Bermuda market entering 'difficult, promising' renewal season: Best
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The Bermuda insurance and reinsurance market is facing a “difficult yet promising renewal season,” according to a report by A.M. Best Co. Inc..
The report, “Resilient Bermuda Market Faces Persistent Challenges,” said the Bermuda market has weathered pressure on its capital stemming from unusually heavy 2011 catastrophe losses, a prolonged soft market and continued low investment returns.
Upward pressure on rates
The report released this week said there is “increasing speculation” that the recent trend of primary companies cutting back on their reinsurance purchases in favor of increasing retentions is about to change. Oldwick, N.J.-based Best said the spike in catastrophe losses, along with changes in catastrophe models, “appears to have changed many primary companies' perception of risk.”
Revised catastrophe models have led some reinsurers to “rethink their pricing and capital requirements, which together with increased demand for capacity have applied upward pressure to catastrophe cover rates,” Best said in the report.
Reserves ‘drying up'
Best also said “the unfortunate facts are that the ‘bank' of redundant reserves is drying up, and investment yields continue to deteriorate.” Even though the market has been resilient thus far, “pressure is mounting on underwriting to compensate for the negative momentum building up on balance sheets and an increasingly difficult investing climate.”
Best said a question facing the marketplace is “if all things remain the same and 2012 brings a repeat of the magnitude of recent losses, would the Bermuda market be in the same position it is today?
“Capacity is fleeting and at times scare,” Best said. “It is conceivable that the emerging slow turn in the market could suddenly accelerate if losses continue on a similar scale.”
