Veteran risk manager Vance Beaumont probably didn't think he could be shocked by property insurance prices. But even he had to admit to being a little surprised in the fourth quarter of 2005. After the most costly hurricane season in history–a record $40.8 billion in insured losses in the third quarter of 2005 alone–premiums went up, but not nearly as much as the risk manager for Sun Microsystems Inc. had anticipated. As a member of the board of the Rocky Mountain chapter of the Risk and Insurance Management Society, Beaumont also had the opportunity to poll his board colleagues, who similarly reported single-digit price hikes. "I'm breathing pretty easily now," Beaumont says.

So where is it, where is the predictable knee-jerk insurance industry response to such significant losses? Like Beaumont, most risk managers expected double-digit hikes closer to 20%, and most insurers would like to have accommodated them. But in the wake of Katrina and the other major storms that buffeted the U.S., more than 10 new insurers and reinsurers applied to open their doors in Bermuda, including Hiscox Bermuda, Harbor Point, Validus Holdings, Ariel Re, New Castle Re and Flagstone Re. That translates into a lot more capacity–close to $10 billion, according to SNL Financial LC of Charlottesville, Va.–and thus more competition. "Carriers on average are trying to impose minimum 10% rate increases in the property area and in some cases liability, too," says Dick Schmidt, director of risk management at Illinois Tool Works Inc., a Glenview, Ill.–based global manufacturer of industrial products with 2004 revenues of $11 billion. "But generally, about the most they're able to get is a 5% increase because there is another carrier out there willing to take the business for less."

In fact, many industry observers consider the current market conditions as merely a hard spot in an otherwise softening market. Sun Microsystems' Beaumont, for example, projects insurers to "fight for whatever increases they can get next year, but barring another large catastrophe I imagine they will retreat back to a more competitive marketplace," he says. Brokers agree. "We would expect that as this capacity enters the market it will ultimately help insurers on the supply side, as well as our clients," says Robert Howe, head of the property insurance practice at New York-based broker Marsh Inc.