The underlying stability of the reinsurance market remains tenuous, even though most reinsurers are financially positioned to meet their claim obligations, according to AM Best’s 2006 annual global reinsurance report.

The ratings agency says that after the hurricanes Katrina, Rita and Wilma last year, the global reinsurance industry is still struggling to manage its catastrophe exposure.

In its report “Reinsurers humbled, but most not broken, by hurricane losses”, AM Best says as a result of the 2005 hurricanes, the financial strength ratings of 13 US and Bermuda reinsurers have been downgraded or withdrawn after being downgraded as of July 31 this year.

The credit rating agency says hurricane losses were a factor in each of these actions, and four Bermuda-based companies have been placed in run-off.

The effect of the US hurricanes reverberated worldwide. Reinsurers absorbed 60% of the record insured property losses. Bermudian and US-based companies have borne the brunt so far, at $US11 billion ($14 billion) and $US7 billion ($9 billion) respectively.

Based on gross written reinsurance premiums for last year, AM Best ranks the top reinsurers as Munich Re, Swiss Re Group, Berkshire Hathaway Group, Hannover Re and Lloyd’s of London.

However, AM Best says Swiss Re is likely to now be larger than Munich Re after completing its purchase of GE Insurance Solutions.

The agency says reinsurers are bracing for a long period of heightened catastrophe risk. The report details the rapid growth in catastrophe bonds as reinsurers look to capital markets to strengthen their balance sheets.

Based on current trends, AM Best says it’s likely the reinsurance industry will become an even more capital-intensive business than before.