Fitch: Bermuda facing profit pressures, but still strong

Fitch Ratings has claimed that in the wake of a trying 2017 profitability will remain under pressure for Bermuda reinsurers.

According to Fitch Ratings' latest review of the sector, Bermuda reinsurers suffered significant catastrophe losses in 2017 due largely to Hurricanes Harvey, Irma and Maria along with the California wildfires. In addition to underwriting profits taking a sizable hit, the sector continues to deal with low investment yields.

Despite this Fitch said that market pricing has turned positive so far this year, adding that the ability of Bermuda reinsurers to absorb the aforementioned losses will be an important factor to watch out for as the collective strength of the sector should remain largely intact.

“Bermuda reinsurers typically maintain very strong capitalisation while keeping leverage modest,” said Fitch senior director Brian Schneider, “Which will serve them well as they continue to work through sizable catastrophe losses and shrinking profits.”

Despite a tough 2017, Bermuda reinsurers have reduced their overall net catastrophe risk exposure over the last several years with much of this business transferred to the capital markets. "The willingness of the capital markets to accept a lower price for catastrophe risk has helped to reduce the financial impact to Bermuda reinsurers," said Schneider.

Fitch added that recent M&A activity in the sector has heightened attention around the credit factor the rating agency deems as most important in assessing the strength of Bermuda reinsurers business profile.

“The size and scale of a Bermuda reinsurers' capital and premiums is taking on more importance as sector consolidation continues,” said Schneider. “Cedants are using fewer, but higher-quality, top-tier reinsurers that are able to provide a full suite of both traditional and alternative capital market products and services.”