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Cat-prone areas might see softer market: Moody's

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NEW YORK--Last year's reduced U.S. storm activity could signal softening insurance market conditions for peak catastrophe zones sometime this year, said Moody's Investors Service Inc. in a special report released Wednesday.

Key findings in its 2006 U.S. catastrophe survey include insurers and reinsurers paying greater attention to "managing difficult-to-model risk factors by monitoring zonal aggregations, exiting certain lines of business or adhering to more conservative contract terms and conditions," Moody's said.

The report, "Current Trends in Insurance Catastrophe Risk Management," also said almost all insurers and reinsurers use models to manage portfolio accumulations, although tie-ins of portfolio management to pricing are less common "and varied considerably in sophistication."

Underwriters also more often take into account the effect of demand surge, storm surge and fires that follow catastrophes, said the report.

In addition, insurers and reinsurers are "more aware of capturing accurate exposure data," such as replacement cost information, particularly in commercial lines, "although this remains an area for further improvement."

Moody's said it believes most of its property/casualty insurer ratings will remain stable over the next year, as insurers and reinsurers re-evaluate their risk appetite and shed business with outsized catastrophe exposures, purchase higher levels of reinsurance where available, and use alternative risk-transfer mechanisms, including sidecars and catastrophe bonds.

Copies of the report are available to Moody's subscribers only at www.moodys.com.