Guy Carpenter & Company, LLC, a subsidiary of New York-based Marsh & McLennan Companies, said that severe storms and Florida legislation this year could have a negative impact on rates.

It noted that widespread insured losses are expected from European Windstorm Kyrill and the severe winter storms that pummeled western and central parts of the United States.

Insured losses from Kyrill are estimated between EUR4 billion and EUR8 billion ($5.2 billion and $10.4 billion). Insurance losses from the U.S. winter storms are currently estimated at more than $250 million for January.

The reinsurer noted the Florida state legislature's recent expansion of the cover provided by the Hurricane Catastrophe Fund (FHCF), from a ceiling of an industry loss of $16 billion to a loss of $28 billion.

Guy Carpenter said the legislation raises a number of troubling issues, not least the fact that the FHCF will now be supported by the issuance, post-event, of bonds–a “play now, pay later” structure that runs counter to the basic premises of insurance and reinsurance.

In addition, the brokerage added that there are concerns that the Florida plan may be seen as a model for other states, leading to contraction of insurance and reinsurance markets.

The report added that due to significant rate increases and a relatively benign loss season, 2006 is likely to be a record year for reinsurance industry profitability.

It noted that the industry has witnessed significant recapitalization from internal profits, as well as an inflow of new capital. This, it said, has helped quickly replenish whatever capital was extracted from the market in 2004 and 2005.

U.S. coastal exposures are the exception, the report said.

It remarked on a disparity between continued hard conditions for U.S. coastal exposures and soft market conditions elsewhere.

A reassessment of exposures in the wake of the record-breaking hurricanes of 2004 and 2005, reinforced by increased projected losses from the major modeling firms and higher rating agency standards for catastrophe exposures, has led to a severe shortage of capacity allocated to U.S. and Mexican coastal exposures, the report said.

Guy Carpenter said it found divergent pricing trends. Across a number of casualty lines, the primary and reinsurance sectors are out of phase in terms of pricing, with soft market conditions prevailing in the primary market while the reinsurance market remains relatively firm, it found.

The report notes that a more conservative approach to underwriting and pricing by reinsurers, differing views on the adequacy of primary carrier rates between the primary market and reinsurers, and other factors are contributing to this situation.

A copy of the full report is available for download at www.guycarp.com.