California’s record-breaking wildfires are expected to deal a heavy blow to Bermudian-based reinsurers in early 2025, Fitch Ratings has warned, though the island’s capital-rich firms are still on track to post profits.

According to a new Fitch report, losses from the wildfires in the first quarter alone will make up 60 per cent of total catastrophe losses for all of 2024. The impact will add roughly four percentage points to the group’s 2025 combined ratio, a key measure of underwriting profitability.

The report called the wildfires “meaningful but manageable”. Capital levels remain strong, so ratings will not be affected, it found.

The wildfires come at a time when the global reinsurance cycle is softening, placing additional pressure on underwriting margins. Still, Fitch expects Bermuda players to remain profitable overall in 2025, helped by prior investment gains and disciplined underwriting.

In 2024, the sector posted a combined ratio of 90.7 per cent, with catastrophe losses, primarily from hurricanes Milton and Helene, accounting for 6.4 percentage points. That was up from 86.2 per cent in 2023, as weather events intensified. Despite the pressure, net income return on equity remained strong at 17.8 per cent, albeit down from 26.6 per cent in the previous year.

The report also noted that reserve releases, which had helped to prop up results in previous years, dropped to just 0.1 percentage points in 2024, from 1.5 in 2023. Everest Group Ltd posted $1.3 billion of reserve additions, while PartnerRe and Aspen reported adverse developments.

On a more positive note, net premiums written rose 14 per cent across the sector, driven by growth in speciality lines and favourable market conditions. RenaissanceRe led the pack with a 33 per cent jump, thanks to its acquisition of Validus Holdings, while SiriusPoint lagged, posting a 4 per cent decline owing to business exits.

The report suggested that even with losses, this remains a highly capitalised, well-run sector, although the severity of the fire season is a reminder of how quickly risk profiles can shift.

Fitch expects the wildfire losses to help curb further price softening at the upcoming midyear renewals, with Bermuda reinsurers remaining central to the global risk transfer market.