@$:@bylinerg:<*p(0,0,0,+1,0,10.152,g)>By Scott Neil@bodyindent:<*t(0,0," ")>Bermuda reinsurers that maintain a clear focus on capital management and underwriting discipline will be the ones that succeed in 2007, in the eyes of rating agency AM Best.<*t(0,0," ")>It is cautioning against companies deploying strategies that are beyond their "capital cushion" or are "not rational from a competitive, operational or intellectual perspective" as that route will lead to higher risk and inevitable downward pressure on a company's existing rating.<*t(0,0," ")>With so much capital injected into the Island's premier industry in the wake of the 2005 US hurricane catastrophes, followed by the benign season of 2006 and early 2007, it has resulted in pressure to maintain the premium rates that could be charged previously because of the fiercer competition for business.<*t(0,0," ")>At the end of 2005 there was $7 billion of new capital creating fresh reinsurance company's in Bermuda, and 20 sidecars were also formed in 2006 with $4.5bn of capital. Elsewhere in the world, capital bond issuances topped $4.6bn, according to AM Best.<>*t(0,0," ")<>"All this capital was poised to reap the benefits of the hardest property catastrophe market since just after Hurricane Andrew in 1992,"<><>said the agency.<>*t(0,0," ")<>"Given the increased competitive presures, AM Best believes that the 2005 start-ups will seek <>*t(0,0," ")<>alternative business opportunities to fully utilise the capital raised. Strategies that go beyond the constraints of an organisation's capital cushion or are not rational from a competitive, operational or intellectual perspective will result in increased execution risk. As such, existing ratings will come under downward pressure."<>*p(0,12,0,10.5,0,0,g)<><>*t(0,0," ")<>In its Global Reinsurance 2006 Market Review, the New Jersey-based agency notes the outstanding results enjoyed by the Bermuda market as a result of the relatively few catastrophe incidents in 2006. The total equity in the Island's insurance/reinsurance industry at the end of 2006 was $66.9bn, and that excludes the equity from the "Class of 2005" start-ups.<>*t(0,0," ")<>The Bermuda companies' profits after taxes and expenses totalled a combined $11.6bn last year.<>*t(0,0," ")<>AM Best said: "The bad news clearly is that the strong performance in 2006 has set the stage for increased pressure on rates as a whole. Property rates in regions exposed to severe catastrophic events likely will continue to decline, ideally at a gradual pace.<>*t(0,0," ")<>"Longer-tailed classes should demonstrate greater strength where expertise with products and superior financial strength keep the bar high and limit the threat from naive capital."<>*t(0,0," ")<>The agency also reports the general mood Bermuda-based reinsurers up to the posting of second quarter results, noting the year to date has thrown up catastrophes in unexpected areas, such as the English and Australian floods and an earthquake in Japan, and comments: "Ambivalence was the mood regarding the key Florida property market as June and July renewals came and went. Some said it was bad, others not as bad as feared.<>*t(0,0," ")<>"Exchange-rate volatility and shaky debt markets were causing angst among reinsurers' investment managers."