Fitch: ‘Benefit To Be Reduced, Not Eliminated’

January 23, 2018

The changes to the U.S. tax system will “significantly reduce the long-standing tax advantage of Bermudian re/insurers,” Fitch said, adding that they expect the overall benefit of a Bermuda domicile “to be reduced, but not eliminated, with the island largely maintaining its established position in the global market” due to its underwriting expertise, regulatory regime and Solvency II equivalence.

Fitch Ratings Bermuda Jan 23 208 TC

“Bermuda’s major re/insurers will report elevated combined ratios for 2017, averaging around 108%-109%, including more than 20 percentage points from catastrophe losses,” Fitch Ratings said.

The ratings agency said, “This would exceed the 107.1% posted in 2011, the last year with significant insured losses from catastrophes, and compares with 91.8% in 2016, when catastrophe losses contributed only 5.3 percentage points.

“The large catastrophe losses of 2017 appear to have ended several years of soft pricing, with market data this month showing rate increases in most lines, particularly property and catastrophe business.

“But the increases look modest and it is questionable whether there will be a longer-term shift to a harder market, given the still-strong capitalization in the global [re]insurance market and extra capacity from the insurance-linked securities [ILS] market.

“The ILS market grew to a record size in 2017 [USD82 billion at end-September, according to Aon Benfield], with growth in both catastrophe bonds and collateralized reinsurance.

“This year’s cut in the U.S. corporate tax rate to 21% from 35% and the new base erosion and anti-abuse tax [BEAT] will significantly reduce the long-standing tax advantage of Bermudian [re]insurers over those in the U.S. However, Fitch does not anticipate immediate rating implications.

“We expect the overall benefit of a Bermuda domicile and operations to be reduced, but not eliminated, with the island largely maintaining its established position in the global market due to its underwriting expertise, strong and efficient regulatory regime and full Solvency II equivalence.

“AIG’s announcement this week that it will purchase Validus will further reduce the number of independently owned and publicly traded Bermuda [re]insurers. But companies continue to be launched in Bermuda, demonstrating that the island remains attractive for start-ups. Bermuda market M&A could be driven this year by attempts to offset the impact of U.S. tax reforms and a continued competitive market.”

The report “Bermuda 2018 Market Update” is available at

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Comments (5)

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  1. The Original Truth™ says:

    Fitch Ratings isn’t taking into consideration that changes to the U.S. tax system also offer incentives to other countries companies to domicile their funds in America. Cayman Island will no longer be BDA’d biggest competitor in the west.

    Revenue growth of AIG is -8.52% and expected to decline further. Purchasing Validus is about helping AIG level out. Not a smart move under a president who has vowed to bring every US$ possible back to America.

    • Ok says:

      You are right…since the tax cuts…Walmart for example, has raised their minimum wage and gave all their staff $1000 bucks. Damn how much are they saving?

      • Navin Johnson says:

        Billions….they will be saving 3 to 4 Billions in Taxes annually under the new tax plan more than enough to fund a salary increase…..

      • blankman says:

        Walmart has been working to shed the “low wage employer” image for some years and they’ve been increasing their minimum wage every year for a number of years. This latest increase is just a continuation of their past practices.

        As for the $1,000 bonus that’s not being paid to every employee. Someone has to have been working there for over twenty years in order to qualify for the full $1,000. Moreover, it’s only being paid to those employees who were already earning over $11 an hour. I would assume that’s intended to take some of the sting out of the fact that all the hard work those individuals put in to increase their wages is suddenly completely wasted.

        Moreover, Walmart is competing for employees in the same job market as everyone else. With an unemployment rate of about 4% it’s not as if they had much choice in the matter.

  2. Mrs Brady says:

    The beginning of the end for offshore business. Bermuda better realize this soon.