A big change in the Ogden rate and higher natural catastrophe losses are dampening a wide range of Bermuda-based insurer and reinsurer results in the 2017 first quarter, Standard & Poor’s said in a new report.

“Unfavorable reserve developments in UK auto insurance – also known as Ogden losses – and high natural catastrophe losses delivered a one-two-punch to Bermudian [insurers’ and reinsurers’] earnings in first-quarter 2017,” according to the report.

The Ogden rate is used to calculate lump sum awards in UK bodily injury cases, and the UK recently cut the rate from 2.5 percent to -0.75 percent. As a result, insurers must pay much more to claimants.

Standard & Poor’s noted that this was a decrease of 325 basis points and the first rate change since 2001. As a result, losses from this, which S&P terms as casualty catastrophe, should land between $6.5 billion and $9 billion. About 80 percent will be absorbed by the global reinsurance market, and Bermuda will not remain unscathed, according to the report.

“Based on announced estimated losses, Bermudians took about a $260 million hit – about 2.7 percentage points – to their loss ratios in first-quarter 2017,” the S&P report noted.

Of course, Bermudian insurers and reinsurers have not been immune to the damage caused by a jump in natural catastrophe losses.

As S&P noted, reported natural catastrophe losses for the Bermudian insurers and reinsurers rose to $240 million in the 2017 first quarter. That’s more than double compared to the same period a year ago, and S&P said it is also more than 4.5 times the result from similar periods in 2015 and 2014.

“Bermudians felt the sting of these losses, as the industry’s combined ratio was adversely affected by 2.5 percentage points, compared with 1.2 points in the same period in 2016,” according to the report.

Standard & Poor’s doesn’t blame any single natural catastrophe event for this. Instead, it points to a number of smaller events including a jump in tornadoes, large hail and damaging wind events in the U.S. plains, Southeast and Midwest, plus active storms in the Central and Eastern U.S. Also, European windstorms had an adverse effect.

“The first quarter is usually the quietest for global catastrophe losses, but with higher catastrophe losses so far, 2017 is off to a rough start,” S&P said.

In the 2017 first quarter, the industry’s combined ratio for Bermuda slipped to 94 in the 2017 first quarter, versus 90.7 in the 2016 first quarter.

One bright spot: net investment income boosted earnings for Bermudian insurers/reinsurers, jumping to $855.9 million in the 2017 first quarter, 27.4 percent higher than the previous year.

The full report is called: “Bermuda Re/Insurance Quarterly Insights: A Shaky Start To 2017.”

Source: Standard & Poor’s