Fitch: Bermuda players must maintain discipline in a difficult environment

According to Fitch Rating’s Bermuda 2014 Market Update Bermuda re/insurers are expected to report favourable full year operating results but must guard their underwriting discipline in the face of competition.

The ratings agency warns that while lower catastrophe losses will drive positive results-- with the full year 2013 combined ratio for the group of 15 large publicly traded players remaining near 86 percent-- softening market conditions and competition from the alternative market could create earnings pressure in 2014.

Already Bermuda players have moved towards broadening policy terms and conditions, a trend Fitch believes could signal deterioration in underwriting discipline. The report reads: “in many cases, traditional reinsurers are willing to agree to weaker terms and conditions in order to maintain their capacity share against the non-traditional reinsurance market. Capital market providers of reinsurance are very competitive on price, given their lower cost of capital, but have more difficulty replicating the same broader terms and conditions valued by reinsurance buyers in the traditional market.”

Expanded provisions include more generous reinstatements, increased ceding commissions and added terrorism coverage.

Commercial reinsurance pricing continues to remain under pressure, with property pricing declining more than casualty, and limited demand means there are likely to be few opportunities to use new capital to generate additional business.

Read Fitch's full market update here.