Capitalization and returns on capital are likely to remain broadly supportive of Bermuda market (re)insurers' ratings over the next 12-18 months despite cyclical pressures, according to Fitch Ratings.
Fitch's expectation is that Bermuda (re)insurers' market capitalization metrics will remain materially unchanged despite expected share repurchases. Returns on capital are likely to be in the high single digits as the soft rate environment and a reduction in favorable reserve development reduce earnings in 2010.
Improving capital market conditions including recoveries in equity market prices and reductions in corporate bond spreads bolstered Bermuda market (re)insurers' capital positions significantly in 2009. From a credit perspective, Fitch views this as somewhat offsetting the negative effect of the soft pricing environment faced by Bermuda market (re)insurers.
Fitch notes that its universe of Bermuda market (re)insurers generated an 85.5% combined ratio for the first nine months of 2009. As insurance companies report fourth quarter 2009 earnings over the next several weeks, Fitch expects that the Bermudian companies will report strong full year underwriting profits and returns on capital. The industry benefited from a benign hurricane season and favorable reserve development in 2009. Fitch expects these trends to be less favorable in 2010.
A comprehensive report in our Intelligence Report series which studies the 20 main offshore jurisdictions which offer captive insurance regimes is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report11.asp
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