Limited increases in reinsurance premiums in the January renewal season have forced ratings firm A.M. Best to extend its negative outlook on the Bermuda and US reinsurance markets for 2006.

The ratings agency said yesterday that after completing its assessment of the market, it anticipates there will be few if any rating upgrades or positive rating outlooks assigned during the year.

?Although there were a number of rating downgrades in 2005 and, currently, only a few reinsurers in these sectors hold ratings with negative outlooks, A.M. Best believes that the underlying stability of these markets remains tenuous,? the firm said in a media release.

The US and Bermuda reinsurance sectors ?remain susceptible to pricing competition as investor expectations for double digit returns run high,? Best said, noting that if perceived market opportunities in property are not significantly realised, the companies that received much of the new capital that flowed into these markets might be forced to find alternative strategies.

?The markets have already demonstrated that while property rate increases attained for January, 2006 renewals 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. Should companies seek to diversify the new capital into casualty, it could trigger additional softening for the casualty segment as well,? Best said.

While another active storm season in 2006 or further reserve development from the 2005 storms would be material and may prolong the hard property market, the ratings agency said this would come at an additional cost to earnings and capital.

With the financial flexibility of some companies already stretched and debt to capital for the industry at an all time high, A.M. Best asked if another year of losses will dampen investors? appetites for a stake in the sector.

The hurricane losses in 2005 spurred Best to take a more rigorous approach in its evaluation of companies? capitalisation and risk management controls. The agency noted that while catastrophe models continue to be valuable tools for the quantification of risk, they are not the only barometer.

?Management will need to demonstrate confidence in the data and parameters employed throughout the modelling exercise,? Best said adding that ?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-modelled exposures.?