Fitch: Bermuda Sovereign Downgrade Does Not Impact Insurers' Ratings

CHICAGO--()--Fitch Ratings commented today that its recent downgrade of Bermuda's sovereign ratings does not currently impact Fitch's ratings of Bermuda-domiciled insurance companies. Fitch generally views Bermuda-based (re)insurance organizations as being highly isolated from country-related risks in Bermuda.

Under Fitch'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 provides these comments following the agency's May 30, 2014 downgrade of Bermuda's long-term local currency (LC) Issuer Default Rating (IDR) to 'A+' from 'AA-'. This downgrade reflects a fifth consecutive year of economic contraction, continued fiscal deficits, and a rising government debt burden. The revision of the Outlook to Stable from Negative reflects Fitch's expectation that Bermuda's economic growth will gain pace and that the authorities' commitment to a reduction in the fiscal deficit will be sustained in 2014-2016.

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.

Bermuda-based insurers tend to hold very little if any Bermuda sovereign debt or Bermuda currency. They also 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.

Following the recent downgrade, several insurance groups within Fitch's rated universe currently have Bermuda domiciled ratings at or above Bermuda's LC IDR rating of 'A+'. These include operating and holding company ratings for PartnerRe Ltd. ('AA-' Insurer Financial Strength [IFS], 'A+' IDR), and operating company ratings for ACE Limited ('AA' IFS), Allied World Assurance Company Holdings, Ltd. ('A+' IFS), Arch Capital Group Ltd. ('A+' IFS), Axis Capital Holdings Limited ('A+' IFS), Everest Re Group, Ltd. ('AA-' IFS) and RenaissanceRe Holdings, Ltd. ('A+' IFS).

Fitch would not expect to lower any of these ratings in the event that Bermuda's LC sovereign rating was downgraded up to at least an additional two 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 Downgrades Bermuda's Ratings to 'A+'; Outlook Stable' (May 30, 2014);

--'Insurance Rating Methodology' (Nov. 13, 2013).

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=723072

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER 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.

Contacts

Fitch Ratings
Brian C. Schneider, CPA, CPCU, ARe
Senior Director
+1-312-606-2321
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
James B. Auden, CFA
Managing Director
+1-312-368-3146
or
Media Relations
Brian Bertsch, New York, +1-212-908-0549
brian.bertsch@fitchratings.com

Sharing

Contacts

Fitch Ratings
Brian C. Schneider, CPA, CPCU, ARe
Senior Director
+1-312-606-2321
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
James B. Auden, CFA
Managing Director
+1-312-368-3146
or
Media Relations
Brian Bertsch, New York, +1-212-908-0549
brian.bertsch@fitchratings.com