Best remains negative on U.S., Bermuda reinsurance markets; expects no upgrades in 2006

Despite some premium gains during the renewal season, A.M. Best remains negative on the U.S. and Bermuda reinsurance markets. The rating agency doesn’t think there will be any rating upgrades or positive rating outlooks assigned in 2006, as the “underlying stability of these markets remains tenuous.”

Best said the “U.S. and Bermuda reinsurance sectors remain susceptible to pricing competition as investor expectations for double digit returns run high. Should the currently perceived market opportunities in property not be significantly realized, the companies that received much of the new capital that recently flowed into these markets might be forced to find alternative strategies.”

The weather remains a problem. Best notes 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. The financial flexibility of some companies is already stretched with debt to capital for the industry at an all time high.”

Equity capital, which flowed into the reinsurance market after Sept. 11 and in 2004, was also available in 2005. However, according to Best’s analysis, another year of catastrophe losses could well “dampen investors’ appetites for a stake in insurance and reinsurance holdings.”