Moody's Says Bermuda Market Remains Stable

Moody's Investors Service said the rating outlook on the Bermuda market is stable reflecting insurers' and reinsurers' generally robust balance sheets, strong operating profits generated over the past eighteen months, and enhanced risk management practices.

The New York-based firm's new industry outlook also noted, however, that the positive considerations are tempered by the inherent volatility of catastrophe-exposed lines of business, currently softening market conditions, and low barriers to entry in this industry sector that thrives on opportunities generated by marketwide disruptions.

In assessing the Bermuda market's development and priorities, Moody's noted that most insurers and reinsurers have reported significantly strengthened earnings on the heels of large underwriting losses from the 2005 hurricanes Katrina, Rita and Wilma.

Partly in response to these strong recent operating trends, as well as to reduced prospective growth opportunities and a softening pricing environment across most casualty and property lines, however, many Bermuda firms are now actively managing both the underwriting cycle and their capital, Moody's said.

The rating firm said Bermuda carriers' asset and cycle management includes share repurchases, special dividends and capital retention in order to balance the interests of shareholders and creditors, and in recognition of a heightened awareness of the intrinsic volatility of their business.

Moody's said one aspect of the Bermuda market remains fundamentally unchanged: its tradition of innovation in insurance and risk management.

The outlook's lead author, Alan Murray, noted, "The Bermuda insurance and reinsurance market has continued to evolve in 2006 and 2007 with the establishment of reinsurance sidecars. Among their leading cedants are some of the established Bermudian publicly traded firms, but these new capital vehicles are also serving the broader international insurance and reinsurance marketplace."

Additionally, Moody's noted that although market dislocations have often provided opportunities for start-up firms, Bermuda's newer insurers and reinsurers must balance the near-term benefits of capitalizing on short-term opportunities with the need to establish longer-term business strategies to ensure sustainable competitive viability.

In light of increased scrutiny of insurers' operational risk management and oversight, corporate governance has become a more prominent consideration, Moody's said.

Janet Holmes, co-author of the report and a vice president in Moody's corporate governance group, said that although nearly all of the firms Moody's currently rates are publicly traded Securities and Exchange Commission registrants, actual corporate governance characteristics vary considerably among this relatively small group of companies.

She said this reflects differences in their origins and length of operating history, as well as their sources of capital. "These characteristics help to illuminate differentiation in executive succession and compensation, and in board-level composition and risk oversight," said Ms. Holmes.

The report contains a summary of recent developments in the regulatory and financial oversight on the island, and includes a discussion of key drivers of profitability, investment quality and capitalization, and leverage for the major firms.

More information on the report is online at www.moodys.com.