Fitch believes that across the group a 2 percent decline in GAAP (generally accepted accounting practices) equity from year-end 2010 can be easily absorbed by the reinsurance market, which the agency views as being strongly capitalized at year-end 2010.

Fitch recognizes, however, that year-to- date capital erosion leaves less margin for error as the U.S. hurricane season approaches, which it says has produced many of the largest global catastrophe losses on record.

Any meaningful catastrophe losses for the remainder of 2011 could strain the capital bases of individual companies, Fitch notes.

Depending on the size of these potential events, incremental capital declines could result in more meaningful pricing improvement in the broader market, Fitch says, particularly if losses significantly affect primary companies that were relatively unscathed by the major loss events of first-quarter 2011.

Fitch observes that the primary loss driver in the first three months of 2011 was the Japanese earthquake, resulting in pretax net losses of about $8.9 billion for the reinsurers in this group.

The earthquake in New Zealand, as well as a cyclone and floods in Australia, added another $6.8 billion of pretax catastrophe losses in first-quarter 2011.

Companies with more geographically diverse property reinsurance underwriting portfolios were in many cases hit disproportionately hard by thr confluence of events, several of which took place outside of what are generally considered to be peak catastrophe zones, Fitch says.

In first-quarter 2010, the Chilean earthquake and Winter Storm Xynthia combined to contribute about 20 combined ratio points to reinsurers’ underwriting results.