Fitch Issues Cautious Note on New Bermuda Insurers

June 30, 2004

Fitch Ratings has issued a report on the new Bermuda Insurers (companies formed after Sept.11), which asks the rhetorical question that although they may “shine in the sun, can they handle rain?

The report, The Bermuda Class of 2001: Still Riding the Wave, examines the “extraordinarily strong results posted to-date by Bermuda-based start-up insurers,” and concludes that they “are not indicative of their likely long-term performance,” but have been heavily influenced by a number of fortuitous circumstances.

“Their timing was excellent and these companies have benefited from the distractions created by legacy issues within more mature competitors,” stated Donald Thorpe, Senior Director, Fitch Ratings. “Conversely, they have only experienced the very best of times — the hard part of the pricing cycle combined with a relatively low catastrophe loss environment.”

Fitch concluded that going into their third year of operation a number of the new companies do possess “many of the key characteristics necessary for success.” It isn’t yet clear, however, “whether they can maintain underwriting discipline in a soft insurance market or how they will deploy the significant amount of capital they have raised in a period of declining insurance prices.”

Out of the 100 or so companies formed after 9/11, Fitch singled out six companies “each of whom raised $500 million or more in initial capital: Allied World Assurance; Arch Reinsurance; Axis Specialty; Endurance Specialty Insurance; Montpelier Reinsurance; and Olympus Reinsurance,” for special attention. “We have already observed the start-ups beginning to expand into new lines of business (e.g. property writers expanding into casualty lines) as the result of declining margins in their original lines of business,” Thorpe observed. “This diversification into traditionally more challenging market segments creates some concerns whether required underwriting expertise is in place across all business segments.”

In the new report Fitch analyzes the group’s successful operating results to date and examines the challenges to be faced by the group in the future. It is available on the Fitch Ratings web site at:, or by contacting the Ratings Desk at 800-893-4824.

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