Bermuda's primary insurance and catastrophe reinsurance rates softened during the January 1 renewal season with greater selectivity and targeted marketing key trends, according to the new Bermuda Quarterly report (BBQ) from Benfield Group Limited.

Benfield research team reports that overall growth in the first quarter of 2005 almost stalled as Bermuda's leading reinsurers saw gross written premiums increase by only 2 percent to $16.4 billion. While most catastrophe reinsurers reported lower premium income, new multi-line companies ? particularly in non-catastrophe segments ? recorded advances.

"Elsewhere, flat top lines concealed tactical manoeuvring as companies withdrew from lines of business lines whilst seeking increased or new penetration of more attractively priced sectors," the report said.

The reinsurance sector withstood a significant blow from two catastrophes that struck in the first week of January 2005. Windstorm Erwin in Scandinavia and the Suncor Energy oil plant fire in Alberta, Canada caused painful losses and sent total net income of the group down 9 percent to $2 billion, the report said. The groups combined ratio increased 3.4 percent points to an average of 90.9 percent and, as in the third quarter of 2004, the catastrophe specialists sustained the heaviest losses, the report said. All companies however reported positive results and combined ratios below 100 percent.

Benfield reported that capital in the Bermuda market declined 2 percent from December 31, 2004 to $44.3 billion due mainly to capital management manoeuvres such as dividends and share buybacks by some of the post 9/11 companies.

The report said: "Capital management remained a key issue during the first quarter of 2005. Companies endeavoured to ensure that their capital was geared at levels that would produce attractive returns as market conditions continued to soften. The issue was particularly acute for the younger companies established in the immediate aftermath of 9/11."

Capital management exercises by AWAC, Montpelier Re and Axis were responsible for a ten percent fall in the combined capital of this group, the report said.

Benfield's research team said that despite the losses in the first week of January, property catastrophe prices continue to weaken with only the Florida mid-year renewal offering a "bright spot" in a generally downbeat market. Several companies expect to write less business in 2005 as underwriting discipline continues to be tested.

"The downward trend in pricing seems stubbornly resistant to the effects of a series of painful, but not financially life threatening catastrophes. The losses sustained right at the beginning of the year have dented earnings prospects for some, whilst the large catastrophe loss that would be necessary arrest the decline in prices suggests that acute pain might have to be inflicted before the market can turn," the report said.