Fitch Ratings is forecasting a bright near term future for Bermuda (re)insurers, even amid heightened catastrophe losses, inflation and economic uncertainties.

Fitch expects Bermuda (re)insurers to improve underwriting performance in 2023 as the January renewal season brought about a “a true hard market”.

Fitch said underwriting performance is poised to improve further this year, as accelerated premium rate increases outpace loss-cost inflation.

A statement added: “The hardening market is supported by deteriorating loss-cost trends with high economic and social inflation.

“(Re)insurers have demonstrated very strong underwriting discipline in an effort to improve sustainability of underlying profitability, having suffered poor performance since 2017 amid elevated catastrophe losses.

“For eight Bermuda-based (re)insurers that Fitch follows, the 2022 combined ratio will approximate 93 per cent to 94 per cent, slightly better than the 95.0 per cent posted through 9M22 and 95.9 per cent in 2021. Catastrophe losses will represent 10–11 percentage points on the 2022 combined ratio, primarily from Hurricane Ian.

“Fitch expects pricing to remain favourable through midyear 2023 renewals, particularly in the dislocated Florida market exacerbated by Hurricane Ian.

“Market pricing surged at the January 2023 reinsurance renewal, shifting to a true hard market in property and some specialty lines with supply constrained and demand growing.

“Importantly, terms and conditions saw structural changes that benefited (re)insurers.

“Shareholders’ equity declined 22 per cent in 9M22 from YE 2021 as underwriting gains were more than offset by net unrealised investment losses on bonds as interest rates rose.

“However, most companies hold bonds to maturity and would thus not expect to realise losses, except under a stress liquidity event.”

Fitch said Bermuda sector M&A was muted in 2022, as companies favoured organic growth amid increased reinsurance volatility.

However, M&A could resume on favourable performance in primary specialty lines and robust reinsurance renewals that improved expected returns for catastrophe risk and supported (re)insurers’ equity market valuations.

Fitch maintains neutral fundamental sector outlooks on both global reinsurance and US property/casualty insurance. These sectors include coverage for Bermuda market (re)insurers.