2006 trading environment
Whilst we do not yet have the data to assess the 2005 movement in the industry's capital and surplus, the sheer size of the 2005 hurricane losses suggests that it is unlikely to have grown, even after the new capital raised by reinsurers in the last quarter of 2005.

Positive dynamics affecting pricing in 2006 include:

• Insurers and reinsurers are re-evaluating and reducing the amount of exposure they will accept in major catastrophe zones. In part this is recognition of the likelihood of increased intensity of windstorms and in part it is a correction by some of what has been shown to be a vulnerable business model with balance sheets over exposed to multiple, if not single, events. Rating agencies have taken a hard line and are forcing reinsurers to reduce peak exposures;
  
• The major modelling agencies are reviewing and expected to increase their assessment of damage factors from major events. This may result in insurers and reinsurers reducing even further their business underwritten in catastrophe zones;
  
• The pricing of retrocessional reinsurance has increased dramatically, which should in turn force primary reinsurers to raise prices;
  
• Marine reinsurance pricing has increased markedly and this is expected to feed through to direct marine rates; and
  
• In the UK commercial motor class, we believe that a number of competitors are operating with combined ratios in excess of 100% and we would expect to see some reaction before too long.