US and Bermuda reinsurers enjoyed a robust 2023

The performance of US and Bermuda reinsurers overall improved considerably in 2023, with gross written premiums rising and underwriting proving profitable. A lower severity of catastrophes during the year and improved structures to catastrophe reinsurance programmes also helped them. 

That is according to an analysis by AM Best of a composite of US and Bermuda reinsurers in its “Market Segment Report” published on September 5. This consists of seven reinsurance groups domiciled in either the US or Bermuda, for which the reinsurance business accounts for the majority of their underwriting portfolios. 

In past years, this report analysed results for a larger number of companies, which included groups for which reinsurance represented a meaningful portion, but not the majority, of their business. 

“Strong investment performance complemented the expanding underwriting margins.”

As of this year, its US and Bermuda report focuses on a smaller, reinsurance-specific composite to better discern market trends. The seven companies in the US-Bermuda composite are Arch Capital Group; Everest Group; General Re Corporation; Odyssey Group Holdings; PartnerRe; RenaissanceRe Holdings; and Transatlantic Holdings.

The composite’s underwriting results improved for a third year in 2023, which also represents the group’s third straight year of underwriting profitability. The 2023 combined ratio of 85.1 was a 6.4 point improvement over the prior year. Reported underwriting margins included 3.7 points of favourable loss reserve development, compared with 3.0 points of favourable development in 2022.

Overall profitability grew significantly as strong investment performance complemented the expanding underwriting margins. The composite’s total net premiums written (NPW) grew by 3.3 percent in 2023, down from 15.5 percent in 2022 and 19.7 percent in 2021. Aggregate NPW growth for these companies was impacted by significantly higher reinsurance cessions from Transatlantic to Berkshire Hathaway affiliates. 

Slower topline growth

Gross premiums written for the composite climbed by 11 percent in 2023. Slower topline growth probably reflected the diminishing pace of rate improvement in several lines of business, particularly property exposures, as well as a shift to more remote layers of catastrophe reinsurance towers and a move away from pro rata agreements and into excess structures for some companies. 

AM Best expects that premiums for the composite will increase in 2024 at a similar pace as in 2023, reflecting the high ongoing demand for reinsurance capacity, bolstered by underlying exposure growth.

In 2023, natural catastrophe activity continued at a fast pace, with global insured catastrophe losses exceeding $100 billion for a third year. However, unlike the two previous years, catastrophe losses were borne disproportionately by primary carriers rather than their reinsurers. This reflects not only the lower severity of catastrophes during the year, but also changes made to the structures of most catastrophe reinsurance programmes, which started in earnest at the January 1, 2023, renewal season. 

Specifically, reinsurers significantly curtailed available capacity in lower layers of catastrophe programmes and aggregate reinsurance covers, which has meaningfully reduced their exposure to small and medium-sized events.

In 2023, catastrophe losses were impacted by an accumulation of smaller losses, due most notably to severe convective storms in the US. This stands in contrast to the preceding two years, each of which included several individual loss events of greater magnitude, including Hurricane Ian in 2022, as well as Hurricane Ida and European flood losses in 2021. As a result, despite elevated natural catastrophe activity, the composite’s 2023 accident year (excluding prior year reserve development) combined ratio of 88.8 was 5.6 points better than the 94.4 posted in 2022.

Attractive pricing

Perhaps reflecting the strong results recorded in 2023, pricing in the reinsurance market has largely stabilised at generally attractive levels in 2024. The pause in upward rate movement follows a period during which rates rose sharply in property-exposed lines at each of the key reinsurance renewal dates in 2023, after more modest gains in 2022. 

There has been no indication that terms and conditions have been relaxed. The National Oceanic and Atmospheric Administration and other widely respected weather forecasters have projected an extremely active Atlantic hurricane season in 2024. 

If the 2024 hurricane season is as active as predicted, AM Best would still expect the composite to generate strong results in 2024, although perhaps more modest than their stellar performance in 2023. 

In this case, the pricing environment would probably respond, which would help sustain consistent results for this composite for a longer period. If natural catastrophe activity is fairly normal in the second half of 2024, the US and Bermuda composite appears poised to achieve another very strong year of performance, and the potential for an easing of rates would increase.

Significant realised and unrealised investment gains and higher net investment income contributed to strong net earnings in 2023. The composite posted a 23.0 percent return on equity (ROE) in 2023, versus a -2.4 percent ROE in 2022, when substantial pre-tax realised/unrealised investment losses more than counterbalanced the group’s solid operating performance. 

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