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Bermuda Insurance Report 2010
Business Monitor International, Dec 2009, Pages: 35
Business Monitor International's Bermuda Insurance Report provides industry professionals and strategists, corporate analysts, insurance associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Bermuda's insurance industry.
Following the tumultuous events of 2008 which included costly catastrophes such as Hurricane Ike in Q308 and the smaller Hurricane Gustav, as well as the financial crisis that eroded investment values around the world, the Bermudian insurance industry has recovered relatively strongly. Gross written premiums have grown slightly or remained steady and losses have been limited. Bermuda retains its virtually unassailable lead in the industry, covering 40% of catastrophe insurance in the US. The country’s economy remains sound, its regulatory environment first-rate and the boom years of 2006 and 2007 meant writers on the island entered 2008 in a strong position, with healthy balance sheets built of those two preceding years. The relatively contained investment losses reflect the high quality of their investment portfolios, a traditional strength.
The economy has also proven resilient than many with its main credit ratings left unchanged despite the crisis in global markets.
Despite all this, Bermuda is not immune to the global malaise and, despite cautious optimism that the worst of the crisis is behind us, some see continuing pressures on Bermuda insurers and reinsurers. Standard & Poor’s, for example, warn an increased cost of capital and possible lower future returns on investments, although those comments came earlier in 2009 when conditions remained extremely bleak. There are cautious signs that the position may have improved since.
One of the biggest issues facing the Bermudian insurance industry in H209 is a controversial US corporate tax policy bill that would add to the island’s reinsurers tax burden. The proposed legislation would stop non-US insurance groups with subsidiaries ceding some of the risk to an offshore affiliate reinsurer to reduce taxes. The Association of Bermuda Insurers and Reinsurers has strongly opposed the bill, suggesting that it would be counterproductive for the US, raising the burden on consumers and reducing insurance coverage.
The events of 2008 that threw the financial markets into turmoil had an impact on the insurance industry in Bermuda, mainly through the erosion of value of investment portfolios and a reduction in premiums written. However, players in the Bermudian market were not as severely affected as elsewhere round the world and there were distinct signs at the end of H109 that the industry was recovering relatively strongly.
The economy of Bermuda has also proven more resilient than many with Fitch Rating affirming its foreign currency Issuer Default Rating (IDR) at ‘AA+’, its local currency IDR at ‘AAA’ and the country ceiling at ‘AAA’. The agency cited the country’s extremely low public debt and effective management. The key feature of Bermuda remains a combination of strengths – the lack of income tax, the first class regulatory regime, the proximity to North America and the development of a sufficiently large community of people with the requisite skills, etc. – to give it a position that appears unassailable. Bermuda has 16 of the world’s top 35 reinsurers, according to rating agency AM Best, and has the largest property-catastrophe reinsurance market, supplying 40% of the US and EU market. Bermuda also service well over 1,000 captive insurers. (The actual number of captives is difficult to define because many of these insurers are cell companies which service several different clients simultaneously through Rent-ACaptive programmes.)
Latest published data from the Association of Bermuda Insurers and Reinsurers (ABIR) is for the end of 2008, when conditions were almost at their worst. According to that data, gross premiums written in 2008 amounted to US$60.95bn, with direct premiums written at US$36.23bn and net premiums written valued at US$47.32bn, down slightly from the US$47.63bn recorded for 2007. The ABIR calculates the overall loss ratio at 63.4% for the year and the combined ration at 92.8%. BMI forecasts expect premiums to be lower across the board in 2009, with Class 1 falling from BMD4.56bn in 2008 to BMD4.27bn in 2009. For Class 2, a drop from BMD8.35bn to BMD7.83bn; Class 3 – BMD51.13bn in 2008 to BMD47.84bn in 2009 and Class 4 falling from BMD34.65bn to BMD32.48bn.
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