Growing signs of cycle management among reinsurers: Peel Hunt

Peel Hunt’s analysis of the Bermudian specialty reinsurance market for the first half of 2024 highlights a growing trend in cycle management, with re/insurers becoming more selective about where to expand their exposures and choosing to reduce their presence in areas experiencing margin erosion.

The analysis summarising key themes among leading Bermudian re/insurers, revealed that despite heightened natural catastrophe activity, Bermuda players have reported healthy H1 2024 results, with operating return on equity (ROE) in the mid-to-high teens.

Peel Hunt noted that these healthy ROEs indicate that the increases in reinsurance attachment points and the improved terms & conditions achieved in 2023 have persisted into the H1 2024 renewal season.

In the specialty sector, Peel Hunt highlighted a slow down in rate increases this year. Nevertheless, opportunities remain attractive for growth in non-catastrophe property insurance and specialty lines due to the rate adequacy on offer.

With the exception of Everest, most reinsurers have kept their property catastrophe exposures stable during recent US renewals, preferring to allocate capital to diversify into non-catastrophe classes.

Due to the ongoing increase in social inflation trends, nearly all reinsurers are increasingly cautious about recent casualty underwriting years questioning its rate adequacy.

Peel Hunt added: “The H1 24 Specialty re/insurance results in London are to provide another point in the year to measure the progress the Lloyd’s insurers are making in growing the US property book; managing the Cyber post-Crowdstrike and catastrophe risks ahead of an active Hurricane season; maintaining the quality of casualty reserves in an ongoing inflationary environment and lastly, the ability to generate surplus capital.”

There will be a renewed focus on whether the earnings buffers accumulated during H1 2024 can serve as shock absorbers if the forecasted active hurricane season in 2H24 come to pass.

The major Bermudian re/insurers reported an H1 2024 average combined ratio (CoR) of 86.1% under US GAAP, of which insurance has been 91.8% (c.30% of premiums) and reinsurance was 83.1% (c.70% of premiums).

“The attritional CoR at a group level was on average c. 83.9%. Nat cat accounted for 2.6pps of the CoR across the Bermudian’s reporting so far, whilst large man-made losses an estimated 1%, were largely driven by Baltimore Bridge. Reserve releases were modest, accounting for -1.3% of the CoR,” concluded Peel Hunt.

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