Mid-year renewals for Bermuda reinsurance companies rose less than hoped, as new capital came into the market to offset the impact of last year’s catastrophe losses, according to research by analysts from Keefe, Bruyette & Woods (KBW).The report concluded that the Bermuda market is “doing okay”, despite the significant headwinds of weak investment yields, the easy entrance of new capital and low stock valuations.Mid-year renewals, when US insurers buy cover for the hurricane season, are a critical time of year for the Island’s reinsurers.After interviewing executives at several Bermuda companies, the analysts reported disappointment among underwriters over the small increases seen in most areas, even after the second-most expensive year on record for insured catastrophe losses in 2011.“The mid-year reinsurance renewals, dominated by Florida property, appear to have been up in the 0-5 percent range,” KBW reported. “All were disappointed, as new capacity in the market largely offset a rise in demand. However, we would stress that US Southeast property risks appear to be priced for double-digit returns.“In other geographies and lines, rates are up significantly in the 2011 loss event areas but otherwise generally flat. Casualty reinsurance in particular was cited as underpriced although rates appear to have bottomed.”Much of the new capital is coming in a “non-traditional” form, especially in the shape of collateralised products, including sidecars and catastrophe bonds, which are “now a meaningful part of the business and influential in pricing”, KBW found.“One CEO estimated that non-traditional capacity is now ten percent of the market,” the report states. “With investors attracted to liquidity and direct access to business, these non-traditional vehicles appear likely to grow.”KBW added: “Bermuda also withstood a punishing loss year without serious capital strain and reserves appear to be sound. Bearing in mind the intrinsic volatility of the business, the Bermudians appear to be reasonably well positioned to produce attractive returns, in our view.”They tipped Axis Capital and Arch Capital, two of the Class of 2001, as likely to outperform the market.“We see material upside in the shares of Axis,” KBW stated. “With a flexible and diverse operating structure and an under-leveraged balance sheet, we believe that the company could show surprising growth. Arch has already established a strong brand and we see significant opportunity to expand as opportunity arises.“With property rates in the Southeast attractive, we also believe that pure property reinsurers such as RenaissanceRe and Montpelier Re are likely to have good 2012 growth.”KBW noted there was potential for merger and acquisition activity in the market, but that “ weak valuations, cultural clashes and social issues appear to be limiting activity”.It added: “There was open speculation regarding the future of Flagstone Re but no one admitted interest and Flagstone itself emphasised that the company is positioning to remain stand-alone.”