The 2005 hurricane season is the biggest single Influence on the industry in 2006.

Lloyd’s heads into the new year expecting market conditions to provide opportunities for underwriters. Hardening rates and tighter conditions are predicted, but the events of the last 12 months will have changed the way underwriters approach risks.

The biggest change is likely to be the use of risk models to estimate exposure and liability levels.

There has also been a re-evaluation of the risk modelling tools used by the market in the aftermath of the hurricanes. This is due to continue as underwriters seek to get a greater understanding of their exposure to risk. David Indge of Lloyd’s Underwriting and Business Planning department said: “With the likelihood of higher retentions and less vertical reinsurance cover, underwriters will look at their exposures on a gross basis going forward and it will affect the way they approach their portfolio of risk.”

Discipline will continue to be the market’s watchword and despite the hard market conditions and the need to recoup the losses of the past, the expectation is that there will remain a cautious approach to underwriting.

Market participants have backed the view that caution will remain in the market. Exposure, not premium, is the primary concern.

Ewen Gilmour, Chief Executive of Chaucer Syndicates Limited, believes the accent for 2006 will be risk-based control of underwriting. He said: “The impact of record losses from the 2005 hurricane season has emphasised the value of insurance.

It also acts as a reminder of the importance of the strict maintenance of a risk-based control system and the need to position businesses to be able to respond promptly to movements in the cycle.”

From a London Market point of view the injection of new capital into Bermuda has underlined the importance of current initiatives to preserve the market’s competitive position internationally.

Gilmour continued, “Taking a pragmatic approach to meeting clients’ needs, while still pushing ahead with initiatives to establish a more efficient trading and business servicing platform, is critical.”

It is clear that for the year ahead, Lloyd’s agencies must work closely with their broker partners and the IUA to strengthen the London market as a whole and so create a more efficient and attractive market for all.

While underwriting discipline will remain, initial reports from the January renewal season point to increased rates and tightening in some of the hardest- hit classes of 2005.

Richard Palengat of Aegis said the expectation is for rates to harden.

“The energy market is in the process of responding to the series of dramatic events that have occurred since August 2004. The offshore market has been rocked by three of the most severe hurricanes ever to have hit the Gulf of Mexico, in addition to some significant operating losses. Such a combination of frequency and severity is unprecedented.

He added: “The hurricanes are raising questions about appetite for risk in the Gulf of Mexico and are causing a complete rethink of the basis upon which windstorm coverage is provided. Aggregate windstorm limits are being applied to all relevant policies, windstorm deductibles are being introduced and rates have already escalated approximately 400%.

David Indge said: “The expectations for 2006 are, therefore, of a very hard direct market, matched by a very different and more expensive reinsurance market.”