Unprecedented storm activity last year hit Bermuda?s insurance sector to the tune of billions of dollars but did little to dampen profit levels ? nor did it have anything more than a minimal impact on financial ratings.

A just released industry report compiled 2004 performance figures for a group of 16 of the Island?s leading insurance companies to show the group collectively was hit by $3.65 billion in total net losses after a wave of storms in the Atlantic and Pacific last year.

But those losses did little to dent profit levels for these Bermuda-based commercial insurance and reinsurance firms, with the group posting net income of $5.7 billion last year ? a mere three percent drop on 2003 results. In fact, all but one of the companies (Quanta being the exception) in the survey made a profit for the year.

The quarterly report by the research division of UK-based Benfield Group found the Island?s re/insurance market ?emerged relatively unscathed from the unprecedented hurricane and typhoon landfalls in 2004.

For its report, Benfield followed 16 of the Island?s front-running re/insurance sector firms ? ACE, XL, PartnerRe, AXIS Specialty, Arch Capital, RenaissanceRe, Endurance Specialty, Aspen, Allied World Assurance Company (AWAC), Platinum, Max Re, Montpelier Re, IPC Re, PXRe, Quanta and White Mountains.

Ratings activity stabilised in the year, after a wave of downgrades across the industry globally in recent years.

A downgrade of a re/insurer?s ratings can put paid to its prospects for strong sales with some corporations bound to only place business with a company that has ratings at a stated level.

?The substantial storm losses in the third quarter did not cause any rating changes in the Bermudian market,? Benfield said.

The one exception may have been a review with negative implications of Olympus Re?s A- rating, but the rating was later reaffirmed.

But rating agency attention did fall on two Bermuda-based firms in early 2005.

RenaissanceRe was placed under review and on watch with negative implications by both A.M. Best and Standard&Poors in February, after the company said it would restate earnings in the last three years.

MontpelierRe saw its rating by S&P revised up from stable to positive later that same month, after praise for the company?s strong market position, strong operating performance and strong financial flexibility.

Meanwhile, the average return on equity for the Bermuda re/insurers followed by Benfield stood at 13.3 percent in 2004 compared to 19.1 percent a year prior, with the impact of the storms being softened because insurers retained much of the risk for the storm-ravaged areas, rather than ceding it to a re/insurer.

Benfield said storm losses amounted to $3.5 billion for the group but did not include AWAC?s losses in that round-up.

AWAC, which is the only privately-held company in the ?Bermuda 16?, said last November that it had incurred losses of $153.6 million from the run of Florida hurricanes and two Japanese typhoons, net of reinsurance, and after taxes and reinstatement premiums.

For the group, underwriting discipline seemed to be holding with an average combined ratio as 96.4 percent, albeit up from 90.7 percent in 2003.

Only three companies reported combined ratios in excess of 100 percent ? indicating a loss on the underwriting side.

Balance sheets increased by 14 percent to $45 billion against a background of slower premium growth rates.

Bermuda figurehead companies ACE and XL Capital continued to hold nearly 50 percent market share last year, with ACE writing 29 percent of total gross written premiums and XL, 20 percent of the total business pot.

Benfield concluded that while the Bermuda re/insurers collectively performed well, there was currently a conservative approach to business including the Island?s newest re/insurers ? with a wave of start-ups setting up on these shores after a void in capacity following the September 11, 2001 terrorist attacks ? reporting some investors were ?easing? out of the market.

?With clear evidence of the market softening, the challenge for underwriters is to maintain attractive returns on a buoyant capital base. We have seen some evidence of the Bermudians returning capital to shareholders and turning away from unattractively priced business in order to achieve this.

?In the absence of any major market loss, the challenge for Bermuda and the market as a whole in 2005 will be the extent to which they are prepared to sacrifice premium to maintain profitability,? the report concluded.