The capitalisation of Bermuda's reinsurance industry rose more than 20 percent to reach $129 billion by the end of the third quarter of 2007.

That staggering figure is greater than the 2006 gross domestic product of many countries, including Pakistan and New Zealand and oil-producing Nigeria, according to International Monetary Fund (IMF) figures.

A report released yesterday by broker Guy Carpenter stated that a lack of catastrophes enabled the Island's reinsurers to pay out less in claims and retain more of their earnings.

Reinsurers managed to return $9.4 billion to shareholders in 2007, a 200 percent increase over 2006, the report stated. In addition, more than $2 billion in share repurchases were executed.

The report, entitled "Near Misses, Plentiful Reminders", also found that reinsurance rates for January contract renewals had fallen by nine percent world-wide, driven by excess supply and fuelled by a combination of strong profits and low losses. Another broker, Willis Re, has reported the same figure.

Guy Carpenter, the reinsurance broking arm of Marsh & McLennan, noted that although the frequency of catastrophes in 2007 was high, the number of "near misses" led to a lack of large catastrophe losses and a subsequent softening of the market (falling in rates).

"Though the market remains relatively placid, it's important to emphasise that this is no time for complacency," said Chris Klein, Guy Carpenter's global head of business intelligence. "A number of close calls in 2007, including two category-five hurricanes and several earthquakes — not to mention the subprime crisis — demonstrate how quickly things can change in the reinsurance market and should underscore the need for continued vigilance."

With balance sheets buoyant, confidence had risen among underwriters, the report stated. It continued: "As memories fade, the shock years of 2004 (Florida storms) and 2005 (Katrina, Rita and Wilma) begin to look more like exceptions than an emerging norm of catastrophic storm activity."

Concern has been expressed in the insurance industry about the potential directors and officers (D&O) insurance liability arising from the sub-prime mortgage problems. But Guy Carpenter estimated that the D&O impact would be around $3 billion — relatively modest in light of the estimated worldwide economic damage resulting from the crisis, which analysts estimate will reach around $400 billion.

The report also details the influence of rating agencies and regulators, such as the impact of new requirements on the emergence of reinsurance "hubs" in Zurich and Dublin.

Guy Carpenter also found that primary insurers were retaining more risk themselves, hence buying less reinsurance.