As the February issue of Global Reinsurance went to press, certain renewals were still waiting to be completed. By the middle of last year reinsurers were finally beginning to rebel against what had appeared to be the inexorable and endless downward slide of premium levels, with corresponding ever-loosening terms and conditions. Different classes had been bundled to entice the buyer, and certain covers thrown in for free.

"It has to end!" was the cry from the market. Reinsurers had recognised that not only were rates not enough to cover claims, but investment income was insufficient to cover the shortfall between the two. After several years of talking about stopping the decline, reinsurers were finally doing something about it. According to Don Kramer of ACE Ltd, $20bn of capital had already exited the international industry by June because of unsustainable business conditions.

A massive reversal of unforeseen proportions then hit, with the terrorist attacks in the US. With massive increases in loss deteriorations on asbestos exposures already hitting, the £35bn+ WTC loss scared off some of the smaller reinsurers, and was the starting gun for the `race to quality'. Never have ratings been as important as they are now, and, to be fair, the rating agencies have stepped up their methodologies to take into account the new risk environment.

Selective purchases
Whereas at the end of last year reinsurers were essentially in a beauty parade for the best risks, they are now able to pick and choose, and buyers have beaten a path to their door. And in order to maximise the fruits of a market, that's hardened faster than quick-setting concrete, the top players have raised substantial amounts of new capital, while new reinsurers set up in time to write renewals business. Almost $20bn of new capital has entered the arena, but it has been choosy - and rightly so. Capital untainted with prior year losses, whether from WTC, general liability or specialist liability classes, looked to Bermuda as its domicile of choice. An armful of new property catastrophe reinsurers is now nestling comfortably in Hamilton, a city practically dedicated to the international re/insurance sector.

Natural location
Bermuda is a natural location for these new players. Despite serious reservations about Bermuda's capabilities as a jurisdiction following the influx of new capacity in the mid-1980s, after the US liability crisis and the early 1990s in the wake of hurricane Andrew, the doubting Thomas' in London and the US have had to eat their words.

As ACE's Mr Kramer commented, since the mid-1980s Bermuda has always been there when it has been needed. The criticism that the island's industry is `opportunistic' cuts little ice; it has capacity available with few worries about reserving positions. In addition, the majority of new writers have come in at the $1bn and above mark, resulting in strong ratings from Standard & Poor's and AM Best.

Bermuda's regulatory environment has also helped. It takes between six and eight weeks to set up a reinsurer on island, if there are no major hiccups. By contrast, setting up a reinsurer in London is more likely to take nine months. This could be why some of the new players have set up on Bermuda, but with the tacit aim of establishing operations in different marketplaces.

This, to a certain extent, reflects the development of ACE and XL, the two Bermudian headliners set up as excess liability writers in the 1980s and both now international re/insurers with operations stretching across the globe. Both have proved that the model works, and both dominate in the global business stakes. Through their development, Bermuda went from being the incubator of the industry, through high school and now has surely reached post-graduate status.

Sarah Goddard is the editor of Global Reinsurance.