Bermuda-based reinsurer Platinum Underwriters Holdings Ltd. said yesterday that it spent $91.8 million buying back more than 2.2 million its own shares in the third quarter.

The company added that it also agreed to pay $98.5 million in cash for options issued to The Travelers Companies, Inc. in connection with Platinum's initial public offering in 2002.

Platinum is one of many Bermuda reinsurers to buy back shares this year. Doing so reduces the number of shares outstanding and has the effect of increasing book value per share.

The reinsurance industry is holding a significant amount of surplus capital – reinsurance broker Guy Carpenter has estimated about $13 billion through the first half of this year.

The hurricane season has done little so far to eat into that surplus, with a lack of major storms making landfall in the US.

The overcapitalisation amounts to an oversupply of reinsurance capacity which has putted downward pressure on reinsurance rates.

Conservative investments, such as US Treasury bonds, that tend to dominate property and casualty reinsurers' investment portfolios are yielding little in an environment of record low interest rates.

Buying back shares is one way reinsurers are utilising the excess capital. Others have raised dividend payments to shareholders.

Platinum said the Travelers' options it purchased had provided the right to buy six million common shares from Platinum for $27 each and were subsequently amended to provide for net share settlements.

Michael Price, president and chief executive officer of Platinum, said: "At this stage of the reinsurance market cycle, active capital management is a critical element of our strategy for enhancing shareholder value."

The authorised amount remaining under Platinum's share repurchase programme will be approximately $59.7 million following the purchase of the Travelers' options, which is expected to be consummated next Monday.

The Travelers Options will be cancelled and the transaction will be recorded in the fourth quarter of 2010.