Wildfires dominated conversations at the annual Bermuda Risk Summit held in a marketplace that has traditionally revolved around peak catastrophe perils.
In addition to the event’s private market impact, there was notable interest in regulators’ reactions around climate risk, especially non-peak perils that used to be considered “secondary” but have added up to substantial loss figures in the past few years.
California’s insurance commissioner Ricardo Lara, for example, delivered a keynote speech, arguing that this is an “opportune moment for the insurance sector and regulators to step up” in fighting the impact of climate change.
The LA wildfires swept southern California only a few weeks after the state’s Department of Insurance implemented its last piece of legislation in a slew of reforms aimed at bringing homeowners insurers back to the market.
Among other things, he stressed that state regulators are conducting a deep review to accelerate California’s notorious rate filing process as well as the intervenor system – both of which insurers have blamed as key factors that meant pricing couldn’t keep pace with loss costs.
“Intervenors can no longer hold our rates hostage – we do not have the luxury of time,” he added.
Wildfire impact
Market estimates for the total insured loss from January’s California wildfires remain in flux, with projections ranging from the lower end at $40bn to upper-end estimates reaching $50bn.
Wherever the ultimate loss lands within this range, it undeniably marks a significant loss very early in the calendar year.
Arch CEO Nicolas Papadopoulo – who was speaking on a CEO panel at the Risk Summit – said he expects catastrophe XoL carriers to take a $15bn to $20bn share of industry losses from the California wildfires based on global premium.
This equates to a 30% to 40% loss ratio just months into 2025. Anecdotally, however, there is talk of some Bermudians’ ratios already running much higher than this.
Some carriers are understood to be assessing what’s left of their budget ahead of wind season and looking to buy more retro at the top to derisk.
This is particularly pressing for certain players given that some lower-layer retro programs feature no reinstatements, leaving carriers with only one shot at recovery before needing to absorb further losses themselves.
With regards to market impact, there is a sense among some on the island that both appetite and pricing will remain stable despite the wildfire losses.
Others, however, said that the wildfire losses may have been big enough to stop “egregious” declines in property cat pricing, but not enough to reverse the downward movement in rates at the opposite end of the country.
Casualty questions
On the casualty side, utility liability is the line of business where wildfire losses can erode performance. However, sources said that the LA wildfire’s impact will not be substantial given the fact that there aren’t many Bermudians who have big exposure to California utility companies.
The event could have an effect on pricing this year, as a reminder of large-scale wildfire risk. But utility liability insurance prices in Bermuda had already soared last year by 300% or even 1,000% or more in some cases, due to the capacity reduction triggered by the pullback of one major market in the space.
Hence, even if rates go up this year, sources said there simply isn’t room for major repricing, particularly given some of the largest utility mutuals have already made corrections on their books.
Questions around corporate tax
Bermuda market sources are also waiting to see impact from the island nation’s adoption of corporate income tax, which went into effect on January 1 this year.
Some of the core questions asked are around how Bermuda will remain an attractive insurance market without the relative tax advantage, and what other reforms can be implemented to compensate for the impact of a minimum 15% corporate income tax.
Having this full picture will require additional guidelines from the OECD and with a new US administration in place, it’s likely that these clarifications may be even slower to come than under typical circumstances. But a panel of experts also noted that Trump in the White House does not mean the tax will be done away with.
One element that Bermuda sources are curious about is the government’s use of tax credits.
The island nation traditionally had a consumption tax regime and even without the corporate tax was known for having high costs of doing business, including employees’ cost of living.
However, sources on the island warned that the card of tax credits should be used wisely, given that the OECD may want to reign in efforts to nullify the corporate tax effect through providing other fiscal benefits.
P&C sources on the island cited relief on healthcare costs, reforms on payroll tax, as well as changes in immigration law that would enable automatic Visa renewals as reforms that would benefit the industry.