Bermuda (Re)insurers Face Pressured Premiums, Rising Loss Costs

Bermuda-based (re)insurers are expected to see deteriorating underwriting results in 2025 as premium rates come under pressure and loss costs rise, according to Fitch Ratings. Despite these challenges, strong returns should persist as capital levels remain robust. While underwriting discipline continues, the market pricing cycle has moved past its peak. 

The full-year 2024 combined ratio is projected to reach approximately 90 percent, up from 86.5 percent in 2023. Catastrophe losses are estimated to account for 7–8 percentage points of the 2024 combined ratio, a notable increase from 3.2 points in 2023. 

The January 2025 reinsurance renewal confirmed that the market cycle has peaked, with stable to softening pricing as ample supply met growing demand. Market conditions are expected to soften further at the 2025 midyear renewals, though risk-adjusted returns should remain favorable with continued underwriting discipline. 

Shareholders' equity increased 18 percent in the first 9 months of 2024, driven by underwriting gains, investment income, and equity and bond market gains, partially offset by higher capital returns to shareholders. Return on average equity for 2024 is projected to be around 18 percent, down from 25.4 percent in 2023. 

Bermuda insurers are expected to absorb a significant share of insured losses from the recent California wildfires, affecting both primary and reinsurance businesses. However, Fitch does not anticipate rating impacts due to strong capital positions. The effect of these losses on future reinsurance pricing will depend on the ultimate loss magnitude and its deviation from catastrophe loss expectations. 

Guy Carpenter & Company's Global Property Catastrophe Reinsurance Rate on Line Index declined 6.6 percent at the January 2025 renewals, marking the first annual decline since 2017. Despite this drop, the index remains strong, just below the peak reached after the pricing reset in January 2023. 

The insurance-linked securities (ILS) market is expected to remain resilient, barring significant losses. Emerging risks, such as cyber, may see growth but will require improved modeling confidence before gaining substantial market participation. ILS capital support remained robust in 2024, bolstered by favorable property catastrophe pricing and attractive expected returns. 

Catastrophe bond returns were particularly strong in 2024, benefiting from high yields on new transactions and favorable positioning within cedent reinsurance towers. However, ILS capacity backing aggregate reinsurance has faced pressure from increased US severe storm activity and recent California wildfires.