Reinsurers are ‘highly isolated” from Bermuda’s country risks

One ratings company said some of the island’s insurance and reinsurance companies could be rated up to four levels above Bermuda’s sovereign rating. 

Fitch Ratings stated in a press release in most other countries, insurance company ratings are limited to that of the sovereign, or up to one to two notches above the sovereign. 

It said: “Fitch generally views Bermuda-based (re)insurance organizations as being highly isolated from country-related risks in Bermuda.”

Fitch issued the statement after the June 7 downgrade of Bermuda from AA+ to AA- due to “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.”

Fitch said the (re)insurance companies it 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.

Limited

“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.”

Fitch believes stress experienced by Bermuda would have minimal impact on the credit quality of its (re)insurers because of limited linkage between the two.

Fitch added only three insurance groups 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.”