The US and Bermuda reinsurance market outperformed Lloyd’s of London in underwriting last year, according to ratings agency AM Best.

The combined underwriting ratio of 87.5 per cent narrowly beat Lloyd’s figure of 88.1 per cent.

Lloyd’s, however, had a better return on equity for the year, returning a figure of 14.7 per cent compared to 10.6 per cent for the US and Bermuda and 11 per cent for the European “big four” of Munich Re, Swiss Re, Hannover and SCOR.

But AM Best, which revised the industry’s outlook in August last year from stable to negative, warned that the industry faced continued struggles this year due to price declines, increased commissions and tougher terms and conditions, even though the industry delivered “solid” results for 2014.

The report said the 2015 January renewals added further pressure to the outlook for this year, with prices down between five and 15 per cent, dependent on risk and loss experience.

It added: “While competition was most pronounced on US property catastrophe programmes, the overflow of capacity to other to other business classes and regions continues to place pressure on business across the board.”

The report said: “In addition, on the investment side things do not look much better.

“The persistent low interest rate environment has continued to put pressure on returns leading to the need for better underwriting returns. That said, some companies have started investing into risker assets in search of yield.

“This has been done in a measured manner and we expect that companies remain mindful of excessively risky investments that could damage the strength of rated balance sheets.”

And the report said that the spate of mergers and acquisitions that started last year as companies adapted to tougher market conditions was expected to continue this year.

The AM Best review, however, added that underwriting profits, along with investment income and realised capital gains, had also been “solid”.

But it said: “That said, returns are starting to show signs of a decline compared with previous years.”

The sector produced a 2014 return on equity of 11.4 per cent compared to 13.1 per cent the year before.

The report said: “If the reinsurance market turns, rates start to increase and operating fundamentals start to improve, AM Best will consider a revision of its current ratings outlook.”