Fitch maintained a negative forecast, citing potential problems replenishing capacity in the event of a major catastrophe. The agency believes there is an elevated likelihood that reinsurers could be forced to operate with weaker capital bases for a prolonged period of time.

Ted Collins, group managing director for Moody's, said at a press conference here that if faced with a balance-sheet dilemma, most companies would choose to find more capital and go on serving clients and intermediaries.

“The question, and one of the reasons our outlook is negative for the market is because we think it's less certain they would be able to do that, post-catastrophe,” he noted. “That said, if there were a very large event, it's reasonable to expect that some ratings would go down.”

Moody's said it believes conditions will worsen because demand is weakening and primary prices are weak, challenging reinsurers.

In prior periods, reinsurers have come to rely on investors to refurbish capital–which is more difficult to accomplish now in the current economic downturn, according to Mr. Collins, who said reinsurers facing a large catastrophe might have difficulty raising additional cash.

A.M. Best and Standard & Poor's, on the other hand, expressed more positive outlooks, citing confidence in the reinsurance industry's ability to reload capacity, if needed, particularly if catastrophe losses hold out the promise of price hikes and revenue gains to investors.

John Andre, group vice president of global reinsurance at A.M. Best, said any financial flexibility concerns have abated. He said catastrophe markets are opening up and cat bonds have been issued to increase capacity.

He added that reinsurers for the large part are durable. “We figure about 15 percent of capacity came out of the market in 2008,” he said. “However, you saw very few rating downgrades last year.”

Mr. Andre noted that after careful consideration, the rating agency decided to take a stable outlook on global non-life reinsurers. He said A.M. Best builds a large margin into its capital model when companies are measured, adding that because of this asset cushion, reinsurers for the most part were able to maintain their ratings last year.

He said Best's outlook is measured on how many rating actions the agency expects to take. “Of the 45-to-50 reinsurers in this area, we expect to see most of those ratings as they come up on renewal to be affirmations,” he noted, citing as key drivers the strong earnings reported for the first six months of this year and the enhancement of enterprise risk management.

He noted, however, that Best doesn't believe pricing is where it needs to be. Although June and July catastrophe renewals were up 10-to-15 percent, whether this was sufficient to cover the risk involved remains to be seen, he said.

Casualty rates also are not turning as expected, according to Mr. Andre, who said optimism for Jan. 1, 2010 renewals “varies, depending on who you speak to.”

Regarding mergers and acquisitions, he observed that candidates for reinsurance deals have dwindled. He also said that Bermuda-U.S. and London-Bermuda M&A opportunities have dried up, and he expects to see fewer large deals because fewer companies are left to merge.

Laline Carvalho, director of financial services ratings for North American insurance with Standard & Poor's, said the agency's stable outlook reflects its views that “the global reinsurance sector has been very resilient in the face of a difficult 2008 year.”

She said that in 2008, large companies saw their equity decline–mostly due to substantial investment losses, but also because of large underwriting losses from Hurricane Ike.

“But it could have been a much worse year for reinsurers,” she added, had it not been for the fact that reinsurers have been “continually improving their enterprise risk management and continuously looking at their exposures” from the asset side of the balance sheet to the liability side, while seeking to diversify their exposures.

Ms. Carvalho said 2008 was a year that gave the industry an opportunity to see whether their ERM efforts were working. “We feel that, though the industry had substantial losses, they could have been much worse,” she concluded.

She said the sector's conservative approach on investment strategy, asset allocation and its quest to lower exposure to catastrophe losses after Hurricane Katrina–and other potential losses–has helped cap last year's losses.

While there was significant depletion of capital last year, she conceded, “it turned out that it happened at a cyclical time for the reinsurance sector, when capital was really at its peak.”

“When we looked at capital adequacy at year-end 2007 for reinsurers, most companies had capital substantially in excess of their rating levels,” she pointed out, adding that while a substantial portion of their capital was depleted in 2008, “we're already seeing capital being replenished in the first half of 2009, through earnings and through a reversal of some of the investment losses the industry saw last year.”