Fitch Ratings: Consolidation Will Continue

January 27, 2016

Consolidation in the Bermuda insurance market will continue in 2016, albeit at a slightly slower pace than 2015, according to a new Fitch Ratings report titled ‘Bermuda 2016 Market Update’.

“Fragile conditions in the global re/insurance market characterized by falling prices and weakening terms and conditions are pressuring earnings for Bermuda re/insurers,” Fitch said.

“Fitch maintains a stable rating outlook on both U.S. property/casualty insurance and global reinsurance, which includes Fitch’s coverage of Bermuda market re/insurers.

“However, Fitch’s reinsurance sector outlook is negative as premium prices are expected to fall further in 2016 while investment yields will remain close to historic lows.

“The U.S. property/casualty insurance sector outlook is stable as a shift towards sharply inadequate premium rates or profit levels approaching operating losses is not anticipated.

“Despite global market challenges, the Bermuda insurance landscape remains strong in Fitch’s view as the island adapts to changing market conditions. Bermuda’s favorable tax status and strengthening regulatory framework allow it to compete on the global re/insurance playing field.

“Importantly, the European Commission awarded Bermuda full equivalency with Solvency II, which was formally implemented on Jan. 1, 2016, enhancing Bermuda’s global competitiveness.

“Following a challenging 2015, Fitch does not expect the hedge fund reinsurance market to accelerate in 2016.

“Hedge fund backed reinsurers face increased offshore tax scrutiny as well as investment and underwriting challenges which has lead several firms to exit the business. However, Fitch does expect to see captive reinsurers and hedge funds partner in the market.”

“Organic growth options are limited and scale and diversification are driving a rapid pace of M&A activity for Bermuda insurers and Fitch expects industry consolidation to continue,” said Brian Schneider, Senior Director, Fitch.

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