Credit rating agency Fitch said Bermudian re/insurers it monitors have raised $7.7 billion in capital over the past year, as companies look to capitalise on the hard market.

Fitch added that there had been some disappointment among carriers at the extent of reinsurance rate rises during the January 1 renewal season.

However, the rating agency expects reinsurers’ profitability to improve this year as benefits from rate rises outpace the increasing cost of civil case court awards and reduced investment income from persistently low interest rates.

Higher-than-expected catastrophe losses and coronavirus-driven claims will drive premium rate increases, Fitch said.

In its analysis of the US property and casualty insurance and global reinsurance markets, including Bermuda re/insurers, Fitch said: “Tighter underwriting of commercial lines and normalising catastrophic losses will support underwriting profits; however, adequate or improved capital returns will continue to be challenged by competitive pressures, lower investment income from persistently lower interest rates, and deteriorating asset quality.

“The pricing of the January 2021 reinsurance renewal season, while improving for the third consecutive year, was somewhat disappointing for reinsurers.

“However, price increases have gained momentum through the various renewal seasons since the onset of the pandemic, with the market expect to continue to harden through 2022 as premium rate increases take hold.”

Fitch said the sector's capital strength remained largely unscathed despite substantial pandemic-related underwriting losses in several segments.

“Re/insurers saw sizeable new capital issuance in 2020 following the onset of the pandemic, as firms took advantage of the low rate environment and accommodative markets supported by unprecedented government stimulus to raise capital amid market uncertainty and liquidity concerns exacerbated by the pandemic fallout,” Fitch added.

“Fitch-monitored Bermuda companies raised approximately $7.7 billion of capital in 2020/2021, including common and preferred equity, various debt securities and drawdowns on credit facilities.”

Several market incumbents, including RenaissanceRe, Arch Capital and Fidelis have each raised in excess of $1 billion over the past year, while start-ups such as Conduit Re and Vantage Risk have added to the capital influx into the market.

The rating agency added that merger and acquisition activity has been subdued amid improved organic growth opportunities given the hardening market.

It added: “However, if price improvement is not sufficient to offset the added strain of coronavirus losses, weaker companies could become acquisition targets.”

Fitch maintains a stable rating outlook on both the US property and casualty insurance and global reinsurance market sectors.