Fitch Ratings has given a ?moderate? rating to Bermuda?s regulatory insurance regime in its new global methodology covering its ratings of insurance companies.

The newly published report, ?Insurance Industry Notching in an Enhanced Recovery Analysis Environment?, explores the affect various insurance regulatory regimes around the world have on the credit quality of insurers.

Fitch will place more weight on that impact as part of a broader effort across all market sectors to clarify the influence of ?expected loss?, which is the product of default risk and recovery prospects, on ratings in general.

Fitch said the new methodology aims to better define how the two most significant drivers of credit risk ? the probability of default, and recovery given a default ? affect ratings, and how the two are weighted in the context of ?expected loss?.

It is also rolling out two new insurance industry ratings in early 2006: the Issuer Default Rating (IDR) and Recovery Ratings (RR).

The rollout will also include revisions in the manner in which various ratings of an insurance organisation are set, or ?notched?, relative to each other.

Typical insurance industry ratings include the Insurer Financial Strength (IFS) rating, which measures the ability to meet policyholder obligations, as well as ratings assigned to various debt and preferred stock issuances at either the parent holding company or insurance company level.

?A strong regulatory environment that protects policyholder interests will lead to more favourable IDRs, RRs and IFS ratings at the insurance company level, but lower IDRs, RRs and debt ratings at the holding company level,? Fitch said. ?In contrast, weak regulatory environments void of policyholder protection measures tend to result in the compression of all ratings of a given insurance organisation ? both at the insurance company and holding company ? closer to the same level, notably placing downward pressure on the IFS rating.?

The classifications of regimes focuses on the strength of the regulator?s capital regime, and the priority afforded policyholders over other creditors in a liquidation, Fitch said in a statement.

Bermuda as well as non-life insurance regulation in Australia and Japan are classified by Fitch as ?moderate? regulatory regimes with respect to the factors included in its new rating methodology.

?Weak? regimes include several offshore locales including Barbados and the Cayman Islands while ?strong? regulatory regimes include American and European Union oversight of primary insurance companies.