Bermuda's major US-listed insurers expect to pay out a combined total of more than $3 billion in claims for hurricanes Gustav and Ike alone.

And combined with investment losses emanating from the ongoing turmoil on the world markets, that made for a miserable third quarter for most.

Almost all companies had some securities in their portfolio issued by investment bank Lehman Brothers, which collapsed in September. In addition, the third quarter saw the biggest bank failure in US history — that of Washington Mutual — as well as the government rescue of US mortgage giants Freddie Mac and Fannie Mae.

The Royal Gazette's survey of 19 Bermuda insurance and reinsurance companies found that only two — Ace and Arch Capital — made a profit during the July through September period. And their combined loss for the group was a painful $3.7 billion, compared with a profit of $3.22 billion in 2007.

Some 44 percent of that loss was borne by one company — XL Capital Ltd. Not only did XL have to shoulder the problems that hit others, paying out $221 million in claims for Gustav and Ike, and taking investment losses, but it also paid out around $1.9 billion in cash and shares to Syncora Holdings to rid itself of virtually all of its reinsurance and guarantees exposure to the financial guarantor.

A capital raise in August gained XL around $3 billion to pay for the Syncora deal and added a capital cushion which helped the company deal with the repercussions of Gustav and Ike. XL's third-quarter loss totalled $1.62 billion.

Ace, which during the third quarter moved its holding company from the Cayman Islands to Switzerland, but retains major operations in Bermuda, posted the best net income of $54 million. But Ace was not immune from the problems that hit others as it took a $311 million hit from the hurricanes, as well as $1.1 billion of realised and unrealised losses from its investment portfolio.

Ace's diversified book of business around the world and an increase in revenue — gross premiums written totalled $5.22 billion compared to $4.46 billion in the same period in 2007 — helped Ace to withstand a tough quarter and come out of it with a profit.

Arch Capital was the only other company in our survey to make a third-quarter profit. Although the company paid out $133 million in storm claims and suffered investment losses including a $23 million write-down in relation to Lehman Brothers' demise, it still came with a net profit of $26.4 million.

Some companies performed better during the quarter than their net income figure would suggest, since different companies use different accounting systems. Most companies did not record unrealised investment losses in their net income column. PartnerRe, which uses the currently optional FAS 159 accounting system, is one of those that does.

PartnerRe's net loss of $151.7 million included net realised and unrealised investment losses of $281 million, as well as a $203 million hit from hurricanes Gustav and Ike. But its book value held up well amid the financial crisis at $65.38 per share at September 30, 2008, compared to $67.96 per share a year earlier.

Axis Capital estimated the biggest losses from the two hurricanes in the third quarter, totalling $371 million, contributing to a rare quarterly loss of $249 million, compared to a profit of $279 million a year earlier.

The reinsurance companies with the heaviest focus on property and catastrophe coverage would expect to suffer losses when hurricanes strike.

Such was the case with RenaissanceRe, which posted negative net income of $220.4 million, compared to earnings of $144 million a year earlier, on a $276 million hit. IPC Holdings lost $87.5 million, while class of 2005 reinsurers Flagstone Re ($186.5 million) and Validus Re ($126.3 million) suffered too.

Even in the midst of a soft market, 11 of the 19 companies surveyed managed to increase the amount of business they wrote, with total gross premiums rising to $13.9 billion, compared to $12.8 billion for the same 19 a year earlier. Some of this increase was down to acquisitions.

Most CEOs who commented in earnings statements had a bright outlook for 2009. The destruction of capital industry-wide caused by the hurricanes and the effects of the global financial crisis will naturally put an upward pressure on rates.