News Analysis - Why this 'weatherproof' market will be all-out soft before the year's end.

(From Reinsurance)

Well, the fourth quarter numbers are almost all out, and there are precious few surprises - and what few there are have been largely on the positive side.

Yes, it was a bad year for catastrophe underwriters, but this is to state the extreme obvious - after all, 2005 was the worst year in record for natural catastrophes! And even then, all the major mono-line catastrophe players have been allowed to re-capitalise and take advantage of improved pricing, as well as greater demand for their product.

Of particular interest is that while all those that have needed it have been able to reload on the capital front, the surprise is that many have declined the kind offers from the money men. Many have simply used the market dislocation afforded by Hurricane Katrina and her sisters to rebalance the risk profile that they are underwriting, rather than tool up to take advantage of an upwards blip in rates.

The case of Advent

A case that speaks volumes is that of Advent Capital, the small catastrophe specialist operating in Lloyd's and for almost 30 years the operator of one of its best-performing syndicates. The 2005 result is going to be pretty horrendous, so a repair of the balance sheet was necessary. This was duly followed by a placement of fresh equity and an increased debt facility.

Then, at the beginning of February, the company issued a renewal update that painted a picture of strong performance in its core US catastrophe markets, with rate increases of up to 100%. However, despite such buoyant trading conditions, the syndicate's capacity remains unchanged into 2006 at GBP153m.