Fitch Ratings assigns negative outlook to Bermuda (re)insurance sector

Fitch Ratings has revised its outlook on the Bermuda reinsurance market from ‘Stable’ to ‘Negative.’“The revision in the rating outlook primarily reflected expectations of additional unrealized mark-to-market losses and impairment losses related to financial market conditions, reduced access to capital and corresponding reductions in financial flexibility, and the adverse effects on current earnings of soft market conditions,” Fitch says in its special report, Review and Outlook 2008-2009: Bermuda (Re)insurance Market.The report coincided with release of some of the 2008 Q4 results for the Bermuda market (re)insurers, Fitch notes. Of the 2008 Q4 returns already filed by Bermuda (re)insurers, several companies monitored by Fitch had reported profitable earnings for the quarter and the full year,  although “their earnings declined significantly compared with the prior-year periods.”Although the Bermuda market has a negative outlook overall, Fitch said it “believes that Bermuda market (re)insurers in aggregate are less likely to face widespread rating downgrades [in 2009], primarily because of their comparatively low asset leverage and high-quality investment portfolios.”Fitch said it was concerned about the industry’s ability to raise capital if a major catastrophe event happened in 2009. “The depth and breadth of the credit market contraction and equity market declines over the past 12-18 months have reduced investors’ volatility tolerances and shrunk available pools of capital from sources such as private equity investors, hedge funds and traditional public equity investors,” the report notes. “It could become problematic if a large, U.S.-based catastrophe occurs since Bermuda (re)insurers are highly exposed to such events and could suffer material capital declines.”