Wednesday, 25 January 2012
Fitch sees Bermuda market as ‘fundamentally resilient’
Fitch Ratings has said that Bermuda-domiciled reinsurers are well positioned to benefit from an improved underwriting and somewhat better pricing environment this year, following a very difficult 2011.
Fitch Ratings said in a report that it sees the Bermuda market as: “Fundamentally resilient, with a strong, albeit diminished, capital position and a proven ability to adapt in meeting capacity needs.”
Market underwriting capacity remains strong, said Fitch, even though overall capital declined slightly in 2011 for the 17 Bermuda-domiciled insurers that Fitch actively follows.
“Moreover, an uncertain earnings outlook puts additional pressure on (re)insurers to preserve existing capital, as Fitch regards maintaining focus on profitable underwriting as the key factor in preserving capital,” the rating agency said.
It added that regulatory changes are expected to introduce both opportunities and threats, as the island faces competition from other jurisdictions, tax-status scrutiny, and changing collateral rules. Reinsurance demand may be boosted by the need for insurers operating under Solvency II to hold more risk capital. However, Fitch pointed out that with Bermuda seeking Solvency II equivalence, “the country's regulatory framework will, at a minimum, become less flexible, reducing its appeal as the preferred location for start-up companies.”
Brokers, analysts and the insurers and reinsurers themselves keep telling everyone that will listen that the international insurance and reinsurance industry is currently over-capitalised. But at the same time corporate risk and insurance managers complain that the industry is barely scratching the surface of its risk transfer needs and that its cost-laden, traditional line of business approach prevents it from meeting their real demands. John Charman, Chairman and CEO of Bermuda-based Endurance Specialty, believes that consolidation is the answer. He is literally prepared to put his money where his mouth is and bought a $30m stake in Endurance when he took the helm last May. He has reorganised and refocused Endurance for further growth and has now made an audacious and contested bid for rival Bermuda insurer Aspen to fast track the process. Commercial Risk Europe Editor Adrian Ladbury investigates what lies behind the proposed deal and what potential implications it has for the wider market.