FRIDAY, JULY 6: Fitch Ratings said Bermuda’s reinsurance market faces a mixed bag operating under Solvency II requirements.
The ratings agency said the “shifting regulatory landscape continues to present both opportunities and threats, as the island faces competition from other jurisdictions, tax-status scrutiny, and changing collateral rules.
“Insurers operating under Solvency II will likely be required to hold more risk capital, which may boost reinsurance demand.
“Bermuda is one of the first three jurisdictions seeking Solvency II equivalent status (Japan and Switzerland being the other two), and the Bermuda Monetary Authority is optimistic that implementation could be achieved by 2014.
“With that, we feel Bermuda’s regulatory framework will, at a minimum, become less flexible as a function of its seeking equivalence, thus reducing its appeal as the preferred location for start-up companies.
“However, its overall market reputation should improve, with further enhancement of the island’s solvency protection standards.”
Fitch added last week’s sovereign downgrade of Bermuda should not affect the country’s (re)insurers.
“All our ratings of Bermuda (re)insurers remain below the new sovereign rating, which also has a Stable Rating Outlook. The country ceiling remains at ‘AAA.’
“In addition, a majority of the assets and liabilities of Bermuda (re)insurers are diversified globally, and thus we do not have concerns regarding a concentration of risk in the country.”
Fitch praised Bermuda for being a “nimble market” and its close proximity to the US allowing it to rapidly adapt to fit capacity needs.
Fitch said Bermuda “will continue to remain an important global (re)insurance market and should be well positioned to take advantage of recent improvements in the underwriting environment. Furthermore, Bermuda (re)insurers overall weathered the recent heightened catastrophe losses seen in 2010 and 2011, although some companies experienced more strain than others.”