A challenging business environment and soft market conditions contributed to a 55 percent decrease in Odyssey Re Holdings Corp.'s second quarter net income, management said.

The company reported a net income of $66.9 million, compared to $147.6 million for the same period last year.

Odyssey Re's combined ratio climbed to 98.7 from 93.9, and rose in all regions except the Americas. Odyssey Re CEO, Andy Barnard, said in a conference call that several points of the combined ratio are attributable to catastrophe events in China, and a strengthening of directors & officers reserves in anticipation of potential credit crunch losses.

The company also saw a decline in net realized investment gains, which dropped to $45.6 million in the quarter, from $121 million in the second quarter of 2007.

Gross written premiums improved to $556 million, up from $553.3 million a year ago, and net premiums earned also rose, from $514.7 a year ago to $515.5 in the quarter of 2008.

Mr. Barnard predicted continued challenges in the future. While he said that he was pleased with the year-to-date book of business, he said that soft market conditions will likely lead to continued downward pressure on rates, terms, and conditions. This, he said, will cause premium volume to drop off “more sharply” in the quarters ahead.

Odyssey Re also announced that its board of directors approved a 20 percent increase in the company's quarterly dividend, and declared a quarterly cash dividend of $0.075 per common share, payable Sept. 26, to Sept. 12 shareholders of record.