Most of Bermuda’s reinsurance market is expected to report profits and capital growth for 2012, despite losses from Hurricane Sandy, states a new Fitch Ratings report.In its Bermuda 2013 Market Update, Fitch states that the Bermuda market, made up of the 17 publicly traded companies Fitch actively follows, remains robust.“While companies will suffer a sizeable hit to fourth-quarter earnings, (re) insurers will still report an improved combined ration of approximately 95 percent for 2012 compare with 107.1 percent in 2011,” the report stated, adding that the firm views Superstorm Sandy as an earnings event and not a capital event for Bermuda.Re/insurers will be reporting fourth-quarter and full-year earnings over the next few weeks.Supported by its strong capitalisation and favourable risk management, the Bermuda market has been able to absorb heightened catastrophe losses in recent years, including Sandy.“This is partly reflective of the large capital buffer accumulated by the sector from earlier years of profitable business,” the report read. “Companies have been further protected by the purchase of retrocession and the use of capital market risk transfer instruments. Sandy losses were below or well contained within the first layer of primary insurers’ excess of loss property catastrophe treaties.”According to Munich Re, global industry insured losses from natural catastrophes in 2012 will total $65 billion, which is above the ten-year average of $50 billion. While in 2011, cat losses came from Japan, New Zealand and Thailand — in 2012, the top five catastrophe losses originated in the US, including Sandy ($25 billion insured losses), drought ($15-$17 billion), storms and tornadoes ($7 billion).The report also states that Bermuda is the “preferred domicile of choice” for special-purpose insurers (SPIs) due to the Island’s “moderate regulatory environment, lower operational entry barriers, and concentration of underwriting talent and capital resources”.According to the Bermuda Insurance Development Council, a total of 27 new SPIs were registered by the Bermuda Monetary Authority (BMA) last year — 11 in December alone.Though this area of capital market alternatives is growing for Bermuda, Fitch, along with many industry veterans, do not expect there to be another influx of brick-and-mortar reinsurers to the Island following a significant catastrophe event, which last occurred with the class of 2005.Instead, Fitch expects that sidecars, will continue to be employed post a large cat event, particularly for the property catastrophe retrocession business.Between 2012 and January 2013, approximately $1.9 billion in capital has been invested in 11 Bermuda sidecar formations. Additionally, four Bermuda reinsurers set up insurance-linked securities fund managers and three hedge fund-backed start-up reinsurers have formed.The report also states that it does not expect a wave of consolidation or M&A activity due to a number of obstacles, one of which being that 15 of the 17 reinsurers, as of September 30, 2012, were trading below book value. Add in regulatory uncertainty; and unattractive valuation multiples, with low market-to-book value ratios “make share repurchases more attractive than M&As”, the report stated.