When Bermuda-based insurance giant XL Capital Ltd. announced just before Cup Match that it was going to axe 47 local jobs, it sent shock waves through the community.

The Island has got used to its international business sector being an uninterrupted success story, bringing particularly staggering growth over the past seven years.

The last two years have seen many of our insurers and reinsurers profit massively as a lack of catastrophes has limited claims, while insurance rates were high following the destructive hurricane seasons of 2004 and 2005.

But now the industry has hit the "softening" part of the insurance cycle, with rates falling, competition increasing and profit margins squeezed. Second-quarter results showed gross premiums written, as well as profits, were lower than last year for most Bermuda companies.

When XL announced the job cuts, the company said the decision was unconnected to the well-publicised and costly problems related to bond insurer Syncora Holdings (formerly known as Security Capital Assurance). Instead, it was part of a corporate streamlining exercise.

Global insurance broker Marsh slashed around 500 jobs worldwide in the first half of the year and intends to cut a further 900 this quarter. How this will affect the company's Bermuda operation has not been revealed. But with less business being written by the Island's companies, it would be surprising if there were no impact here.

Others in the Bermuda insurance market are probably already cutting their payrolls, even if they're not making public announcements about it, according to David Ezekiel, chairman of the Association of Bermuda International Companies (ABIC).

"I'm sure it's already happening," Mr. Ezekiel said. "Everyone's top line is down. It forces people to focus on things they did not have to focus on before. Any good manager has to be looking at that right now."

Without a major hurricane, earthquake or other catastrophe to firm up rates, it was hard to see market conditions improving for some time, he added.

"What is happening now is that income statement items that were previously not material become material," Mr. Ezekiel said.

"The CEOs of listed companies have a responsibility to their shareholders. They do not have the same luxury that a privately held company has, of deciding to ride through a tough period, protecting their staff.

"But the markets demand results and shareholders are focused on returns and shareholder value. Executives of listed companies have a very heavy responsibility to them."

If insurance brokers, the link people between the policyholders and carriers, are the barometer of what is happening in the industry, the comments of two brokers we spoke with are telling. Neither wanted themselves or their companies to be named.

One said: "Less business is being written here. Companies are walking away from business because they don't believe it's adequately priced. That business is going elsewhere, to London and New York."

The other said that his company was cutting costs by substantially reducing expenses for entertaining clients.

Insurance jobs are likely to continue being shed, Mr. Ezekiel said, but he believes it will happen quietly.

"By attrition, by applying a hiring freeze, by not replacing people who are leaving or retiring," he said. "In Bermuda, I think it's easier to do, because you have a fairly transient employment population. There is a high turnover of expatriates. And there are a fair amount of opportunities for good Bermudian staff and that also leads to turnover.

"Instead of redundancies, some might just be able to do this through attrition."

Areas such as marketing were where companies tended to look first to downsize, Mr. Ezekiel said. However, he felt that might be a false economy, as marketing planted the seeds for companies' future prosperity and had a long-term positive impact.

The more closures and lay-offs that could be avoided, the better the Bermuda economy would be placed to take advantage of an upturn in the economy, Mr. Ezekiel said.

Referring to the pattern of economic cycles, he added: "We have been here so many times before. It appears that the world is ending, but slowly confidence will return and things will improve.

"Having said that, I've never known a more confusing time, in terms of what is around the corner."

Many company bosses, in international as well as local business, have complained of the high cost of doing business in Bermuda. Mr. Ezekiel said that was a concern and the Government was aware of it.

"We've had meetings with the Ministry of Finance in which we have outlined what the industry is going through now, both in terms of what is happening here and in terms of remaining competitive," Mr. Ezekiel said. "It behoves the Government to do what it can to protect the whole business sector local and international through a difficult period.

"Government has taken on a lot of new projects, so I think it's unrealistic to expect many cuts in taxes. But you can clearly expect a lack of, or containment of, increases in taxes, licence fees and the general cost of doing business."

With rival jurisdictions, such at2s Dubai, Ireland, Switzerland and the Cayman Island, all competing with Bermuda, it was especially important to avoid imposing extra costs on businesses.

"It's at times like these that when people examine all their options," Mr. Ezekiel said.

"Relative to other jurisdictions, it's in our hands. We have all the ingredients to blow the opposition out of the water. We have a good infrastructure, a literate population and a capable workforce. We have a very strong middle class.

"Plus people love being here and coming here. It's a heady combination. For those of us who travel a lot, it's hard to see which other places can touch it.

)"It's up to us all to make it work for everyone. International business is focused on that."