Bermuda market re/insurers tracked by AM Best made a slight combined net loss during the first three quarters of 2011, a special report by the ratings agency reveals.Huge catastrophe losses drove the composite of 19 companies to a combined loss of around $500 million, during the January through September period, AM Best found.Based on the data, the ratings agency suggested that the market might finish up the year being marginally profitable with near break-even underwriting performance. The market has not made an underwriting loss since 2005, the year of hurricane Katrina.AM Best found that despite the high level of claims from events including earthquakes in Japan and New Zealand, floods in Australia and Thailand, US tornadoes and Hurricane Irene, a resilient Bermuda market has “managed to preserve its capital base”.And it also sees potential for a rise in reinsurance rates that has been long-awaited by Bermuda reinsurers.“Over the past several years, reinsurers generally have seen demand for capacity decline as primary companies increased retentions across the board,” states the report, entitled “Resilient Bermuda market faces persistent challenges”.“There is increasing speculation that this trend is about to change. The recent spike in global catastrophe activity, along with increased conservatism in catastrophe models, appears to have changed many primary companies’ perception of risk, particularly in the United States.“The revised cat models also have caused some reinsurers to rethink their pricing and capital requirements, which together with increased demand for capacity have applied upward pressure to catastrophe cover rates.”The Bermuda market composite saw its shareholders’ equity fall 3.2 percent to $85.3 billion through the first nine months, AM Best reported. The year-to-date return on equity through September 30 was minus 0.8 percent, and the combined ratio, indicating the percentage of premium dollars spent on claims and expenses, was 107.8 percent, showing an underwriting loss.The analysts who authored the report, Robert DeRose and Greg Reisner, felt there was a deeper story.“The more genuine narrative, however, lies beneath the reported results, for after adding back 6.7 points of favourable loss reserve development, the accident-year combined ratio is 114.5 (see Exhibit 1). This sends the return on equity well under water. While underwriting and overall returns are not appealing, the market’s ability to rebound from a heavy loss year is nonetheless compelling evidence of its resilience.”The report added: “The unfortunate facts are that the ‘bank’ of redundant reserves is drying up and investment yields continue to deteriorate.”The report concluded that the casualty classes of business have hit a bottom and that a market turn in these lines was nearing and “much needed to generate returns sufficient to cover the cost of capital”.Looking back on 2011, AM Best said the Bermuda market could hold its head high after a difficult year.“The purpose of the re/insurance market is to serve as a risk management tool for its clients and to be there to pay claims. In the wake of the global catastrophes of 2011, which will be ranked among the costliest years on record, the story of the Bermuda market is one of resilience.”