Dear Friend,

The fourth quarter and 2005 calendar year results and January renewal reports are coming thick and fast and it’s all worse than I expected.

When I say worse I mean that the market is now more imbalanced and polarised than it has been for many years.

Imagine this market were a large wobbly jelly on a plate and the 2005 hurricanes were sledgehammer smashing down in the jelly’s general direction — something amazing has happened — the sledgehammer has bounced off!

Results are showing 2005 as a mildly loss-making year for most — but the overall capital position is extremely healthy. The real story is that competition is strong across all but the most loss-affected, “I wouldn’t touch with a long pole and a clothes peg attached to my nose” lines.

The incumbents have been able to scale back drastically on Gulf of Mexico exposures and still take in more premium and this has let the class of 2005 fill the gap without destabilising the market.

So far smiles all round – Mr Zeller of Hannover Re can say his book is more “weatherproof” than this time last year and the class of 2005 can say they are sticking to their short-tail business plans, although they are massively exposed to another bad Hurricane season.

What’s more, casualty and special risks have been putting in excellent numbers and competition is understandably hot in these sectors — and there is nothing to stop that competition intensifying.

The ratings agencies will be tweaking their capital models in the light of Katrina, but my gut feeing is that this is going to be a purely Cat market issue, and will only serve to make the longer tail classes more attractive by comparison.

The million-dollar question is whether the class of 2005 tries to force its way into non-cat areas to bring some balance to its current high-risk high-return book.

Of course, the 2006 weather forecast is awful and this is the other big variable.

The great paradox is that biggest worry for the increasingly “weatherproof” incumbents in 2006 is probably that the wind fails to blow this year and the class of 2005 ends up with more money than it knows what to do with.

Whatever you’re wishing for, fingers crossed.