Bermuda reinsurance personnel are in Monte Carlo today for the September Rendez-vous, the annual gathering of insurers, reinsurers and brokers to begin discussions on reinsurance pricing for January 1.

A strong showing of C-suite executives including several global chief executives from Bermuda insurers, reinsurers and intermediaries, together with representatives from Bermuda law firms are attending the 65th edition of the Monte Carlo Reinsurance Rendez-Vous.

Bermuda's leading international insurers and reinsurers operate in 150 countries with Solvency II Equivalence and US Reciprocal Reinsurance status.

The start of the last renewals season, saw much needed structural changes in reinsurance underwriting, including tighter terms and conditions and repricing of risk, resulting in the hardest market in decades in short-tail lines, shifting pricing power back to reinsurers, according to Standard & Poor’s analysts.

The recent report Global Reinsurance Stabilizes As Green Shoots Emerge In Underwriting, details a change in how analysts view the global reinsurance sector from ‘negative’ to ‘stable’.

Primary credit analysts Taoufik Gharib, Johannes Bender, Saurabh B Khasnis and Michael Zimmerman believe the sector will earn its cost of capital in 2023-24, based on favourable property/casualty reinsurance pricing conditions, pre-pandemic earnings levels in life reinsurance, and increasing net investment income.

Key takeaways from the report, they say, include: “Although we expect recent structural changes to provide a long-lasting tailwind, challenges such as elevated natural disasters, increasing cost of capital, financial market volatility and inflation risk persist.

“Mark-to-market losses eroded aggregate capital buffers for the reinsurance sector to a position just redundant at the 'AA' confidence level at year-end 2022, but some of those losses are beginning to unwind, and improving operating results should sustain the industry's capital adequacy.”

S&P have had a negative, pandemic-driven view of the sector since May 2020, but structural changes that emerged in underwriting during the 2023 reinsurance renewals have changed the outlook.

“We expect these green shoots will take root and help address industry challenges,” the report said. “Reinsurers have had to quickly adapt to evolving conditions amid more frequent and severe natural disasters and an abundance of unprecedented economic and geopolitical events.

“High inflation, Covid-19, and the Russia-Ukraine conflict have had untimely negative effects on an already overburdened sector.

“Reinsurance pricing is the most obvious recent improvement for reinsurers and has been on the rise for a few years now, especially this year in short-tail lines.

“These increases in reinsurance pricing, along with enhanced underwriting measures such as stricter terms and conditions, increasing attachment points, scaled-down limits, and fewer aggregate covers, together with increasing investment income and life reinsurance earnings at pre-pandemic levels, instill some confidence that the sector will effectively tackle its still-plentiful challenges and earn its cost of capital in 2023-2024.”

The stable view of the sector reflects credit trend expectations, existing sector-wide and emerging risks.

As of near the end of August, 90 per cent of the top 20 global reinsurers were assigned stable rating outlooks, 5 per cent were assigned positive rating outlooks, and 5 per cent were assigned negative rating outlooks.

The combined ratio of the top 20 global reinsurers was 96.0 per cent in 2022, better than the five-year average of 99.7 per cent.

The report said: “This positive trend continued in the first half of 2023, with combined ratios ranging from the mid-80s to the low 90s.

“The improving results have come in response to changes in reinsurers' strategies, increases in pricing, and tighter T&C.

“Hybrid business models are common nowadays as reinsurers expand into primary specialty insurance, including US surplus lines, to diversify their books and reduce volatility in their underwriting results.

“Reinsurers have also remained disciplined regarding the business they write, avoiding or at least reducing their exposure to certain problematic contracts such as aggregate covers and causing primary insurers to retain more risk.

“Meanwhile, some reinsurers see pricing adequacy within the property catastrophe segment as a profitable opportunity, while for others it's a stark reminder of the inadequate returns of the past several years.

“Some reinsurers have grown their natural catastrophe exposure, while others have reduced it or even completely exited the property catastrophe business.

“We think the overall favourable reinsurance pricing, and particularly the hard market conditions in the short-tail lines, will prevail, and we expect the industry will post more favourable results with a combined ratio of 92 per cent to 96 per cent, including a catastrophe load of 8 to 10 percentage points, and a return on equity of 9 per cent to 12 per cent in 2023-2024, barring any outsize catastrophe losses.”