Standard & Poor’s Ratings Services in a report titled “The Recent Outlook Revision On Bermuda Does Not Affect Bermudian (Re)Insurers“, said that “despite the recent outlook revision on the sovereign credit rating on Bermuda to negative from stable, [S&P’s] counterparty credit and financial strength ratings on Bermuda-based (re)insurance companies remain unchanged.”
S&P explained that it currently rates seven (re)insurers in Bermuda in the ‘AA’ category. “In limited circumstances, we rate reinsurers higher than the local-currency sovereign credit rating according to our criteria. These circumstances include certain (re)insurers that are domiciled in financial centers. We view Bermuda (AA-/Negative/A-1+) as a financial center.”
S&P credit analyst Taoufik Gharib said: “(Re)insurers that we may rate above the sovereign write most of their business with policyholders outside the financial center, hold most of their investments in a form other than local sovereign debt of that financial center, and hold most of their deposits and invested assets in financial institutions domiciled outside that financial center.”
The Bermudian (re)insurers rated higher than the sovereign “are typically part of global (re)insurance groups that conduct the majority of their business under a Bermuda license. We believe such (re)insurers’ financial strength is independent of the financial center’s sovereign risk,” S&P added.
S&P also noted that “Bermudian (re)insurers showed their financial resilience in 2012, amid catastrophe losses, decreasing investment income, increasingly competitive pricing, a tepid economic recovery in the U.S., and the euro zone crisis. They generated strong results with a combined ratio of 91.7 percent and a return on average equity of 11.2 percent, compared with a weaker 104.1 percent and 1.0 percent, respectively, in 2011.”
Source: Standard & Poor’s