Bermuda's international insurance sector felt the full effects of the fallout from the turmoil impacting the US financial markets yesterday.

Wall Street plunged after the US government bailed out American International Group (AIG), with the Federal Reserve handing the world's largest insurance company an $85 billion loan in exchange for a stake of almost 80 percent in AIG.

And closer to home, the Island's insurers and reinsurers saw their stock values plummet across the board, as AIG lead the way with a 45.33 percent ($1.70) drop in its share price to close at $2.05. The insurance giant, which was at a high of $70.11 earlier this year, dropped from $64.97 a year ago to $21.60 a month ago and was worth $17.50 last week.

Other companies to suffer were bond insurers Assured Guaranty Ltd. and Ram Holdings Ltd., which declined 15.05 percent ($1.84) and 14.91 percent ($24 cents) respectively.

Castlepoint Holdings was another firm to reach a double figure fall on its share price, down 11.63 percent ($1.32), while XL dropped 8.52 percent ($1.51) and even Ace, which Goldman Sachs Group Inc. recommended investors to buy stocks in because it may pick up clients from AIG, took a 2.95 percent ($1.69) tumble.

Bloomberg News said Ace, which has not reported a loss in three years, had a taken out a full-page advertisement in the Wall Street Journal yesterday that ran opposite a story on AIG, but a spokesman for the insurer declined to comment on the matter.

Elsewhere, Allied World Assurance Co. Holdings Ltd yesterday disclosed that it is carrying $51.9 million face value of senior notes issued by Lehman Brothers Holdings Inc., which on Monday filed for bankruptcy protection.

But the amount represents less than one percent of Allied World's total investment portfolio and the company has no other ownership interest in Lehman Brothers.

Primus Guaranty Ltd. said Lehman Brothers Holdings Inc.'s filing for bankruptcy protection will likely leave it on the hook for cash settlements to counterparties at a rate of 65 percent to 70 percent on the $80 million it sold to protect against corporate debt and debt-backed securities defaults.

Primus said its exposure as of Monday as a result of Lehman's filing is at $80 million in credit default swaps. A credit default swap is a type of insurance that debt buyers can purchase to hedge against a potential default.

A spokesman for Lehman Re, which is based in Bermuda and is a subsidiary of Lehman Brothers, declined to comment on how the company would be affected by its parent company's actions.

Meanwhile Merrill Lynch Reinsurance, also with offices on the Island and a subsidiary of Merrill Lynch, which was taken over by The Bank of America for $50 billion on Monday, could not be contacted yesterday.