Bermuda’s insurers and reinsurers are facing significant pressures ranging from soft pricing to proposed US legislative initiatives that could curtail their activities.

But Moody’s Investors Service says the companies are performing well and has affirmed their present ratings, which it says “already reflect the potential effects” of these issues.

Moody’s annual report on the Bermuda-based companies recognises their strong profitability in 2009, which has been largely free of catastrophes.

It says profit margins are likely to come under increasing pressure as rate decreases affect the top line, investment income drops due to low yields and the favourable impact of reserve releases diminishes.

Bermuda’s insurers and reinsurers face the “lingering after-effects of the credit crisis”, such as potential inflation that could affect both loss cost trends on claims and the valuation of large fixed-income portfolios, continued volatility in capital markets restricting financial flexibility, and a likely surge in professional liability claims.

And they face restrictive new US legislation such as the Neal Bill, which is currently before US Congress. It seeks to disallow the deduction for excess non-taxed reinsurance premiums paid by US insurers to foreign-based affiliates.

Moody’s analyst James Eck says an estimated 85% of premiums currently ceded to offshore affiliates are likely to exceed the limitations prescribed by the proposed legislation.

“The effective ‘tax’ on ceded premiums would make most inter-company reinsurance arrangements between US-based subsidiaries and Bermuda flagship companies uneconomic.”