Bermuda's re/insurance market remains strong and - despite the challenges of the current highly competitive market - should be well placed to capitalise on a future upturn.That is the view of Fitch Ratings, which yesterday published its “Bermuda 2011 Market Update”.The report anticipates that Bermuda re/insurers will report favourable full-year results for 2010 in earnings announcements over the coming weeks, despite $3.1 billion in catastrophe-related losses reported by the group during the first nine months of the year.But it sees the current soft market cycle persisting and applying downward pressure on insurance rates. Premium rate changes for most lines written by Bermuda market re/insurers were down by between five and ten percent during January renewals, Fitch said.And the ratings agency sees advantages for Bermuda market companies, who have redomiciled to European countries, or increased their presence there.“Due to regulatory as well as tax uncertainty, some Bermuda-based (re)insurers have been positioning themselves within Europe through holding company redomestications or formation of new reinsurance companies in Europe, principally in Switzerland and Ireland, although for the most part, company operations continue to remain in Bermuda,” Fitch noted.“Favourably, this positioning should help Bermuda-based companies capitalise on the growth opportunities that could result from the implementation of the new Solvency II regulatory regime.”Solvency II is the name given to the new set of insurance regulations, set to take effect in the European Union in 2013.Fitch said the Bermuda Monetary Authority's progressive efforts have gained the Island inclusion in the first wave of countries to be assessed for regulatory equivalence, seen as essential to shield Bermuda companies from potential competitive disadvantage in the European market.“In addition, Solvency II may result in increased demand for reinsurance from European cedents as an efficient means to meet higher capital requirements, which could stretch capacity and put upward pressure on premium rates,” Fitch added. “This could be particularly beneficial for well-capitalised Bermuda reinsurers that have the capacity to provide the added coverage.”The ratings agency expects the next one to two years to be a period of differentiation, with those companies best able to manage the cycle doing best.On the threat of potentially harmful tax code changes in the US, Fitch said the swing of political power toward the Republicans in last November's mid-term elections “would appear to make it less likely that action will be taken on this issue in the near term. However, as the US government continues to deal with a growing budget deficit, any potential less contentious sources of additional tax revenue could become a high-priority item.”Bermuda re/insurers spent $4.7 billion on buying back their own shares in the first nine months of last year, Fitch reported, as companies sought to put excess capital to work. That is 12 times more than in the first three quarters of 2009.Fifteen of the 17 large, publicly traded Bermuda market re/insurers tracked by Fitch ended last year with their stock price trading below book value, with an average market-to-book ratio of 0.84.“The significant discount of Bermuda re/insurers' stock price to book value is a sign that shareholders lack sufficient confidence in the ability of re/insurers to generate strong returns on capital bases in the current difficult underwriting and investment market environment,” the report added. Fitch also sees Bermuda market players benefiting from reduced collateral requirements in some states which will lead to an opening up of the US reinsurance market. Six of the first seven companies to be approved for reduced collateral requirements in Florida were Bermuda-based companies. New York has now followed Florida's lead and Fitch expects Bermuda companies to qualify to be eligible insurers there too.During the first nine months of 2010, the group of 17 companies monitored by Fitch generated a 12 percent return on average equity and shareholders' equity grew by 9.3 percent to $85.8 billion.However, operating earnings were squeezed to $5.7 billion, compared to $7.9 billion in the same period in 2009, impacted by catastrophe losses and reduced investment income.The full report is available at www.fitchratings.com