OLDWICK, N.J.--(BUSINESS WIRE)-- U.S., Bermuda and large international reinsurance companies lost about 15% of their capacity in 2008 as measured by shareholders’ equity. But A.M. Best Co. believes that two excellent operating years preceding 2008, sizable capital increases after Hurricane Katrina and significantly improved loss reserves have enabled the reinsurance industry to withstand the barrage of investment charges and catastrophe losses.

• Results from A.M. Best’s stress testing of risk-adjusted capitalization, along with potential near-term underwriting opportunities, shape A.M. Best’s stable rating outlook for the global non-life reinsurance industry.
• As expected, effective capital management was critical to reinsurers’ long-term competitive positioning through much of 2008, but this gave way to capital preservation amid major catastrophe losses and the investment markets’ meltdown later in the year.
• Despite significant hurdles, the reinsurance industry’s core operations reported sound underwriting results, with the majority of carriers posting profitable combined ratios below 100.
• Widening of credit spreads, historic stock market losses and defaults on corporate bonds all impacted reinsurers, accounting for the majority of capacity withdrawn from the reinsurance industry.

• Surprisingly, among financial services businesses, reinsurers held strong in both performance and capital adequacy, and actually have an opportunity to capitalize on market conditions in 2009 and beyond.
• The increasing cost of capital has reinsurers carefully considering how to deploy capital relative to the expected returns.
• The U.S. reinsurance and Bermuda market absorbed Hurricane Ike, with total insured losses nearing $20 billion, but still posted a 2008 combined ratio of 93.6—profitable but up 6.9 points from 86.7 in 2007.
• A key driver of 2008 underwriting results was loss reserve releases, which shaved about seven points off the U.S. reinsurance and Bermuda market segment’s loss ratio.
• The combination of significant realized and unrealized losses and voluntary share repurchases of nearly $4 billion were the primary drivers of a 15% drop in shareholders’ equity in 2008.
• Capitalization of the European reinsurance companies vs. the U.S. and Bermuda segment is more sensitive to underwriting and asset risks, largely due to the significance of life operations.
• The January 1, 2009 renewal did not bring a universal hard market, with the exception of catastrophe-exposed risks.

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Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.

A.M. Best Company

Analysts

Devin Inskeep

(908) 439-2200, ext. 5449

devin.inskeep@ambest.com

or

Robert DeRose

(908) 439-2200, ext. 5453

robert.derose@ambest.com

or

Public Relations

Jim Peavy

(908) 439-2200, ext. 5644

james.peavy@ambest.com

or

Rachelle Morrow

(908) 439-2200, ext. 5378

rachelle.morrow@ambest.com

Source: A.M. Best Company