Bermuda reinsurance sector remains strong: Fitch
Profitability will remain under pressure for Bermuda reinsurers following a trying 2017, though the collective strength of the sector should remain largely intact, according to Fitch Ratings' latest peer review of the sector.
Bermuda reinsurers suffered significant catastrophe losses in 2017 due largely to hurricanes Harvey, Irma and Maria along with the California wildfires. In addition to underwriting profits taking a sizable hit, the sector continues to deal with low investment yields. However, market pricing has turned positive so far this year.
“Bermuda reinsurers typically maintain very strong capitalization while keeping leverage modest, which will serve them well as they continue to work through sizable catastrophe losses and shrinking profits,” said Fitch senior director Brian Schneider.
Despite a tough 2017, Bermuda reinsurers have reduced their overall net catastrophe risk exposure over the last several years with much of this business transferred to the capital markets, Fitch noted.
“The willingness of the capital markets to accept a lower price for catastrophe risk has helped to reduce the financial impact to Bermuda reinsurers,” said Schneider.
Additionally, recent merger and acquisition (M&A) activity in the sector has heightened attention around business profile, the credit factor Fitch deems as most important in assessing the strength of Bermuda reinsurers.
“The size and scale of a Bermuda reinsurers' capital and premiums is taking on more importance as sector consolidation continues,” said Schneider. “Cedants are using fewer, but higher-quality, top-tier reinsurers that are able to provide a full suite of both traditional and alternative capital market products and services.”
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