Bermuda’s re/insurers recorded weaker underwriting results in 2016 as catastrophe losses took their toll.

Fitch Ratings reported that the 12 large, publicly traded Bermuda companies it follows posted a combined ratio — reflecting the proportion of premium dollars spent on claims and expenses — of 91.9 per cent, up from 88.5 per cent in 2015.

The shrinking of underwriting profits was largely down to catastrophe losses, which added 5.4 points to the combined ration last year compared to 2.5 points in 2015.

Reserve releases also fell slightly, with favourable prior-year reserve development of 6.6 points in 2016, compared to 7.2 points in 2015.

“Bermuda companies posted weaker underwriting results and steady profits in 2016; however, returns are starting to near the cost of capital and narrowing profit margins are a key risk,” said Brian Schneider, senior director in Fitch’s insurance team.

Bermuda re/insurers’ return on equity held steady at 8.2 per cent in 2016 as reduced underwriting income was offset by slightly improved investment results. The estimated cost of capital was around between 6 per cent and 7 per cent for 2016.

“Most Bermuda entities remain focused on returning equity to shareholders and capital growth was modest for the year,” Mr Schneider added.

The Bermudian group’s shareholder equity rose 4 per cent last year. However, Arch Capital Group Ltd’s had an outsize influence on this metric, with a 34 per cent increase driven by preferred share issuances for its acquisition of United Guaranty Corporation. When that is stripped out, growth drops to only 1 per cent for the group.

Fitch added: “The Bermuda re/insurance landscape remains fiercely competitive and prone to mergers and acquisitions as re/insurers seek scale and diversification.”

Fitch has a stable outlook for the global reinsurance sector, which includes Bermuda.

The ratings agency added: “The majority of ratings should be stable over the next 12 to 18 months, although select Bermuda re/insurers could see negative rating actions if pricing adequacy declines materially.

“Fitch’s fundamental outlooks on both global reinsurance and US property and casualty insurance are negative, as premium prices and investment yields are expected to remain under pressure in 2017.”