.

In addition, the 2017 cut in the US corporate tax rate to 21 percent from 35 percent and the new base erosion and anti-abuse tax (BEAT) will significantly reduce the long-standing tax advantage of Bermudian re/insurers over those in the US.

Fitch expects the overall benefit of a Bermuda domicile and operations to be reduced, but not eliminated, with the island largely maintaining its established position in the global market due to its underwriting expertise, strong and efficient regulatory regime and full Solvency II equivalence, Fitch noted.

Companies continue to be launched in Bermuda, demonstrating that the island remains attractive for startups. Bermuda market M&A could be driven this year by attempts to offset the impact of US tax reforms and a continued competitive market, according to the ratings agency.

In a recent move, American International Group (AIG) is acquiring Bermuda-based Validus Holdings for $5.56 billion.

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