You can't blink in this industry without everything turning on its head. Did we all fall down the rabbit hole or has Warren Buffett really morphed into a knight in shining armour?

Not satisfied with joining fellow philanthropist Bill Gates in pledging billions of the Buffett fortune to charity, he now seems to be extending these altruistic inclinations to the industry after bailing out Equitas and all those Lloyd's Names. That's bizarre in itself but with Scor on a bullish buying spree, Willis making a bid for Marsh, Catlin making a bid for Wellington, Swiss Re buying even more of GE and Flagstone looking to IPO after less than a year's trading, it's all getting curiouser and curiouser.

Or is it? Take Flagstone's decision to go public. The equity markets are at an all-time high, the start-up has surely enjoyed a profitable first year (with property catastrophe rates sky high and an uneventful hurricane season now over), and it is backed by an opportunistic hedge fund that knows how quickly these ripe conditions can take a turn for the worse.

And turn they might. A dearth of hurricanes and a flood of new capital market capacity (now buoyed, if not out-and-out encouraged, by handsome returns this hurricane season) could cause pressure on rates to come down from their lofty heights. But not until next year at the earliest, predicts Standard & Poor's analyst Marcus Rivaldi. “At the 1 January renewals, looking particularly at the US, we will see continued hardening,” he said. “But there is a question mark over the rate of that increase. Any softening won't happen until the later renewals in 2007 and it's all dependent upon loss experience.” This year's substantial peak zone price increases, with premium rates massively outstripping insured values, are expected to hold their momentum through the 1 January renewals.

But prices on non wind-exposed lines should continue to soften. According to Evan Greenberg, president and CEO of ACE, speaking at the company's third quarter earnings call, there is likely to be “substantial” growth in capital which could lead to prices drifting down for non catastrophe-exposed business, casualty in particular. The decision this year by some reinsurers to reduce their catastrophe exposures and diversify into other lines of business has also increased competition in areas already prone to pricing pressure. For now at least “pricing on the cat business is quite firm” reassures Greenberg.

A return to pre-Katrina pricing in today's riskier environment now seems doubtful. The rating agencies are unlikely to backtrack on their inflated capital requirements and the catastrophe modellers are unlikely to revert to less risky outlooks. The consensus is that we will continue to see active hurricane seasons for some time to come, with the risks priced accordingly and one benign season proving an exception and not the rule. This year's hurricane season was aptly described as a “1-in-100 year non-event” by Ariel Re CEO Don Kramer. And the year isn't over yet. With the ever-present threat of earthquakes, and AIR Worldwide predicting that European winter storm losses could reach ?40bn, it's no time for complacency.

Mergers on the menu?What we are likely to see more of in 2007 is consolidation. And according to Marcus Rivaldi, Lloyd's could be where much of the M&A activity takes place. He believes the Equitas deal is pivotal in mitigating legacy concerns and helping Lloyd's regain its competitive edge. This could lead to more Catlin-like deals next year with possible interest from those Class of 2005 reinsurers seeking to diversify ACE and XL style. Whether it's IPOs, mergers or buyouts on the menu, it seems likely that this latest wave of Bermuda start-ups will bypass adolescence and move precociously into adulthood, as quickly as market conditions will allow them.