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Bermuda re/insurance market still viable despite declining profits: Fitch

24th January 2017 - Author: Steve Evans

The Bermuda insurance and reinsurance market remains viable in the face of declining profits, according to Fitch Ratings, despite of the continued challenges re/insurers face and new political threats due to the Trump administration.

In 2016 the Bermuda re/insurance market witnesses heightened merger & acquisition (M&A) activity while the market continued to soften, resulting in a reshaped landscape for 2017, Fitch explains in a new report.

But the installation of a Donald Trump presidency and administration has increased political threats for Bermuda’s reinsurance market, which on top of the reduced profitability and continued competitive pressures suggests that Bermudian companies will not have an easy ride in 2017.

“Bermuda’s reputation for a strong and efficient regulatory framework benefits the island’s (re)insurance market; however, the new Trump administration and Congressional shift in public policy in favor of the U.S. combined with a lower corporate tax rate could reduce Bermuda’s market benefits,” commented Brian Schneider, senior director, Fitch Ratings.

M&A could continues in 2017, as Bermuda’s insurers and reinsurers remain attractive targets for foreign buyers seeking diversification.

Fitch said it “expects M&A activity will likely continue in 2017 as companies face limited organic growth options and desire enhanced scale and diversification.”

Full-year 2016 underwriting results are expected to slide for 2016, the 2016 GAAP combined ratio for the group of 11 re/insurers tracked by Fitch Ratings is expected to be around 94%.

This is down from an 88% average in 2015, as hurricane Matthew added 2.5% in the final quarter of the year and higher catastrophe losses, as well as reduced positive prior-year reserve development.

Start–up reinsurance companies are expected to continue to be attracted to Bermuda as a domicile and marketplace, Fitch expects, with many likely to be in partnership with established Bermuda players.

This can help the established players to better navigate the challenging market environment, improving their chances of success.

However, Fitch Ratings does not expect a new class of standalone re/insurance firms to start-up in Bermuda, given the state of the market environment.

“Overall, the softening (re)insurance market continues due to record capacity levels and sluggish demand from reinsurance buyers, despite increased catastrophe losses in 2016. Fitch expects pricing conditions to remain challenging throughout 2017,” Schneider said.

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