‘Insurer Ratings Not Strongly Linked To Bermuda’
Fitch Ratings commented today [June 24] that “under the agency’s rating methodologies, it could rate certain insurance and reinsurance companies at levels at least four notches higher than the sovereign rating of Bermuda.
A statement from the ratings agency said, “In contrast, in most other countries, insurance company ratings are limited to that of the sovereign, or up to one to two notches above the sovereign. Fitch generally views Bermuda-based (re)insurance organizations as being highly isolated from country-related risks in Bermuda.
“Fitch provides these comments following the agency’s June 7, 2013 downgrade of Bermuda’s long-term local currency (LC) Issuer Default Rating (IDR) to ‘AA-’ from ‘AA+’, which reflects four years of economic contraction, sustained high fiscal deficits, and increased government debt burden. The Rating Outlook is Negative and reflects continued uncertainty as to Bermuda’s fiscal and economic trajectory and the lack of a credible fiscal consolidation strategy.
“The (re)insurance companies that Fitch rates that are either Bermuda-domiciled or have significant subsidiaries in Bermuda are generally strong international organizations, with a large and diverse global profile. These companies’ assets, insurance premiums and underwriting exposures are spread across many countries, with very little originating in Bermuda.
“In addition, Bermuda-based insurers tend to hold very little if any Bermuda sovereign debt or Bermuda currency. In addition, they maintain relatively minor investments in Bermuda banks and other Bermuda-based companies. While most Bermuda insurers have some level of deposits held at Bermuda banks, these amounts are generally quite limited. In addition, investment custodians are typically located outside of Bermuda.
“As a result of this very limited linkage of Bermuda-based (re)insurers to the island’s fiscal issues and local economy, Fitch believes stress experienced by Bermuda would have minimal impact on the credit quality of its (re)insurers.
“Currently, only three insurance groups within Fitch’s rated universe have Bermuda domiciled ratings at or above Bermuda’s LC IDR rating of ‘AA-’. These include operating company Insurer Financial Strength (IFS) ratings for ACE Limited (‘AA’ IFS), PartnerRe Ltd. (‘AA-’ IFS) and Everest Re Group, Ltd. (‘AA-’ IFS). As such, Fitch would not expect to lower any of these IFS ratings in the event that Bermuda’s LC sovereign rating was downgraded up to at least an additional three notches to ‘A-’.
“In the event of a more significant downgrade to Bermuda’s sovereign rating to ‘BBB+’ or below, Fitch would consider the circumstances at that time to determine if it would be appropriate to rate Bermuda insurance organizations more than four notches above Bermuda’s LC sovereign rating.”
