AM Best has extended its negative outlook for the US and said it expects few, if any, rating upgrades or positive rating outlooks in 2006.
The ratings agency said that although there were a number of rating downgrades in 2005 and, currently, only a few reinsurers in these sectors hold ratings with negative outlooks, it believes that the underlying stability of these markets remains tenuous.
AM Best said it believes that the US and Bermuda reinsurance sectors remain susceptible to pricing competition as investor expectations for double digit returns run high.
It added that while property renewal rate rises were favourable, they were nonetheless narrowly focused and limited to those covers affected by recent losses. Casualty business has seen little if any benefit from the hurricane losses in 2005 and should companies seek to diversify the new capital into casualty, it could trigger additional softening for the casualty segment as well.
AM Best also said it believes that another active storm season in 2006 or further reserve development from the 2005 storms, would be material and may help to prolong the hard property market, but at an additional cost to earnings and capital in a time when the financial flexibility of some companies is already stretched with debt to capital for the industry at an all time high.
