Bermuda re/insurers’ underwriting results to weaken but strong returns should persist: Fitch

According to global ratings agency Fitch Ratings, due to premium rates being pressured and the increase in loss costs, Bermuda-domiciled re/insurers’ underwriting results are expected to deteriorate in 2025, although strong returns should continue as capital remains “robust.”

Bermuda-based insurer and reinsurers are expected to continue producing favourable returns in 2025 as underwriting discipline is maintained, although the market pricing cycle is past its peak, as demonstrated in the January 2025 renewals, with stable to softening pricing as an increase in supply was more than adequate to meet greater demand from buyers.

Fitch expects the combined ratio to approximate 90% for full year 2024, an increase from 86.5% in 2023, as catastrophe losses will represent 7-8 percentage points on the 2024 combined ratio, compared to just 3.2 points in 2023.

The company anticipates that market conditions will soften further at the 2025 mid-year renewals, but notes that if underwriting discipline is maintained, risk-adjusted returns will remain favourable for players.

Fitch stated, “The Bermuda market will have a meaningful share of insured losses from the recent California wildfires for primary business and reinsurance. However, we do not expect ratings to be affected given plentiful capital levels. The potential impact on reinsurance renewal pricing from the fires will depend on the ultimate level of loss and the remoteness of such an event relative to catastrophe loss expectations.”

“Barring significant losses, the ILS market is anticipated to be resilient over the near term. However, emerging risks, such as cyber, may grow but will lack meaningful participation until confidence in modeling these threats improves. ILS capital support remained very strong in 2024. Increased alternative reinsurance capacity reflected the exceptionally favorable rate environment for property catastrophe risks in 2024, following the significant price correction in the prior year and the corresponding attractive expected returns available in the market.

“Catastrophe bond returns were particularly strong in 2024, with investors benefiting from attractive yields on recently issued transactions and the generally higher positioning of the catastrophe bonds in cedent catastrophe reinsurance towers. Limited recent loss activity for catastrophe bonds with per occurrence triggers reflects the generally remote attachment points used in the market. However, ILS capacity supporting aggregate reinsurance has come under pressure from heightened severe storm activity in the U.S. and, more recently, wildfires in California,” said Fitch.

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