S&P Assesses Current Conditions for Bermuda Insurers, Reinsurers

Standard & Poor’s Ratings Services has just published a new study – “Bermuda Insurers And Reinsurers: The Good, The Bad, And The Ugly – ” which examines the current status of the island’s insurance industry.

S&P notes that after “two relatively calm hurricane seasons in 2006 and 2007, there was an uptick in hurricane activity in the third quarter of 2008 as Hurricanes Gustav and Ike hit the U.S. Gulf Coast.” As a result the island’s re/insurers are now “facing challenges on two fronts, with catastrophe losses eroding underwriting profits and investment returns plummeting.”

Were it not for the financial crisis, Ike would have been the industry’s most significant event, but the overall global effect of the credit crisis and the deepening recession has overshadowed it.

S&P stated: “So far, we believe most of this group of Bermudan re/insurers has proved to be resilient to what could be characterized as a perfect storm of global economic downturn, a severe price correction across most asset classes, an increase in the frequency of natural disasters, and a softening pricing cycle.

“Capital positions will likely weaken further in the fourth quarter, further eroding the excess capital amassed over the past few years. We believe this will leave a limited margin for error, especially in this environment, where capital is in short supply and very costly.”

However, it’s an ill wind that doesn’t blow somebody some good. S&P indicated that, “the confluence of all these events leads us to believe that this could be an inflection point in the reinsurance pricing cycle. We expect an increase in underwriting margins, which should enable most reinsurers to rebuild their capital over the medium term, explaining our cautious but stable outlook. Failure of this to occur could lead to a widespread reevaluation of our ratings on the sector.”

The report is available to subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor’s credit ratings, research, and risk analysis, at: www.ratingsdirect.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-9823 or sending an e-mail to: research_request@standardandpoors.com. Ratings information can also be found on S&P’s public web site at: www.standardandpoors.com.

Source: Standard & Poor’s