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Fitch: Bermuda Market Faces Headwinds Following Profitable 2013

January 29, 2014

CHICAGO --(BUSINESS WIRE)-- Link to Fitch Ratings' Report: Bermuda 2014 Market Update According to a new Fitch Ratings report, Bermuda (re)insurers will report favorable full year 2013 operating results, driven largely by lower catastrophe losses. However, continued softening market conditions, competition from the growing alternative reinsurance market, and a potential return to more normal catastrophe losses will create earnings pressure in 2014. Fitch expects the full year 2013 combined ratio for the group of 15 large publicly traded Bermuda (re)insurers that it actively follows to remain near the 86% posted through the first nine months of 2013. Capitalization is flat but will remain strong as intense competition and limited demand means there are likely to be few opportunities to use new capital to generate additional business. As such, Bermuda (re)insurers are likely to continue to return capital to shareholders. Commercial (re)insurance pricing continues to remain under pressure, with reinsurance business experiencing more pricing pressure than primary business and property pricing declining more than casualty. This is particularly the case for higher-layer property catastrophe excess-of-loss reinsurance business. Given this environment, many Bermuda companies are shifting more capacity into various specialty lines and Lloyd's of London business. Potentially even more concerning than the recent price declines are the broadening of policy terms and conditions that may signal a deterioration in underwriting discipline. These expanded provisions include more generous reinstatements, increased ceding commissions and added terrorism coverage. These challenging current market conditions have led Fitch to recently assign a negative outlook on the global reinsurance sector. Valuation multiples are slowly changing in favor of deal making, with many Bermuda companies' market values improving to near or above book value. Fitch believes that the increasing availability of alternative reinsurance could add to this trend by providing further sources of capital to the market while potentially reducing growth opportunities for traditional reinsurers that are in direct competition with the alternative providers. The full report, ' Bermuda 2014 Market Update', is available on Fitch's website at ' ' under 'Insurance' and 'Research'. Additional information is available at ' '. Applicable Criteria and Related Research : --'Insurance Rating Methodology' ( Nov. 13, 2013 ). Applicable Criteria and Related Research : Insurance Rating Methodology -- Amended ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS . IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE ' WWW.FITCHRATINGS.COM '. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Fitch Ratings Brian C. Schneider , CPA, CPCU, ARe, +1 312-606-2321 Senior Director Fitch Ratings, Inc. 70 W. Madison Street Chicago, IL 60602 or Christopher A. Grimes , CFA, +1 312-606-3263 Associate Director or Media Relations: Brian Bertsch , +1 212-908-0549 Source: Fitch Ratings

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