Report: Re/insurance Sector Challenges
Bermuda’s global insurers and reinsurers are contending with a serious and ongoing market contraction — and the bottom of the cycle has yet to be reached, says ratings agency A.M. Best.
An exclusive report posted by news agency Reuter today [December 2] cites a new Best report on the multi-billion dollar Bermuda re/insurance sector due to be released next week, one which paints a gloomy picture of the industry’s short-term prospects.
“For the first nine months of this year, net premiums written and net earned premiums have fallen, investment income is down, loss and expense ratios are up and return on equity is off sharply for for the 18 publicly traded companies in the market the agency rates,” Reuter reports on the discouraging market conditions faced by the off-shore re/insurance juggernaut. “What financial strength there is, the agency said, is coming in large part from releases of loss reserves, which are boosting returns and keeping expenses under check. ‘A.M. Best continues to see more challenges than opportunities as pricing pressures persist, investment portfolios lack sufficient yield, and loss-reserve releases — which are masking the symptoms — are likely drying up,” the firm said …
“In particular, the report noted the volume of catastrophes for the year, while large, has not been enough to force better pricing in the market. In some places, like Chile after the February earthquake, price increases have not been enough to reflect the actual risk involved.
“The fundamentals are so weak, the firm’s analysts said, that investors are shunning the market and the companies are mostly trading for less than book value.”
Now hosting the biggest off-shore insurance industry in the world, starting in the mid-1980s Bermuda began to play a key role in the global insurance and reinsurance markets. The first important wave of Bermuda non-captive insurance company formations began with the establishment of ACE and XL in response to the mid-1980s commercial liability insurance crisis in the United States. The ACE-XL model established a pattern in the development of the Bermuda market that continues to the present day. The island’s success in the off-shore re/insurance field has led to Bermuda becoming known as “The Risk Capital of the World” in industry circles.
