NU Online News Service, Jan. 20, 2:05 p.m. EST
The Bermuda insurance market is unlikely to see widespread upward rating pressure over the next 12 to 18 months, according to Fitch Ratings, but individual insurers and reinsurers in this market could see upward pressure with the right strategies.
Fitch said it believes that "market-wide improvements in fundamentals that generate widespread upward ratings pressure are unlikely to occur in the 12 to 18 months covered by the agency's rating outlooks." Fitch noted that the rate environment is too cyclical, and competition too fierce for Bermuda companies to generate the capital needed to sustain upward rating pressure, "particularly given the ease with which capital can enter or leave the Bermuda market."
But individual companies within the market could see upward pressure by demonstrating success in reducing capital volatility by adopting more conservative underwriting or investment guidelines, Fitch said. "Additionally," the rating agency continued, "reinsurers that show improvement in risk-adjusted capitalization or more favorable financial performance relative to expectations could face upward ratings pressure."
Bermuda insurers and reinsurers could face downward rating pressure if the soft market conditions deteriorate further, especially if deteriorating conditions are coupled with "shock" catastrophe or investment loses.
Overall, Fitch said the Bermuda market remained strong through the first nine months of 2010 "despite an increase in global catastrophe losses year to date." Citing Highline Data statistics, Fitch said the Bermuda group reported a combined ratio of 93, up 7.6 points compared to the same period a year prior. Net premiums written for the group rose to $38.9 billion from $37.7 billion, but net income dropped to $7.4 billion from $8.3 billion.
Speaking to key issues for Bermuda insurers and reinsurers, Fitch said excess capital will remain in the market into 2011 and share repurchase activity—which ramped up in 2010—could become even more widespread this year.
Negative premium rate changes are expected to continue, Fitch said, noting that it is possible that the soft pricing cycle will intensify before the market turns. But Fitch also said that Bermuda insurers and reinsurers "have more pricing and operational flexibility than primary insurers in the U.S. and, thus, are better able to manage their underwriting activities and capital needs in the soft market." Fitch also said the Bermuda market should be well-positioned to take advantage of an eventual pricing turn.
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