27 January 2016News

Consolidation set to continue in Bermuda in 2016: Fitch

Consolidation in the Bermuda insurance market will continue in 2016, albeit at a slightly slower pace than 2015, according to a new Fitch Ratings report.

Fragile conditions in the global re/insurance market characterised by falling prices and weakening terms and conditions are pressuring earnings for Bermuda re/insurers, according to the Fitch report, 'Bermuda 2016 Market Update'.

"Organic growth options are limited and scale and diversification are driving a rapid pace of mergers & acquisitions (M&A) activity for Bermuda insurers and Fitch expects industry consolidation to continue," said Brian Schneider, senior director, Fitch.

Fitch maintains a stable rating outlook on both US property/casualty insurance and global reinsurance, which includes Fitch's coverage of Bermuda market re/insurers. However, Fitch's reinsurance sector outlook is negative as premium prices are expected to fall further in 2016 while investment yields will remain close to historic lows. The US property/casualty insurance sector outlook is stable as a shift towards sharply inadequate premium rates or profit levels approaching operating losses is not anticipated.

Despite global market challenges, the Bermuda insurance landscape remains strong in Fitch's view as the island adapts to changing market conditions. Bermuda's favourable tax status and strengthening regulatory framework allow it to compete on the global re/insurance playing field, said the firm.

“Importantly, the European Commission awarded Bermuda full equivalency with Solvency II, which was formally implemented on Jan. 1, 2016, enhancing Bermuda's global competitiveness,” added the firm.

Following a challenging 2015, Fitch does not expect the hedge fund reinsurance market to accelerate in 2016. Hedge fund backed reinsurers face increased offshore tax scrutiny as well as investment and underwriting challenges which has lead several firms to exit the business. However, Fitch does expect to see captive reinsurers and hedge funds partner in the market.