Shareholders’ equity of Bermuda’s reinsurance companies took a double-digit hit because of market impact, Fitch Ratings observed in their 2023 Dashboard for the non-life sector.

The dashboard study of seven Bermuda (re)insurers highlighted improvement in underwriting profitability, solid premium growth in the hardening market environment and increases in favourable reserve development.

Reserve releases benefited the Bermuda (re)insurers’ aggregate combined ratio by 2.9 points in 2022, following 1.8 points of favourable development in 2021.

But the shareholders’ equity drop due to unrealised losses were significant.

Fitch said: “Bermuda (re)insurers’ shareholders’ equity dropped 14 per cent in 2022, with all companies declining, as underwriting gains were more than offset by unrealised bond losses as interest rates rose and credit spreads widened. Most companies hold bonds to maturity and would avoid realising losses, except under a stress liquidity event, such as a major catastrophe.

“Argo posted the largest drop in equity at 29 per cent, while Arch had the lowest decline at five per cent. Excluding all unrealised investment losses, aggregate shareholders’ equity was up 4 per cent in 2022.”

Last year, rate increases and growth in casualty and specialty writings drove up net premiums written for the group by a strong 13 per cent.

Argo was the exception, reporting a decline in net premiums written as the company sold/exited businesses and awaited its purchase by Brookfield Reinsurance Ltd.

Fitch’s analysts said: “Fitch expects favourable market pricing and tightening terms and conditions to continue at the April (Asia-focused) reinsurance renewal, and particularly at the June/July renewal for the challenging Florida market, with supply constrained and demand growing.”

For 2023, the agency said, the outlook for global reinsurance was neutral because of price discipline in a hardening market and high demand for reinsurance up against rising claims costs because of higher cat losses and inflation. The US property/casualty insurance sector outlook is also neutral.

Fitch said their group of seven Bermuda (re)insurers posted a 92.4 per cent combined ratio in 2022, with 9.8 percentage points of catastrophe losses, primarily from Hurricane Ian, Australian floods, Storm Eunice, severe weather in France and the Russia-Ukraine war.

“This result is improved from 95.9 per cent in 2021, which had a higher 12.2 points from catastrophes, including Hurricane Ida, Winter Storm Uri and European floods. Underlying underwriting results were flat, with an accident-year combined ratio, excluding catastrophes of 85.5 per cent in 2022, in line with 85.4 per cent in 2021.”