A shareholder lawsuit against American International Group, Inc. (AIG) just got tossed out of court. The suit accused both current and former executives of ignoring the warning signs that came ahead of the company's near collapse in September 2008. Only one problem, though, observed a federal judge in Manhattan on Tuesday: the shareholders hadn't said anything sooner.

AIG argued that the shareholders hadn't raised any issues to its board of directors before bringing the lawsuit, and they weren't able to demonstrate that attempting to do so would have been futile.

Insurance company upgrades outpaced downgrades by 50% last year. In a report by insurance rating agency A.M. Best, Upgrades, Downgrades Moved at a Similar Pace in 2009, 36 commercial property/casualty insurers were upgraded, compared to 24 that saw their ratings head in the opposite direction.

According to the report, "By demonstrating consistently strong operating results over several years and maintaining sound underwriting discipline, conservative reserving practices and leading business positions in certain segments of the commercial market, these insurers have been able to strengthen their risk-adjusted capitalization."

The catastrophe bond market will be heating up over the next few months, thanks to a combination of favorable market conditions and new investors. Michael Halsband, Vice President at Goldman Sachs (GS), said to Reuters that the cat bond issuance market got off to an early start in January, despite the fact that the first quarter is usually rather quiet. This follows the recent closing of the year's first cat bond, Foundation Re III, by The Hartford (HIG).

According to Halsband, "From January to June this year, $2.7 billion of transactions will mature and most of that is expected to be placed straight back into the ILS [insurance-linked securities] sector," continuing, "In addition, we believe between $1.5 and $2.5 billion of new capital has flowed into dedicated ILS funds and along with the $2.7 billion of maturities. Around $5 billion will be available to be put to work in the cat bond sector."

The Bermuda Stock Exchange is looking for a comeback this year. For 2009, the shares traded on the BSX were off close to 40%, reflecting the brutality of the financial crisis on the island known primarily for its insurance business (oh, and people go on vacation there, too ... and not just insurance people). In 2010, the BSX sees catastrophe bonds and other insurance-linked securities as fundamental to a strong year. A BSX statement reads, "The BSX's listing business has remained buoyant and the BSX has made continued progress in entering and supporting the insurance linked security space." With the 2009 Insurance Amendment Act approved last October, Bermuda hopes to lure cat bond listings away from the Cayman Islands Stock Exchange.

The most important time in the reinsurance business is upon us: the January renewal. The pricing and market conditions that shape the risk-transfer prices paid by insurance companies now set the tone for the transactions to follow for the rest of the year (usually at the beginnings of April, June and July), and 2010 looks like it will provide a drastic departure from 2009. After enduring both the global financial crisis and Hurricanes Gustav and Ike in late 2008, the reinsurance industry recovered quickly, and as the 2010 renewal approached, it was evident that reinsurance rates would decline.

According to Aon Benfield's (AON) report on the Jan. 1, 2010 reinsurance renewal, Remarkable Recovery, increases on reinsurance company balance sheets from the March 2009 lows – in conjunction with low catastrophe insurance losses – put downward pressure on reinsurance rates, with property-catastrophe coverage costing 5% to 15% less than it did a year earlier.

UK insurance companies saw worldwide premium income plunge 18% in 2008 to GBP215.3 billion, according to International Financial Services London, an independent research organization. Its Insurance 2009 report says that 2009 will be a fairly tough year, as well, with premium bouncing back in 2010. Long-term premiums were the challenge last year, as they account for 80% of UK insurance business. The financial crisis and an increase for long-term protection converged on insurance rates, pushing prices lower. Premium income in this corner of the market fell almost 25% to GBP168.1 billion in 2008.

The expectation, last year, that damage to insurers' balance sheets and an increase in claims -- particularly for financial services liability coverage -- didn't materialize, as carriers had enough capital on hand to absorb the losses sustained on both sides of the balance sheet. As a result, insurance pricing has been kept under control.

Long a topic of discussion, insurers and reinsurers are beginning to enter the microinsurance space. Scor (SCOR) firm invested in LeapFrog Investments, the first microinsurance fund, last month, and last week, the Microinsurance Network was launched in an effort to raise awareness of the sector.

In a mature industry, microinsurance is seen as having considerable growth potential, especially given the large numbers of people around the world who live without any form of coverage. Microinsurance protection ranges from property catastrophe to life and health. A recent study by Lloyd's of London found that 135 million people, 5% of the world's low-income people, are using microinsurance products, but that the total market size could range from 1.5 billion to 3 billion.

AIG (NYE: AIG) was the most respected insurance firm in the world when it was run by Hank Greenberg. But he is gone, along with the respect.

AIG managed to lose $7.8 billion in the last quarter, an impressive amount even by the standards of current bank and brokerage deficits. According to The Wall Street Journal, "The giant insurer also announced that it would raise $12.5 billion in capital to replenish its balance sheet."

Of course, the reason for the losses was, among other things, investment in instruments based on mortgages.

One odd piece of news that came out of the awful quarter from the insurance firm was that it would raise its dividend. It is hard to imagine where that cash will come from.

The smoke signal sent up by AIG is that the crisis involving US financial firms is not over. AIG did not say that the future was bright and the sun was coming out from behind dark clouds. Pessimism was the emotion of the day.

Watch for more big losses from banks and brokerage in the second quarter. AIG is a canary in a coal mine.

Douglas A. McIntyre is an editor at 247wallst.com.