Bermuda's insurance companies have been finding out how they would fare against their peers in dealing with a worst-case scenario.

Financial regulator the Bermuda Monetary Authority (BMA) has been conducting stress tests of local companies, based on a year of three major-exposure disasters.

Based on the results, it has compiled a league table that will not be made public, but the BMA is telling the companies tested where they stand.

BMA chief executive officer Matthew Elderfield said the tests, based on Lloyd's of London Realistic Disaster Scenarios (RDS) testing, could give insurers a useful indication of how their underwriting and investment exposures stood up against rivals.

While many companies conducted their own stress tests, they might discount scenarios that seemed wildly improbable. Years like 2005 the year of the three "ugly sisters", hurricanes Katrina, Rita and Wilma all slamming into the US Gulf Coast showed that companies had to be prepared for such scenarios. "We have solvency rules, but we need to supplement those with stress testing, to measure companies' risk exposures in the case of extreme events," Mr. Elderfield said. "We have to look into the abyss and ask 'how bad could it get'?

"At the beginning of the financial crisis, we stress-tested companies for their sub-prime exposure now we are testing their investment portfolio exposure and their underwriting exposure. "

By lining up the companies against each other, firms might discover they have a weakness in comparison to competitors, and have an opportunity to adjust their exposure accordingly. Results inevitably varied between property-catastrophe specialists and the more general insurers, Mr. Elderfield added.

The third quarter of this year provided many Bermuda companies with a real-life triple-disaster scenario, as they were hit with massive claims from hurricanes Gustav and Ike, as well as taking some hefty blows to their investment portfolios from the turmoil in the world markets.

As the Island's insurance regulator, the BMA has had to keep an eye on the market's overall health through this difficult period. There had been limited exposure to the sub-prime mortgage debacle, Mr. Elderfield said, though some companies had taken "significant knocks".

More recently, some Bermuda companies had taken hits from their exposure to failed banks Washington Mutual and Lehman Brothers, as well as to US mortgage giants Fannie Mae and Freddie Mac.

They have also seen mark-to-market losses on their investment portfolios as markets have tumbled."It's a source of concern that there is pressure on these portfolios, but the companies generally started from a position of being well capitalised and so those issues are not causing significant solvency problems," Mr. Elderfield said.

The financial guaranty companies have been the worst hit by the crisis. The BMA has been involved in talks, along with counterparty banks and US regulators in helping some of those companies, such as Syncora Holdings (formerly known as Security Capital Assurance) and CIFG, to find solutions to some of their problems.Such negotiating is likely to continue for some time to come.

"All the time talks are being extended," Mr. Elderfield said. "All the counterparties have other issues to deal with as well. It's not entirely clear whether this will take weeks, or longer."