Fitch: Catastrophe losses hit reinsurers' combined ratios

Expected average to shoot past 2011 levels

Fitch: Catastrophe losses hit reinsurers' combined ratios

Insurance News

By Terry Gangcuangco

Major (re)insurers in British overseas territory Bermuda are forecast to report elevated combined ratios for 2017.

Credit rating agency Fitch Ratings said the combined ratios will average around 108%-109% to include over 20 percentage points from catastrophe losses, surpassing the 107.1% posted in 2011 - the last year with significant insured losses from catastrophes.     

By contrast, back in 2016, catastrophe losses contributed only 5.3 percentage points to a combined ratio of 91.8%.

“The large catastrophe losses of 2017 appear to have ended several years of soft pricing, with market data this month showing rate increases in most lines, particularly property and catastrophe business,” noted Fitch Ratings. “But the increases look modest and it is questionable whether there will be a longer-term shift to a harder market, given the still-strong capitalisation in the global (re)insurance market and extra capacity from the insurance-linked securities (ILS) market.”

With both catastrophe bonds and collateralised reinsurance showing growth, the ILS market reached a record level last year. The figure, according to Aon Benfield, stood at US$82 billion as of September 30.      

Meanwhile changes in US taxation will also have an impact on (re)insurers based in Bermuda. 

“This year’s cut in the US corporate tax rate to 21% from 35% and the new base erosion and anti-abuse tax (BEAT) will significantly reduce the long-standing tax advantage of Bermudian (re)insurers over those in the US,” said the credit rating agency. “However, Fitch does not anticipate immediate rating implications.

“We expect the overall benefit of a Bermuda domicile and operations to be reduced, but not eliminated, with the island largely maintaining its established position in the global market due to its underwriting expertise, strong and efficient regulatory regime, and full Solvency II equivalence.”

It added that while Validus being snapped up by AIG further brings down the number of independently owned and publicly traded Bermuda (re)insurers, new companies keep setting up in the “attractive” territory.

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