AM Best: Bermuda Carriers Bounce Back But Pressure is Still On
According to a special report by AM Best, Bermuda-based property/casualty insurance companies have posted strong results in 2006 and 2007 after two years of unprecedented hurricane losses, although industry fundamentals are expected to continue deteriorating.
“The overwhelming conclusion is that the majority of carriers on the island are financially strong, benefiting from record earnings produced by the fundamental quality of underwriting operations,” says the report. “As can be expected, balance sheets, with few exceptions, are in the best shape in years.”
But profit margins will continue to deteriorate, “barring any industry-changing event,” says the report. “Pressure on companies to lower rates and loosen terms challenges the effective management of capital, while cedents purchasing less reinsurance make the stability of earnings less certain. Compounding these factors are significant capacity in the market and pressure to deploy capital with fewer opportunities.”
Financial results meanwhile produce interesting comparisons between the performance of established carriers and newer ones.
-- First quarter results provide reason to expect an acceptable rate of return in 2008, but margins will be lower than they have been in the past two years.
-- The majority of Bermuda based carriers are financially strong, as the fundamental quality of underwriting leads to record earnings.
-- The Bermuda market sample reported excellent combined ratios for 2006 and 2007 of 83.6% and 82.9%, respectively.
-- Pressure on companies to lower rates and loosen terms poses a challenge to effectively manage capital.
-- Cedants purchasing less reinsurance make the stability of earnings less certain.
-- Insurers are approaching July renewals cautiously in a fragile marketplace.
-- AM Best maintains a stable ratings outlook on the Bermuda reinsurance/insurance sector, with most actions likely to be affirmations.
About AM Best
Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.
Source: Source: AM Best | Published on April 28, 2008
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