Market pressures driving Bermuda consolidation

The competitive stresses of the re/insurance market are driving increasing consolidation in the Bermuda market.

This is according to Fitch’s latest report on the sector, which added that the mergers and acquisition (M&A) activity is being driven by challenging market conditions that are limiting organic growth potential.

“Record capitalisation among traditional re/insurers along with the growing capacity provided by alternative capital providers are softening reinsurance pricing, with no catalyst for a reversal in sight,” said the rating agency.

It added that Bermuda re/insurers will report a second year of solid operating results in 2014, driven largely by continued low catastrophe losses.

Fitch expects the full-year 2014 combined ratio for the group of 15 large publicly traded Bermuda re/insurers that it actively follows to remain near the 86.4. percent posted through the first nine months of 2014.

The rating agency said that continued softening market conditions and a potential return to more normal catastrophe losses will create earnings pressure in 2015.

“Alternative forms of risk transfer are now a permanent fixture in the reinsurance sector, principally in property catastrophe risk, with most Bermuda re/insurers providing and/or using alternative forms of risk transfer. Fitch observes that Bermuda re/insurers have a greater potential threat from this added competition, particularly those that have a more limited diversified earnings profile.”