Catastrophes outweigh pandemic losses for Bermuda reinsurers in 2020

Bermuda’s reinsurance sector was hit by more catastrophe losses than costs from the COVID-19 pandemic in 2020, according to data from Fitch Ratings.

Nine reinsurance firms with operations in Bermuda are assessed by Fitch and the rating agency notes that the stable rating outlooks it has in place on global reinsurance and U.S. property/casualty (P/C) insurance apply to them.

The sector outlook for global reinsurance also remains stable, while still firming pricing in the U.S. P/C insurance sector means its outlook for 2021 is improving relative to actual fundamentals in 2020.

The nine reinsurance firms operating in Bermuda that Fitch tracks reported an underwriting loss for 2020, with a combined ratio of 103.1% across the group.

Natural catastrophe losses were the main driver, reflecting the Bermuda reinsurance market’s continued strong position in property catastrophe reinsurance business.

7.4% of the combined ratio came from global natural catastrophe losses, with Hurricanes Laura, Sally and Isaias, western U.S. wildfires, and the Midwest derecho the main contributors.

The reinsurers also posted 6.8% of the combined ratio as related to losses from the COVID-19 pandemic.

This portrays the difference in strategy between the larger European reinsurance players, which all took more COVID losses than catastrophe losses in 2020.

Bermuda’s reinsurance community did reflect one developing major trend in the market though, as the aggregate 2020 combined ratio increased by 0.5% because of reserve strengthening.

Fitch noted that this is the first adverse development for this Bermuda based group of reinsurers since as far back as 2003.

It’s related to weakening liability reserves, a trend being felt globally and five of the nine Fitch-tracked Bermuda reinsurance carriers reported overall adverse development.

Importantly though, the underlying underwriting performance actually improved, despite the significant loss activity in 2020.

The reinsurers’ group accident year combined ratio, excluding catastrophes and coronavirus losses, was 89.4% in 2020, down from 91.8% in 2019, Fitch said.

Premium growth was strong as well and the group of Bermuda reinsurers reported an 8% increase in net premiums written in 2020.

Arch Capital and RenaissanceRe posted the largest premium growth, at 23% and 21% respectively.

Fitch also noted that Bermuda’s reinsurance community is conserving its firepower to deploy into attractive underwriting opportunities, with share repurchases down considerably in anticipation of favorable capital deployment opportunities.