Bermuda-based insurance stocks dropped across the board yesterday as warnings of declines in insurance rates rattled investors.

Bermuda-based Willis Group led insurance brokers lower after it said said rates are falling across most lines of insurance and reported second-quarter earnings just shy of Wall Street expectations.

The world's third largest broker said net income for the second quarter was $96 million, or 57 cents per share, compared with $80 million, or 47 cents a share, a year ago.

Analysts expected the firm to earn 58 cents a share in the period.

Joe Plumeri, chairman and chief executive of Willis, said in a statement that rates continued to fall "across most lines of insurance during the second quarter".

Willis shares fell $2.02 or 5.64 percent to to $33.79.

Shares of competitors also dropped.

Marsh & McLennan declined 0.41 percent to $43.95. Aon fell 2.84 percent to $26.01.

A warning by American International Group, which released its earnings yesterday, that rivals are pricing some insurance lines too low also hurt insurers.

"While the market generally has taken a rational approach to pricing, a few foreign and domestic companies have under-priced certain more difficult classes of long tail lines of business," AIG said, in a statement. "Such pricing practices unsettle the market and add to long term volatility."

Earlier this week, Bermuda-based Everest Re's stock price dropped after analysts expressed disappointment with the company's underwriting performance.

With a full slate of earnings announcements expected next week, Bermuda insurers saw their stock prices fall.

Arch Capital Group's price fell $1.14 or three percent to $36.85 while Aspen Holdings Ltd. dropped 2.05 percent to $23.85.

RenaissanceRe was of 1.47 percent at $50.35 while Max Re dropped 1.24 percent to $18.29.

ACE Ltd. dropped 1.24 percent to $39.09 while XL Capital slipped 0.64 percent to $69.86.

Of the 23 Bermuda insurers listed on major exchanges and tracked by The Royal Gazette, just two, Axis Capital and IPC Re, rose yesterday.