Positive Outlook with Variations in Re/insurance Markets
Re/insurance industry leaders have shown a cautious sense of optimism regarding the prospects for 2025, although their outlooks vary significantly between the property catastrophe and casualty lines. This sentiment was captured by KBW analysts following the recent AIFA conference.
Property Catastrophe Reinsurance appears to be on track for consistent returns. Executives are confident as attachment points hold steady and small rate decreases only slightly reverse the previous years’ significant rate hikes. There is enough capital to meet the rising demand, including backup covers for smaller cedents affected by events like the California wildfires. However, a slight tightening of terms and conditions is expected, which might limit the cedents’ flexibility in categorizing catastrophe events.
In contrast, casualty reinsurance presents a more complex picture. Most executives remain broadly cautious about engaging in this segment. Market pricing, especially ceding commissions on quota share policies, does not fully address the ongoing challenges of social inflation, which has led to widespread reserve strengthening. One reinsurance executive suggested that the industry has not yet fully recognized the worst impacts of social inflation, which should sustain or even accelerate significant rate increases in primary casualty areas. This concern has not yet been reflected in casualty reinsurance pricing, leading to careful cedent selection and limited growth in casualty reinsurance premiums, primarily driven by higher primary rates.
The Bermuda Tax Landscape
Analysts also explored the tax situation in Bermuda, noting that most Bermudian reinsurers expect the eventual reversal of deferred tax assets (DTAs) booked in late 2023, typically within a two-year timeframe. According to KBW, none of the companies expressed concern about current or future capital adequacy, and many are considering share repurchases in the absence of significant premium growth opportunities.
Bermuda tax law permits companies to leverage their legally established DTAs. However, it is anticipated that Bermudian regulators might introduce offsets, such as reduced payroll or property taxes, to compensate Bermudian companies for corporate income tax. This could potentially reduce (re)insurers’ expenses, possibly retroactively, though such measures are unlikely to appear in the first half of 2025.
Despite the challenges in the casualty sector, the overall sentiment among property and casualty (P&C) re/insurers at the conference was one of cautious optimism for the year 2025. KBW anticipates share price outperformance across the P&C sector for well-reserved re/insurers that can seize market opportunities and mitigate risks. Additionally, brokers who are well-positioned to surpass decelerating organic revenue growth tailwinds are also expected to perform well.
