Fully embracing computer technology while remaining acutely aware of its shortcomings is in large part the success of catastrophe reinsurer RenaissanceRe.

The Bermuda-based company on Monday reported a healthy 48 percent earnings rise in its third quarter results. And the company has consistently reported better earnings than its counterparts.

John Lummis, RenaissanceRe's senior vice president and chief financial officer, said the company's key to success lies in its staff and sophisticated computer modelling system.

"You have the people and the system but you have to have the people working the right way with the system,'' he said.

"What you need is a culture where people will use the system to get better answers, but if they get an answer out of the system that doesn't make sense, then they'll push back on what the computer is telling them and figure out what happened.'' At a cost of more than $15 million, RenaissanceRe has over several years developed its own computer modelling catastrophe software, Renaissance Exposure Management System (REMS).

The system overlays bits of commercial software allowing the company to concentrate entirely on its core business of catastrophe reinsurance.

It simulates the probability of disasters over the long run, providing underwriters with vital information when deciding which contracts to choose and how to best price them.

"It's the overlay that is unique and complex,'' said Mr. Lummis.

"That's the difficult component to develop. Anybody can buy a system from one of these vendors but getting the system wrapped around it to put it on the desktop and to offer a comparison between vendor models and to customise different contract features into the system, that's the hard part and that's what we believe we've built here.'' As with any machinery, there can be breakdowns and Mr. Lummis, in hailing the expertise of his staff, said they are of such high calibre that they can detect computing errors.

"Sometimes the computer has an insight into how to evaluate a risk, sometimes you might find there's a bust in the data going in or there's some bust in how the model's working,'' he said.

"You need to have an interplay between the system and the people that's effective in producing insights into the business and also being able to catch any issues in how the system is actually working.'' Mr. Lummis said that an emphasis on professionals in the specialised area of catastrophe reinsurance gives RenaissanceRe a comptetitive advantage.

"We have a group of senior underwriters focused on catastrophe risk that is larger than most teams,'' Mr. he said.

"The total at Renaissance is 40 employees, 25 to 30 are focused very heavily on catastrophe risk with backgrounds of underwriting, catastrophe modelling, finance and administration.

"We built out a team of underwriters who are focused on nothing but catastrophe and behind them, supporting them is another group of professionals focusing on modelling catastrophe risk using very technical analytic tools,'' he said.

"There are half a dozen people who are alumni of different software and consulting firms that are focused on catastrophe modelling, that is a very unique resource,'' he added. "In front of them we have the underwriters themselves who are focused on catastrophe risk. It is that combination that is the unique story on the people side.'' Integral to the company's success is the sophisticated REMS which costs between $2 and $3 million a year to maintain.

"On the systems side we have spent many years building a proprietary system for valuating and underwriting catastrophe reinsurance,'' Mr. Lummis said.

`That system is very sophisticated, very complex and requires a number of people to keep it on track. That is a hard thing for others to replicate.

"Many other firms will use software produced by outside vendors but won't have the ability to customise it themselves and develop it to a more refined level of use.'' Mr. Lummis said the ability of Renaissance to "clip on the underwriter's desktop the tools for underwriting and analysing catastrophe risk'' has set it apart from its competitors and given it "a unique advantage''.

"We are unique in the ease and speed of use of our system and its analytic discipline,'' he said. "It's our view that our system gives us a unique advantage in having very robust real time assessments for catastrophe risk.

There are some other rival systems but it's not at all clear that they are as robust or easy to use.'' Six professionals run REMS, doing detailed analysis, and "scrubbing'' the data that goes in. RenaissanceRe also retains several IT professionals who are devoted to maintaining the computer infrastructure. They attend to both hardware and software concerns and problems.

Logically when catastrophes hit a certain area, reinsurers can expect lossses.

RenaissanceRe tries to minimise the effect of a possible catastrophe to their bottom line by diversifying their portfolio.

"The approach that we take is to try and build a diversified portfolio that's spread across various geographic areas,'' he said.

Renaissance's model "The analytic system that we've built up is the mechanism for testing both expected profit of a given contract relative to expected loss but also looks at the question of how contracts in the whole portfolio correlate with each other.

"All other things being equal, we will always prefer contracts with a low correlation with the rest of the portfolio,'' he added. "The system that we built is focused on assessing expected profit of each contract and the correlation of that contract with the rest of the portfolio.''