Re/insurance market conditions to remain favourable at mid-year 2024: Fitch

The underwriting profits of Bermuda based insurance and reinsurance companies are likely peaking at their current levels, Fitch Ratings believes, but its analysts say that returns are expected to remain favourable with market conditions attractive and stable rates expected at the mid-year renewals.

Fitch says that the moderation of price increases and persistent loss-cost inflation are two drivers suggesting a potential plateauing of underwriting profits.

But the negative effect of catastrophe claims continued to get reflected into pricing for 2024, which means the rating agency believes the return-potential of portfolios underwritten is still high, suggesting favourable returns for insurers, reinsurers and their investors.

Fitch explains that, “The meaningful underwriting improvement seen in 2023 will be limited in 2024 as premium rate increases decelerate.”

But, the rating agency added, “The hardening market continued at the January 2024 reinsurance renewal, with flat to up 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.”

Commenting on the next major set of reinsurance renewals at the middle of 2024, Fitch forecasts, “We expect market conditions to remain favorable at the 2024 midyear renewals, although with stabilizing rates as pricing is generally sufficient.

“(Re)insurers are also expected to mostly maintain the tighter terms and conditions negotiated in 2023.”

The benefits of hard-won reinsurance pricing gains and improvements in terms and conditions are expected to continue to benefit the Bermuda insurance and reinsurance market, with largely flat pricing expected ahead (so stable at these higher levels, although of course risk can change).

These comments from Fitch read-across positively for the insurance-linked securities (ILS) community, as another call for stabilisation of higher-pricing, at improved terms, compared to prior years.

The benefits of pricing and terms will play out in insurer and reinsurer results for 2024, Fitch Ratings believes.

The underlying combined ratio is expected to stabilise or slightly improve, with approximately 85%–86% expected for the sector for 2023, which Fitch notes is a meaningful improvement from 92.7% in 2022.

In addition, reflecting the higher attachments, improved terms, and better pricing, catastrophe losses are only expected to represent 3–4 percentage points on the 2023 combined ratio, down from 9.8 points in 2022, Fitch says.

For the ILS market, Fitch Ratings notes the impressive market conditions in 2023 and robust catastrophe bond issuance, saying that ILS reached “new heights” last year.

The rating agency says, “Fitch expects favorable conditions to lead to continued growth in the alternative reinsurance capital market in 2024.”