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Bermudian Re/Insurers Set Their Sights On A Brighter Future

Bermudian reinsurers and insurers (re/insurers) have had their fair share of difficulties in the past six years. They've weathered large natural catastrophe losses year over year, unique risks that emerged from the pandemic and the subsequent inflationary pressures, and the ongoing Russia-Ukraine conflict.

These factors prompted re/insurers to reemphasize underwriting discipline, including their pricing strategies, and diversification into less volatile lines. S&P Global Ratings thinks these efforts have not only enabled re/insurers to absorb earnings volatility but also have yielded stronger underwriting profits, as performance in the past two years and in the first six months of 2023 indicates. This provides stability to the credit ratings.

The rated Bermudian re/insurers we cover here collectively posted a combined ratio of 93.5% in 2022, an improvement from 97.0% in 2021 and from its previous five-year (2017-2021) average of 101.5%. (A combined ratio under 100% indicates an underwriting profit.) This is despite the re/insurers absorbing 9.6 percentage points of natural catastrophe losses in 2022.

The positive trend continued in the first half of 2023, with the combined ratio improving further to 85.9%. Nonetheless, Bermudian re/insurers could face numerous obstacles, such as heightened frequency and severity of catastrophe losses influenced by the effects of climate change, inadequate loss reserve provisions, and financial market volatility.

In general, capitalization remained robust at year-end 2022. However, mark-to-market losses have depleted capital buffers. In our view, unrealized investment losses have emerged owing to rising interest rates, rather than credit-related concerns. As these fixed-income investments near their maturities, we anticipate their values will recover. In addition, re/insurers expect strong underwriting earnings, increasing investment income, and prudent capital management strategies should support rebuilding capital buffers.

It appears that the Bermudian re/insurers' poor past performance could give way to a promising future. Notably, the underwriting and pricing conditions in the property and property catastrophe lines have shifted significantly in 2023 in light of the multiple years of underwriting underperformance. In our view, these changes will be favorable.

However, considering the multitude of challenges, it will be key for Bermudian re/insurers to have solid underwriting discipline, employ effective risk selection strategies, and exercise prudence in claims/reserve management.

Bermudian Re/Insurers Sharpen Their Focus On Diversification

Over the past few years, Bermudian re/insurers have turned their focus toward diversification, recognizing its role in mitigating business volatility and strengthening earnings. These re/insurers are expanding their presence in less volatile insurance lines, and some are even broadening their geographic reach. We believe the need to diversify has emerged in response to elevated catastrophe losses, as well as to take advantage of favorable pricing in certain insurance lines and to enhance underwriting cycle management.

Furthermore, the frustration with earnings volatility has prompted certain re/insurers to reassess their risk appetites. For instance, AXIS' exit from property and property catastrophe reinsurance underscores its notably reduced appetite for volatility. Likewise, Argo, and SiriusPoint have undertaken strategic measures to diminish their exposure to severity risk. To rein in potential volatility from loss reserves, some Bermudians have used structured solutions such as loss portfolio transfers, and adverse development covers.

Lancashire, renowned to be a property catastrophe writer, similarly is diversifying its business mix by expanding into casualty and specialty reinsurance. Furthermore, the company recently announced the launch of its U.S.-based insurance entity, to expand its specialty insurance book, which it expects to begin underwriting in early 2024.

In addition, on May 22, RenaissanceRe Holdings Ltd. announced it will acquire American International Group Inc.'s treaty reinsurance business. This acquisition will provide RenaissanceRe with greater access to more than $3.0 billion of premiums, of which it expects to keep about $2.7 billion. In our view, this will further strengthen RenaissanceRe's competitive position, increase its scale, raise its relative importance to its clients and brokers, and broaden its footprint.

In 2022, Bermudian re/insurers' gross premiums written (GPW) totaled $77.8 billion, up 12.2% from the prior year. Reinsurance--including property casualty (P/C) and life--continues to hold a prominent position, representing 53.6% of the total GPW, while insurance (including mortgage insurance) represented 46.4% (see chart 1).

Chart 1


Although the distribution between reinsurance and insurance premiums written has remained relatively stable in recent years, some re/insurers have shifted their business mix. For instance, Fidelis, SiriusPoint, AXIS, and Everest have all grown their insurance books. Conversely, Arch and Lancashire have substantially increased their reinsurance writings.

Recently, re/insurers have ventured into new lines, partly owing to a diversification play and their view of the risk-reward payoffs. Mortgage reinsurance, cyber, and renewable energy are among the lines that have experienced increased participation from the Bermudian re/insurers. The cyber re/insurance market observed substantial rate increases in 2021 and 2022, drawing new capacity into that market.

Large re/insurers, including Everest, Arch, and AXIS, have expanded their presence in this new line of business. While these companies boast strong risk management capabilities, and their loss experience remains benign in this line, we believe that the cyber re/insurance market is relatively new. Third-party industry models for this business are not as mature as they are for other forms of severity risks, such as property catastrophe named peril risk.

Similarly, mortgage re/insurance business is a source of profitability, which also diversifies earnings. Notably, the loss trends within this line are less correlated with traditional re/insurance business, presenting a unique risk-reward payoff. For instance, Arch owns a large mortgage insurance operation, which not only diversifies its top-line premiums, but also has contributed substantially to its bottom-line earnings. Furthermore, many Bermudians have become major providers of mortgage reinsurance capacity to this market.

Although the loss experience in this particular line of business has been relatively favorable, the inherent risk in this business is quite complex. It necessitates that re/insurers possess robust risk modelling capabilities, stronger governance for overseeing risk tolerances, and controls. If not well managed, this line could become another source of earnings volatility.

Actual Natural Catastrophe Losses Continue To Exceed Re/Insurers' Budgets

Over the past several years, it appears that Bermudians' natural catastrophe budgets were insufficient (see chart 2)--similar to global reinsurers. Factors including climate change, increasing losses from secondary perils (severe convective storms, floods, wildfire), population growth in regions prone to natural disasters, and inflation have led to increased insured catastrophe losses. According to SwissRe Institute, average annual insured losses from natural catastrophes totaled over $110 billion since 2017, more than double the average of $52 billion over the previous five years.

In 2017-2022, the rated Bermudian re/insurers covered in this report experienced an average annual natural catastrophe loss of $4.3 billion. These losses affected their underwriting results (combined ratio) by 11.3% (see chart 3). We think that the excess catastrophe losses--reported catastrophe losses over the estimated natural catastrophe budgets--have caused the ROE to decline by 3.3 percentage points annually for these Bermudian re/insurers.

Chart 2


Chart 3


Re/insurers have attempted to incorporate heightened loss cost trends in their pricing and catastrophe budgets. Although pricing in property catastrophe lines has hardened in the past few years, the elevated loss costs have largely surpassed these rate adjustments.

As a result, in 2023, re/insurers implemented significant changes to their pricing and underwriting practices. Re/insurers have increased their attachment points on their reinsurance business, scaled down their limits, and made substantial rate adjustments across all accounts, including loss reported and non-loss reported policies.

It is early to determine the effectiveness of these adjustments. But considering the losses primary insurance companies shouldered in the first half of 2023 (especially in the U.S.), it is reasonable to say that 2023 is looking promising for the Bermudian re/insurers.

Underwriting Performance Improves Despite Lingering Headwinds

In our view, Bermudian re/insurers' diversification strategy enabled them to absorb large catastrophe losses and post strong underwriting profitability in 2022 while facing challenges. The average combined ratio, including corporate expenses, was 93.5%, an improvement of 3.5 percentage points from the prior year (see chart 4). All companies in the cohort showed a year-over-year improvement. Nevertheless, the average ROE remained subdued, at -0.6%, resulting from the un/realized investment losses weighing heavily on profitability.

Chart 4


Table 1

Industry's combined ratio is on a positive trajectory
Combined ratio (%) 1H 2023 2022 2021 2020 2019 2018 2017 Six-year average Standard deviation


81.0 82.6 85.3 94.0 80.9 82.2 90.2 85.9 4.7


81.0 93.4 93.1 83.2 87.7 80.6 86.0 87.3 4.7


94.3 91.7 94.4 94.4 101.6 96.1 99.2 96.2 3.3


-- 90.6 93.2 114.5 106.8 94.4 98.8 99.7 8.4
Bermudian industry 85.9 93.5 97.0 104.5 98.9 99.5 107.5 100.2 4.6


83.3 89.6 93.6 109.0 103.4 104.6 106.1 101.1 7.0


90.0 96.5 98.5 103.4 95.9 109.2 103.9 101.2 4.7


-- 98.6 108.9 110.4 83.2 94.1 124.8 103.3 13.3


91.2 96.4 97.0 110.0 103.0 101.1 113.7 103.5 6.4


80.3 98.2 102.8 103.7 93.5 88.9 138.5 104.3 16.1


110.1 108.5 107.9 106.6 111.3 97.9 107.2 106.6 4.1


87.9 96.9 104.8 107.5 114.0 110.0 125.6 109.8 8.8


80.8 102.2 117.6 118.1 114.3 104.9 115.3 112.1 6.2
Note: Companies ranked by their six-year averages from lowest to the highest. For the first half of 2023, the discounted combined ratios of Hiscox (85.7%) and Lancashire (71.4%) were reported under IFRS 17, while other companies reported under GAAP. *Sirius International Insurance Group Ltd. merged with Third Point Reinsurance Ltd. on Feb. 26, 2021. 2021 onward reflects SiriusPoint Financials, while 2020 and prior-year data reflects Sirius International.

Table 2

Return on equity performance hit by (un)realized investment losses
Return on equity (%) 2022 2021 2020 2019 2018 2017 Six-year average Standard deviation


11.2 16.2 11.4 15.6 8.1 7.1 11.6 3.4


6.4 13.9 5.5 11.9 1.1 5.7 7.4 4.3


1.6 10.6 8.3 10.3 5.2 7.7 7.3 3.1


3.0 3.8 8.9 6.4 6.1 2.3 5.1 2.3
Bermudian industry (0.6) 8.6 4.5 9.6 2.6 0.7 4.2 3.8


4.4 11.6 (2.2) 6.1 0.8 (6.4) 2.4 5.8


(15.8) 9.7 3.5 13.6 (1.3) 3.9 2.3 9.4


(11.6) (1.0) 9.9 11.8 4.2 (6.0) 1.2 8.3


1.7 7.7 (12.9) 2.2 5.1 1.5 0.9 6.6


(0.2) (4.2) 0.3 10.5 3.5 (6.1) 0.6 5.4


(11.8) 0.4 (3.0) (0.8) 3.2 2.8 (1.5) 5.0


2.0 1.1 (2.0) (9.0) (5.2) (8.1) (3.6) 4.2


(16.8) 2.7 (18.1) (2.5) (0.9) (7.5) (7.2) 7.9
Note: Companies ranked by their six-year averages ROEs from highest to lowest *Sirius International Insurance Group Ltd. merged with Third Point Reinsurance Ltd. on Feb. 26, 2021. 2021 onward reflects SiriusPoint Financials, while 2020 and prior-year data reflects Sirius International.

Amid the improving underwriting conditions the past few years, companies such as Arch, Fidelis, AEGIS, and Hiscox exhibited strong results--outperforming their peers. The strong results are a testament to their effective diversification strategies and strong risk management capabilities. Conversely, Argo, Aspen, and SiriusPoint reported underwriting losses, though they have improved from prior years.

During this period, significant natural catastrophe losses hampered the industry's performance. In addition, shortcomings in reserve provisions in certain casualty/liability lines; pandemic losses in the P/C and life reinsurance sectors; and, to a lesser extent, losses emerging from the ongoing Russia-Ukraine conflict weighed on performance.

The increasing frequency and severity of catastrophe losses have added 11.3 percentage points to the combined ratio annually since 2017. The high catastrophe losses have necessitated that re/insurers take underwriting actions, resulting in hardening pricing conditions in the property catastrophe lines in the past few years.

Global insured losses from natural catastrophes reached a record high in the first half of this year at $50 billion, according to SwissRe Institute. This total was the second highest since 2011 and nearly 56% above the 10-year average. Despite the elevated losses, the Bermudian re/insurers catastrophe losses were limited to just 2.8%.

We believe that the strategic adjustments made to underwriting and pricing are yielding positive results thus far. In the first half of this year, the Bermudian re/insurers collectively posted a very strong combined ratio 85.9%. (The combined ratio excluded Hiscox and Lancashire since they reported based on IFRS 17, while other companies reported on a GAAP basis.)

Capital Held Strong Despite Mark-To-Mark Losses

Capitalization remains robust for Bermudian re/insurers. We estimate their aggregate capitalization was redundant at the 'AA' confidence level at year-end 2022, per our risk-based capital adequacy model. However, the capital buffers at this confidence level have notably decreased owing to mark-to-market investment losses.

The precipitous increase in interest rates by central banks worldwide, aimed at curbing inflation, coupled with heightened financial market volatility, led to a decline in the market value of re/insurers' fixed-income and equity (including alternative assets) investment portfolios. Among the Bermudian re/insurers, un/realized investment losses reduced aggregate shareholders' equity by $11.9 billion, or 19.2% of beginning shareholders' equity, at year-end 2022. (Un/realized investment losses are those reported in the income statement and in accumulated other comprehensive income.)

Although, the increase in the P/C reserve discounting credit and the reduction in capital requirements due to lower invested asset values partly offset the impact on capitalization.

The substantial reduction in shareholders' equity has also led to rising leverage ratios. As a result, management teams are reassessing shareholder distributions and capital strategies. Nonetheless, we believe the investment value erosion primarily stems from interest rate fluctuations, rather than underlying credit issues. As these fixed-income securities approach maturities, we anticipate the valuations will recover strengthening capitalization.

In addition, following a decade of persistently low interest rates, we believe re/insurers' would appreciate an opportunity to earn higher returns on their invested assets. The rated Bermudian re/insurers collectively oversee $153 billion in invested assets (including cash and equivalents). Of that amount, they allocated nearly 84.4% to fixed-income and cash & cash equivalents at year-end 2022. Therefore, potential for higher investment income, coupled with enhanced underwriting earnings and capital management strategies, could help recover capital buffers in the next two to three years.

The Road Ahead

While the future appears promising, hurdles remain. On one hand, the substantial rate changes, especially in short-tail lines, coupled with fundamental shifts in underwriting and improved investment returns, could bode well for the Bermudian re/insurers.

On the other hand, they're still facing the lingering pain of catastrophe losses, increasing frequency of secondary perils, and persistently high inflation and its potential effect on loss reserves. We believe that maintaining underwriting discipline and effective risk selection will be key to navigating these issues.


Table 3

Bermudian re/insurers--Rating score snapshot
Companies ordered by ratings, highest to lowest
Company Holdco ICR* Opco FSR§ Outlook Anchor Business risk profile Competitive position Financial risk profile Capital and earnings Risk exposure Funding structure Governance Liquidity CRA

RenaissanceRe Holdings Ltd.

A- A+ Stable a+ Very Strong Very Strong Strong Excellent High Neutral Neutral Adequate 0

PartnerRe Ltd.

A- A+ Stable a+ Very Strong Very Strong Strong Excellent High Neutral Neutral Adequate 0

Everest Group Ltd.

A- A+ Stable a+ Very Strong Very Strong Satisfactory Very Strong High Neutral Neutral Adequate 0

Arch Capital Group Ltd.

A- A+ Stable a+ Strong Strong Very Strong Very Strong Moderately Low Neutral Neutral Exceptional 0

AXIS Capital Holdings Ltd.

A- A+ Stable a+ Strong Strong Very Strong Excellent Moderately High Neutral Neutral Adequate 0

Hiscox Insurance Co. Ltd.

BBB+ A Stable a- Strong Strong Satisfactory Satisfactory Moderately Low Neutral Neutral Exceptional +1

Associated Electric & Gas Insurance Services Ltd.

NR A- Positive a- Strong Strong Satisfactory Strong Moderately High Neutral Neutral Exceptional 0

Lancashire Holdings Ltd.

BBB A- Stable a- Strong Strong Strong Excellent High Neutral Neutral Adequate 0

Fidelis Insurance Holdings Ltd.

BBB A- Stable a- Satisfactory Satisfactory Strong Excellent High Neutral Neutral Adequate 0

Aspen Insurance Holdings Ltd.

BBB A- Stable a- Strong Strong Satisfactory Excellent High Moderately Negative Neutral Adequate 0

SiriusPoint Ltd.

BBB A- Negative a- Strong Strong Satisfactory Very Strong High  Neutral Neutral Adequate 0

Argo Group International Holdings Ltd.

BBB- A- CreditWatch Negative a- Strong Strong Strong Very Strong Moderately High Neutral Neutral Adequate 0
S&P Global Ratings' ratings are as of Aug. 22, 2023. *Issuer credit rating on the holding company. §Financial strength rating on core operating subsidiaries. CRA--Comparable ratings analysis. IICRA--Insurance Industry and Country Risk Assessment (intermediate for all 12 Bermudians). NR--Not rated.

Related Research

This report does not constitute a rating action.

Primary Credit Analysts:Saurabh B Khasnis, Englewood + 1 (303) 721 4554;
Taoufik Gharib, New York + 1 (212) 438 7253;
Secondary Contacts:Michael Zimmerman, Englewood + 303-721-4575;
Charles-Marie Delpuech, London + 44 20 7176 7967;
Maren Josefs, London + 44 20 7176 7050;
Tanveen K Bamrah, Mumbai;

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