Bermuda's re/insurers have weathered the financial storm well during 2009 and remains in good stead according to the latest report by AM Best Co.

The report said that Best is maintaining a stable outlook for the global non-life reinsurance industry for the fourth consecutive year.

"Considering the turmoil that has occurred within the financial services industry, the global reinsurance sector, which includes the majority of Bermuda market companies, has weathered a financial storm in good standing," read the report.

The current outlook implies that the majority of 2010 reinsurer rating actions are likely to be affirmations, with only a modest number of anticipated rating or outlook changes.

The outlook reflects the ratings agency's view that the reinsurance segment maintains a strong capitalisation position overall.

Moreover, 2009 was a strong underwriting year, and the investment market recovery enabled the segment to regain capacity that was lost in 2008.

Factors that could change the global reinsurance sector outlook to negative include ineffective management of capital in both the short and long-term; further erosion in pricing, with a particular focus on long-tail casualty business; and the effect that ramped inflation may have on loss reserves.

From an earnings perspective, Best believes that 2010 is likely to be a positive operating year, subject to catastrophe experience.

In the mid-to-longer-term, the ratings agency believes that global reinsurance earnings will come under pressure due to a reduction in loss reserve releases and that, as a result, calendar year results will be more reflective of the recent pricing environment. Additionally, the low interest rate environment combined with reinsurers' re-allocation into more conservative investments will further erode return measures.

Best also reckons underwriting discipline and the ability to maintain pricing integrity will be key to managing current market conditions. However, the combination of a return of higher catastrophe losses and the reduction of favourable prior year loss reserve development could swing the pendulum toward lower margins compared with the positive results reported for three of the past four years.