Fitch Outlook for Bermuda Reinsurers Remains Favorable for 2024

According to Fitch, Bermuda reinsurers' underwriting profitability is likely peaking at current levels as price increases moderate and loss-cost inflation persists. However, the rating agency said returns will continue to be favorable as market conditions remain attractive, with the negative effect of natural disasters on catastrophe claims reflected in pricing in 2024.

Fitch thinks the meaningful underwriting improvement seen in 2023 will be limited in 2024 as premium rate increases decelerate. The hardening market continued at the January 2024 reinsurance renewal with flat or increased pricing 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, according to Fitch.

The rating agency expects market conditions to remain favorable at the 2024 midyear renewals, with stabilizing rates due to generally sufficient pricing. Reinsurers are also expected to maintain the tighter terms and conditions negotiated in 2023.

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

Bermuda's implementation of a 15 percent corporate tax will marginally reduce its economic advantage, but the island's established position in the global reinsurance marketplace will likely endure, Fitch said. Additionally, the recent life insurer-focused solvency review will also help the domicile maintain its Solvency II (S2) equivalence with the European Union.