Fitch: Insurer Ratings Not Strongly Linked to Bermuda Sovereign
CHICAGO -- June 24, 2013
Fitch Ratings commented today that under the agency's rating methodologies, it
could rate certain insurance and reinsurance companies at levels at least four
notches higher than the sovereign rating of Bermuda. In contrast, in most
other countries, insurance company ratings are limited to that of the
sovereign, or up to one to two notches above the sovereign. Fitch generally
views Bermuda-based (re)insurance organizations as being highly isolated from
country-related risks in Bermuda.
Fitch provides these comments following the agency's June 7, 2013 downgrade of
Bermuda's long-term local currency (LC) Issuer Default Rating (IDR) to 'AA-'
from 'AA+', which reflects four years of economic contraction, sustained high
fiscal deficits, and increased government debt burden. The Rating Outlook is
Negative and reflects continued uncertainty as to Bermuda's fiscal and
economic trajectory and the lack of a credible fiscal consolidation strategy.
The (re)insurance companies that Fitch rates that are either Bermuda-domiciled
or have significant subsidiaries in Bermuda are generally strong international
organizations, with a large and diverse global profile. These companies'
assets, insurance premiums and underwriting exposures are spread across many
countries, with very little originating in Bermuda.
In addition, Bermuda-based insurers tend to hold very little if any Bermuda
sovereign debt or Bermuda currency. In addition, they maintain relatively
minor investments in Bermuda banks and other Bermuda-based companies. While
most Bermuda insurers have some level of deposits held at Bermuda banks, these
amounts are generally quite limited. In addition, investment custodians are
typically located outside of Bermuda.
As a result of this very limited linkage of Bermuda-based (re)insurers to the
island's fiscal issues and local economy, Fitch believes stress experienced by
Bermuda would have minimal impact on the credit quality of its (re)insurers.
Currently, only three insurance groups within Fitch's rated universe have
Bermuda domiciled ratings at or above Bermuda's LC IDR rating of 'AA-'. These
include operating company Insurer Financial Strength (IFS) ratings for ACE
Limited ('AA' IFS), PartnerRe Ltd. ('AA-' IFS) and Everest Re Group, Ltd.
('AA-' IFS). As such, Fitch would not expect to lower any of these IFS ratings
in the event that Bermuda's LC sovereign rating was downgraded up to at least
an additional three notches to 'A-'.
In the event of a more significant downgrade to Bermuda's sovereign rating to
'BBB+' or below, Fitch would consider the circumstances at that time to
determine if it would be appropriate to rate Bermuda insurance organizations
more than four notches above Bermuda's LC sovereign rating.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Fitch Affirms ACE Limited's Ratings Following Bermuda Sovereign
Downgrade'(June 10, 2013);
--'Fitch Downgrades Bermuda's IDR to 'AA-'; Outlook Negative' (June 7, 2013);
--'Insurance Rating Methodology' (Jan. 11, 2013).
Applicable Criteria and Related Research:
Insurance Rating Methodology - Amended
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PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
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METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
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COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM
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PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS
OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN
EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER
ON THE FITCH WEBSITE.
Brian C. Schneider, CPA, CPCU, ARe
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
James B. Auden, CFA
Brian Bertsch, New York, +1 212-908-0549
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