Rating Agency Sees Better Times Ahead for Bermuda Insurers, Reinsurers

After 5 years of underperformance, Bermuda (re)insurers could be on the verge of better times, according to S&P Global Ratings.

The rating agency noted that only a few Bermuda (re)insurers produced underwriting profitability between 2017 and 2021. During that period, Bermuda (re)insurers posted $21 billion in catastrophe losses and $3 billion in COVID-19-related claims.

As the frequency and severity of secondary perils such as wildfires, convective storms, and floods increased during the period, the Bermuda market's annual share of global natural catastrophe losses ranged from 3.5 percent to 5.5 percent, according to S&P.

But, while those heightened catastrophe losses and, to a lesser extent, the COVID-19 pandemic hurt the group's performance, they did spur upward pricing momentum in the reinsurance market, S&P noted.

S&P suggested that the recent rate increases are likely to continue into 2023 reinsurance renewals. Meanwhile, low interest rates in 2020 and 2021 allowed companies to raise capital to deploy in the hardening market. And rising interest rates should improve investment returns, the rating agency said.

While Bermuda companies continue to face volatility, most Bermuda (re)insurers have adopted a hybrid model, mixing reinsurance business with less volatile insurance lines to reduce overall volatility, according to S&P. In some cases, that has seen Bermuda reinsurers exiting property and property catastrophe-exposed reinsurance lines.

Given the continued challenges in the reinsurance market, S&P said it expects Bermuda (re)insurers to continue reshaping their underwriting portfolios and reducing volatility by diversifying into less volatile lines and primary insurance business.