The attractiveness of Bermuda as an reinsurance centre could take a hit from the “America first” policies of new US President Donald Trump and the Republican-controlled Congress.

That is the view of Fitch ratings analyst Brian Schneider, who nevertheless believes the island’s flagship industry is standing up well in face of challenging market conditions, although he expects to see more merger activity this year.

“Bermuda’s reputation for a strong and efficient regulatory framework benefits the island’s re/insurance market; however, the new Trump administration and Congressional shift in public policy in favour of the US combined with a lower corporate tax rate could reduce Bermuda’s market benefits,” Mr Schneider said.

“Overall, the softening re/insurance market continues due to record capacity levels and sluggish demand from reinsurance buyers, despite increased catastrophe losses in 2016. Fitch expects pricing conditions to remain challenging throughout 2017.”

The analyst’s views were published yesterday as Fitch released its “Bermuda Market Update”.

Mr Schneider said heightened mergers and acquisitions activity last year had changed the landscape in the island’s reinsurance sector amid a softening market.

“However, in Fitch’s view, the Bermuda re/insurance market remains viable in the face of declining profitability despite challenging market conditions and increased potential political threats from the US,” Fitch added.

The rating agency said full-year 2016 earnings, which will be declared by most Bermuda reinsurers over the next month, would weaken.

“The 2016 GAAP combined ratio [the proportion of premium dollars spent on claims and expenses] for the group of 11 re/insurers that Fitch Ratings actively follows will approximate 94 per cent,” Fitch stated.

“Fourth-quarter losses from Hurricane Matthew will add about 2.5 points to the full-year combined ratio. This result is deterioration from 88 per cent in 2015 due to higher catastrophe losses and reduced favourable prior-year reserve development.”

While consolidation continued, Fitch noted that Bermuda continues to attract start-up insurance companies.

“Most of these new entities are partnerships with more established Bermuda players, which should prove beneficial in navigating the overall challenging market conditions and improve their chances of ultimate success,” Fitch stated.

“Development of a future wave of start-up, free-standing re/insurers, similar to past instances following market events, appears highly unlikely in the current market.”

During the January 2017 reinsurance renewals period, property catastrophe rates were down by mid-single digits, Fitch added, while capital levels were at record highs, both in the traditional reinsurance and alternative markets.