US, Bermudian Reinsurers Benefiting from Improved Conditions

A 3D graph showing a rise in profits

August 29, 2022 |

A 3D graph showing a rise in profits

A.M. Best's composite of US and Bermudian reinsurers posted an improved underwriting margin in 2021, despite elevated catastrophe activity, the rating agency reported.

The group of reinsurers experienced a minimal number of COVID-19-related claims and experienced a larger contribution from investment results, Best said.

According to a Best's Market Segment Report, "US-Bermudian Reinsurers Benefit as Market Conditions Improve," the group of reinsurers posted a combined ratio of 95.8 percent in 2021, a 6-percentage-point improvement over 2020's result.

The group is expected to continue to experience favorable reserve development as COVID-19 claims development has been less than expected, Best said. In addition, a significant amount of the reinsurers' COVID-19 claims reserves is still incurred but not reported (IBNR), according to the rating agency, so if current frequency and severity trends for recent accident years continue, the reinsurers should see further favorable reserve developments. Inflation fears might affect various reserve assumptions, however, Best noted.

"Optimism regarding reserve redundancy for recent accident years should be tempered by recognizing that the current spike in inflation could continue for a prolonged period, which could undermine projections for severity trends in long- or short-tailed business lines," Gregory Dickerson, associate director at A.M. Best, said in a statement.

Best said that capacity remains ample in many reinsurance lines, though underwriters remain cautious about Florida exposures due to concerns about long-term structural issues in the tort system that appear unlikely to be resolved in the near-to-medium term. Reinsurers are experiencing an improving pricing environment for property catastrophe risks, however, according to Best.

The group of reinsurers saw net premiums written grow 20 percent in 2021 as a result of significant rate increases, Best said. The rating agency projected that the composite's premiums will continue to increase in 2022, as demand remains high and rates in many key reinsurance lines continue to increase, though at a slower pace.

The group of reinsurers should continue to benefit from ongoing improvements in reinsurance pricing and terms and conditions, Best said, as well as the thus-far quiet 2022 Atlantic hurricane season. Assuming that catastrophe losses aren't excessive in the second half of the year, the group should see improvements in combined ratio again in 2022, the rating agency said.

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August 29, 2022