Early signs that last year?s record hurricane season may lead to lasting changes in how reinsurers underwrite business are showing up first in the Bermuda market, say ratings analysts that closely follow the sector.

?We have seen some companies affected by Katrina come in with some very smart moves,? said Peter Dickey, a managing senior financial analyst with A.M. Best, speaking with dozens of financial executives on Thursday at the firm?s first annual Bermuda reinsurance briefing.

Mr. Dickey and other analysts from A.M. Best, the Oldwick, New Jersey-based firm that assesses the financial flexibility and claims paying abilities of sector participants around the world, said Bermuda companies are setting themselves apart by making changes in line with last year?s hard-learned lessons.And the analysts said so far there hasn?t been a parallel response from reinsurers based in the US and Europe.

In the months since Hurricane Katrina destroyed parts of the Gulf Coast on August 29, Bermuda insurers and reinsurers have taken various steps to keep their balance sheets in good order.

Many raised capital, with about $20billion flowing into the Bermuda market. The funds went to replenish the coffers of companies hit by the losses or to back new entities setting up to take advantage of an expected rise in premium pricing.Many are limiting the amount of risk they?ll assume, and also ceding, or passing on, more risk to traditional reinsurers or sidecar vehicles. There is also cautious optimism from A.M. Best?s analysts that the changes, including a more conservative approach to business planning, may last.

?Some of the risk management rhetoric is more believable now,? said Matthew Mosher, group vice-president of the rating firm?s property-casualty rating division.Bermuda-based Aspen Insurance Holdings Ltd. is one company moving to make sure it is better prepared when catastrophe strikes again, by increasing the amount of reinsurance protection it buys. So is ACE Limited, Bermuda?s biggest provider of insurance and reinsurance.

Numerous other companies are taking similar tacks, and also walking away from business that is priced too low to be profitable in the face of losses.Companies have also taken a closer look at how much risk is contained in the policies sold, especially if business is concentrated in an area that is prone to natural disasters, or even an area that may be a target in another terrorist attack.?Bermuda, by and large, in terms of performance and capital, is in a relatively good place,? said Robert DeRose, assistant vice president at A.M.Best.

Hurricane Katrina, one of three deadly storms to hit the US last year, is expected to cost the insurance industry on a whole about half of the projected $80 billion cost of the 2005 hurricane season.

Bermuda?s insurers and reinsurers sustained about $12 billion in losses from last year?s storms, and at least three companies are floundering financially after being hit by the losses.Katrina?s high cost makes the storm the most costly natural insured catastrophe on record, something that is having a profound effect on the industry because it in effect is a warning shot that the price tag for catastrophes can be severe.

The weight of that message is likely compounded by forecasts of another active storm season this year, and the now pervasive pessimism that natural disasters could easily cost on the order of $100 billion when they strike affluent urban areas.

The size of the 2005 losses ?exceeded all expectations? said A.M. Best vice-president John Andre, conceding that the ratings firms, modellers and insurance companies were all caught off guard.Modelling firms supplying systems to help underwriters assess the risk in contracts had projected as little as $10 billion in total damage from a powerful hurricane swamping Gulf Coast city New Orleans, as Katrina did.

After the embarrassing under-calculation, risk modelling firms are now increasing their storm-loss predictions and are bumping up the number of factors that can trigger losses in a catastrophe because Katrina proved there is a greater correlation between risks than previously thought.

An example of the increase in modelling options is Oakland, California firm Eqecat Inc.?s new gas and oil model, developed after Gulf Coast platforms were badly battered by Katrina and Rita. Of about 4,000 facilities in the area, three-quarters fell into the path of either or both storms, according to information from the US Department of the Interior.

This left roughly ten percent, or $8 billion, of the record storm season?s costs in the hands of oil rig and refinery operators.And Newark, California modelling firm RMS yesterday launched an updated version of its US hurricane model, just in time for the official start of hurricane season in just over a week. ?Catastrophes are the greatest single threat to capital adequacy,? said Robert DeRose, an assistant vice-president with A.M. Best.

At the same time analysts are also closely watching the reserves that companies put up to cover losses that develop on casualty policies, he said. Casualty insurance covers a loss or liability arising from a sudden, unexpected event such as an accident. Unlike catastrophe claims, which are generally settled within a year or two, casualty losses are often paid over several years.After last year?s wave of storms, the question of whether insurers and reinsurers have the financial strength to sustain more than one catastrophe loss in a short period of time, arose.

And this uncertainty drove A.M. Best property-casualty analysts to institute a change in the way they assess the sector.Insurers and reinsurers are now subjected to additional stress test risk analysis to measure how they are likely to fare in the event of two costly catastrophes striking in a short period of time.

This has prompted a general increase in the amount of capital rating agencies are requiring companies to have in order to hold on to a strong credit rating.

Although A.M. Best says it doesn?t have a one size fits all method of assessing companies, and individually calculates how much capital is adequate for a particular company to hold, it takes a more favourable view of those who are conservative in their business planning.

?We are sceptics by nature,? said Mr. DeRose. ?We have to see this through a season or two,? added Mr. Andre. ?We are going to have to see some of the risk management tools proven over time.?

And the analysts said companies have to be up front on their financial condition, and risk management controls.

?We need to feel a company is being straight with us,? said Mr. DeRose.

And those underwriting coverage likely to be triggered in the event of another large natural catastrophe are being the most closely scrutinised. A company with concentrated exposures will need to hold more capital, said Mr. Andre, whether that be a geographic concentration, or a business concentration, such as a company that only sells property-catastrophe reinsurance.

This is driving many companies to step up their practice of ceding risks onto other reinsurers, which spreads the risk out among several carriers.There is also a push to diversify into several lines of business, and to closely track how many policies are sold in any one area.