Fitch Ratings analyst Mark Rouck said the combined ratio jump seemed a bit high but attributed much of it to the fact that American Reinsurance Corp. was included.

"Otherwise, it is mainly a softening premium environment, since catastrophes for the most part did not play that big a role in the first half of this year," he said.

Last month, Princeton-based American Re added $1.4 billion to its loss reserves, leading the company to report a second-quarter net loss of $1.4 million, compared to net income of $106 million in 2004. "The reserve strengthening was certainly a major impact on our financials," said American Re Chairman John Phelan.

As a result, the company will be integrated even more closely with its parent--the Munich Re Group--through extended retrocessional covers, Mr. Phelan said.

According to a report issued by the London-based Benfield Group Ltd., the softening 2005 market should come as no surprise to those who kept a close watch on renewal activity in January. Benfield said the fact that the catastrophe-laden second half of 2004 did not cripple the industry made underwriters overconfident.

"As a result, 2005 renewals saw a familiar disconnect between the avowals of continued discipline by senior reinsurer management and actual underwriter behavior," the report stated.

Thus, the "feel-good" factor coming from robust balance sheets is driving a renewed focus on marketshare and fueling competitive pressures, the report added.

Mr. Rouck of Fitch also noted that the premium rating environment showed some signs of weakening during the January 2005 renewal season. But on a more hopeful note, he said that any inevitable softening will not be a repeat of the last such cycle.

"For one thing, the period of prolonged and abnormally high equity market returns, similar to what we enjoyed in the late 1990s, is unlikely to reoccur in the near term," Mr. Rouck said, adding that the prior bull market in stocks helped plunge reinsurance prices to an usually low level.

Do this as a Big Numbers chart

Head: By The Numbers (no flag)

105.8--First-half combined ratio, 2005

96.3--Combined ratio, first-half 2004

9.5 Points--Deterioration in past year