Bermuda-based insurers and reinsurers have recorded “better than expected” operating results in the past year, according to an annual Deloitte-Standard & Poor’s (S&P) survey.

However, the report warns that insurers could face major capital losses in the next financial year due to ongoing catastrophes.

It says declining premium rates in most lines of business and higher than average catastrophe activity early last year have been offset by few natural weather event losses in the second half.

Overall the report shows that on average companies recorded a 13% return on equity in the last year – considerably less than the 37% achieved in the previous period. A 7% jump in aggregate capital and surplus was also down on the 2009 increase of 17%.

But S&P reinsurance director Laline Carvalho says that although Bermuda companies reported better than expected results, it still “pales in comparison to record-breaking operating profitability reported by market players in 2009”.

She warns that Bermuda reinsurers could face significant earnings and balance sheet volatility from natural and man-made catastrophe losses due to the sizable amount of property and catastrophe business.

“To this point, 2011 is already shaping up to produce a much weaker operating performance for the island, following very significant natural catastrophe losses incurred since the beginning of the year.”

The survey says the cumulative effect of this year’s catastrophe season could lead to losses ranging from a quarter’s worth of earnings to potentially a full year.

But despite the dim outlook, the survey says Bermuda insurers and reinsurers are lucky these events occurred at a time when the market had significant excess capital.

Ms Carvalho says while capital-raising initiatives are not expected at the moment, reinsurers are believed to be at a higher risk of needing to access capital markets in case of another event over the next six to 12 months.