Hurricane Gustav will have a minimal impact on the property and catastrophe market.

That is according to rating agency AM Best Co., who said in a report that despite estimates of $2 billion to $10 billion of insured losses, it does not expect the effect of Gustav alone to change the current competitive dynamics facing insurers and reinsurers.

Although the losses are considerable in comparison to the overall premiums collected for the coverage of the losses incurred, the insurance and reinsurance markets overall are expected to remain competitive, the ratings agency said.

Best said that the projected losses from Gustav will continue to put pressure on the huge differential between affordable and actuarially sound primary insurance prices in hurricane exposed regions. Despite the fact that Gustav turned out to be a relatively moderate storm when put into historical context, a $4 billion on-shore incurred loss reflects approximately 100 percent of 2007 property catastrophe exposed premiums in Louisiana.

The impact on reinsurance costs in the Gulf region is not expected to be significant, but the actual impact will play out over the next few months.

Although the impact from Gustav is not expected to be market changing, Best believes the 2008 hurricane season is demonstrating the considerable risk that was originally projected for the season. While the landfall of a category three or above hurricane will hopefully be avoided, the recent increase in activity with Tropical Storm Hanna, Tropical Storm Ike and Tropical Storm Josephine provides reason to be concerned with the potential of such an occurrence, added the ratings agency.

Additionally, Best said an increase in the number of smaller hurricanes making landfall, combined with an already high level of catastrophe losses reported in the first half of 2008, would likely bring a dose of reality to the competitive property cat markets and stem further declines in pricing in 2009. It expects that reinsurers are again recognising that the potential for loss cannot be ignored and the competitive confidence of some underwriters will wane.