Arthur Wightman, PwC’s Bermuda country leader, does not expect a fundamental collapse in pricing until 2026, despite continued softness in the reinsurance market on the property side and tight constraints on the capital and innovation magnets of the Bermuda market.
In April, Reinsurance News met with Whiteman at PwC’s offices in Hamilton, Bermuda, to discuss the current reinsurance market cycle, Bermuda’s competitive advantages and the global surge in asset-intensive or financed reinsurance transactions.
“We did just emerge from a very tough market. Certainly with renewals, we saw significant double-digit price drops, particularly on the real estate side,” Whiteman said. “We expect continued market weakness as a result.”
While it is clear that pricing dynamics are changing rapidly in some real estate sectors, structural discipline and capital management should limit any risk of a breakdown in pricing discipline.
Nonetheless, Whiteman stressed that PwC does not expect a “structural collapse in Bermuda pricing” in the coming months, although rates are moving faster than historically expected in some areas, in part due to underwriting discipline and the moderating power of alternative capital.
“Strong underwriting discipline remains in place in the Bermuda market, and capital discipline helps limit declines in profitability, returns on capital, etc.,” Whiteman continued. “However, as always there will be focus on whether this applies to existing and new market entrants as they are more reliant on rapid premium growth and fee commissions.”
As the broker renewal report highlights, the weakness is most pronounced in property and casualty reinsurance, with different trends shaping the leisure reinsurance space.
“In the casualty world, particularly in North America, reinsurers are focused on pricing adequacy. There are a lot of concerns about social inflation, there are also big concerns about reserve adequacy. Even with prices firming in recent years, signs of adverse development in losses have emerged, raising questions about the adequacy of pricing,” he said.
In addition to discipline, Whiteman also emphasized continued structural innovation in both traditional and alternative capital sectors.
Wightman said: “ILS capacity continues to support the market as a whole, but is largely moderating – both on the upside and the downside. We believe ILS is peaking the historical ratings environment, which is likely a positive development in our base case analysis, and we do not expect a return to hardening in the near term.”
As our readers know, Bermuda is a dominant global center for reinsurance and alternative risk transfer, and Whiteman told Reinsurance News that the island’s market position is “very sustainable”.
“We hear comparisons between jurisdictions – London versus Bermuda, Bermuda versus Cayman, etc. However. The scale and depth of expertise in Bermuda has been there for a long time and will continue to be. Over a third of our reinsurance capital is based in this market and that is unlikely to change. The Bermuda market remains sustainable and strong.
“We have extremely strong regulatory credibility. We have Solvency II equivalence qualifications and NAIC reciprocity status. We have an active, pragmatic and forward-looking regulator in the BMA, which has helped build that credibility and will continue to support the jurisdiction’s long-term position,” Whiteman said.
The executive went on to describe Bermuda as a “capital and innovation magnet”, stressing that the jurisdiction’s philosophy is to strive to make the re/insurance market bigger and better to address new risks and help close the protection gap.
“That’s what Bermuda is about. There’s no shortage of capital that wants to get into this market. There are competitive pressures here, just like anywhere else in the world. We obviously have a global tax system in place. We’ve had similar things in the past and we’re going to have similar things in the future. The Bermuda market is basically the same as anywhere else in the world. All of this has been embraced and accepted in a positive way, which will only enhance our reputation relative to some other jurisdictions. So there will always be competitive pressures and issues with operating costs, inflation and so on, but overall Bermuda is a mature and strong jurisdiction and its tenure is going to be long.”
Earlier this year, PwC released a report on the growing asset-intensive reinsurance market, highlighting the industry’s global expansion over the past decade. With this in mind, we asked Whiteman what’s driving the surge in these deals, and why Bermuda is at the center of it.
“It’s quite simply a growing demand for longer lives and annuity products,” he said. “Insurers need to free up trapped capital and that’s what they have been doing. Why is Bermuda in trouble? Because of our regulatory credibility, capital efficiency and expertise. The core elements that have supported the growth of the property and casualty environment are now being applied to the life reinsurance market. While skills may vary in some areas, the overall portfolio of capabilities across jurisdictions is well positioned to be deployed in this area.”
Looking ahead, Whiteman said he 100% expects Bermuda to continue to be a center for financed reinsurance transactions, again citing regulatory credibility, market capitalization size, Bermuda’s strong track record and the region’s access to private capital.
“There is also deep technical expertise here. As mentioned previously, what was previously more focused on the property and casualty side is now firmly established in the living space. We have a strong advocacy organization at BILTIR, as well as a broad base of professionals who live and breathe this space who are either rooted here or closely connected to the market.
“There’s also something called ecosystem inertia. When all the ingredients for success — for investors, policyholders and others — are already in place and fully functioning, it’s hard to argue that this market can be disrupted in favor of another.”
