Negative outlook for US and Bermudian markets

North America

Rating agency, AM Best has extended its negative outlook on the US and Bermuda reinsurance markets into 2006. AM Best believes that the underlying stability of these markets remain tenuous. AM Best believes that the US and Bermuda reinsurance sectors are susceptible to pricing competition as investor expectations for double digit returns run high. The agency also believes that another active storm season in 2006 or further reserve development from the 2005 storms, as some are predicting, would be material and may help to prolong the hard property market, but at an additional cost to earnings and capital. As a result of the 2005 hurricane losses, AM Best will pay particular attention to companies’ capital resources and risk management controls. “Catastrophe models will continue to be valuable tools for the quantification of risk, but not the only barometer. Management will need to demonstrate confidence in the data and parameters employed throughout the modeling exercise. Further, management needs to better demonstrate that underwriting and risk controls are adequate to ensure that there is a clear understanding and controlled correlation with un-modeled exposures. To that end, AM Best will be requiring more detailed information through its supplementary rating questionnaire and in company meetings,” the agency explained.