Bermuda Re/Insurers to See U/W Profit Drop; M&A Returns as Organic Growth Wanes

Core Insights - Bermuda-based re/insurers are projected to experience a decline in underwriting profit in 2025, with an average combined ratio of 92%, up from 90.7% in 2024 [1] - The group reported a combined ratio of 91.0% for the first nine months of 2025, an increase from 86.4% in the same period of 2024 [1][2] - Catastrophe losses are expected to contribute approximately 8 percentage points to the 2025 combined ratio, primarily due to California wildfires, which caused US$40 billion in insured losses [3] Underwriting Performance - The increase in combined ratios is attributed to higher catastrophe losses, less favorable reserve development, and a deterioration in underlying underwriting results [2] - All companies in the monitored group reported underwriting gains, but most had higher combined ratios in 9M 2025 compared to 9M 2024, with AXIS and Aspen being exceptions at 89.5% [2] Market Conditions - The January 2026 reinsurance renewals indicated a shift to a buyers' market, particularly for property risk, with the largest rate declines in over a decade [4] - Pricing decreases in specialty lines were modest, while casualty lines remained stable amid rising loss costs from social inflation [4] Financial Performance - Shareholders' equity grew by 12% in 9M 2025 compared to year-end 2024, driven by underwriting gains and strong investment income [6] - Return on equity is expected to remain favorable at nearly 17% in 2025, slightly down from 17.8% in 2024 [6] M&A Activity - M&A activity has increased in 2025 as organic growth opportunities have diminished in the softening market, with companies looking to acquire other re/insurers [10] - Notable transactions include Howard Vantage's acquisition by Howard Hughes Holdings for US$2.1 billion and AIG's acquisition of Convex and Everest [7][13] - Fitch anticipates that consolidation may reduce competitive pressures but will view negatively any deals lacking a clear strategic rationale [11] Sector Outlook - Fitch maintains a "deteriorating" fundamental sector outlook on global reinsurance and a "neutral" outlook on U.S. property/casualty insurance [12]