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Bermuda reinsurance market to remain viable but challenged, Fitch says

The Bermuda (re)insurance market will remain viable in 2017 as it faces challenges from declining profitability and potential changes to U.S. regulations, Fitch Ratings said.

Large insurers and reinsurers will report weakening fiscal year 2016 underwriting results, according to the rating agency. The 94% full-year GAAP combined ratio for the 11 companies Fitch actively follows is up six percentage points compared to 2015 due to higher catastrophe losses and reduced favorable prior-year reserve development. Further, Fitch said pricing conditions do not look likely to improve in the near term.

"Overall, the softening (re)insurance market continues due to record capacity levels and sluggish demand from reinsurance buyers, despite increased catastrophe losses in 2016," said Brian Schneider, senior director at Fitch.

Bermuda will continue to benefit from a strong and efficient regulatory framework, but could face threats from the administration of President Donald Trump, Schneider said in a statement.

"[T]he new Trump administration and Congressional shift in public policy in favor of the U.S. combined with a lower corporate tax rate could reduce Bermuda's market benefits," he said.

The rating agency also stated that heightened M&A will likely continue into 2017 driven by limited organic growth options and the desire for scale and diversification.

Bermuda also continues to draw startup (re)insurance companies, but most are partnerships with more established insurers on the island. A wave of new freestanding insurers is unlikely given market conditions, Fitch said.