According to a new Fitch Ratings report, Bermuda (re)insurers withstood another year of sizable industry catastrophe losses supported by the group's strong capitalization and favorable risk management.
Fitch views Hurricane Sandy as an earnings event and not a capital event for the group of 17 large publicly traded (re)insurers with operations in Bermuda that Fitch actively follows. While companies will suffer a sizable hit to fourth-quarter earnings, Bermuda (re)insurers will still report an improved combined ratio of approximately 95% in 2012 compared to 107% in 2011.
Bermuda continues to lead the way as convergence of the reinsurance market and capital market persists. Many (re)insurers on the island are involved in both providing and using alternative forms of risk transfer to supplement the traditional balance sheet, with several Bermuda (re)insurers transforming into risk asset managers.
The protracted low yielding investment environment has not pushed Bermuda (re)insurers overall to stretch for yield and significantly increase portfolio risk. However, Fitch has witnessed a few companies that have made modest changes as a means to enhance investment returns, including partnering with asset management firms.
Further delay in the implementation of Solvency II until at least 2015 provides more time to achieve unqualified third-party country equivalence. However, it also postpones Bermuda reinsurers from realizing the potential market benefits from increased reinsurance demand under the new regulatory regime.
Several merger and acquisition (M&A) transactions were completed or announced in the Bermuda market sector in 2012. However, this activity was more opportunistic, as most Bermuda (re)insurers continue to trade at a discount to book value, increasing the relative attractiveness of share repurchases over M&A.
The full report, 'Bermuda 2013 Market Update' is available on Fitch's website at 'www.fitchratings.com' under 'Insurance' and 'Research'.