Rating agencies. Have they

become the de facto

regulators of the industry?

A key issue raised by the panel was the increasing pressure that companies are coming under from rating agencies.

In recent years the industry has suffered a wave of downgrades on the back of concerns from the agencies over several areas including capital adequacy and the sufficiency of reserves to cover legacy liabilities such as asbestos. Business opportunities are often tied to having a strong and unwavering financial strength rating, with an increasing number of companies bound by policy to buy insurance and reinsurance coverage from highly-rated insurance and reinsurance firms.

Donald Kramer, of ACE, kicked off the dialogue by noting that rating agencies' growing influence over the sector had been a hot topic of conversation at the annual Rendezvous de Septembre held last month in Monte Carlo.

He said: "They (rating agencies) have a profound influence on the industry and now really have become the de facto regulators. They say jump, you just say how high. They have lowered the rating of the entire reinsurance industry and they've taken many of the facts that we look at as positive, and came to negative conclusions, which was sort of surprising. There is a slight negative bias."

He added: "I'm not sure that's very good, by the way. I'm not thrilled about the idea of the coming of even greater regulations because that will make them even more mechanistic. But they've become very powerful and they have been working from a negative bias."

Mr. Ingrey added that Arch's relationship with the rating agencies, which is relatively new as the company only set up in 2001, had also had its share of snags.

"We had one goal when we started and that was to maximise the market. When we set up in November, 2001 we wanted to get in strong on the January 2002 renewals, which we did. And we've been having trouble with rating agencies every since, for trying to maximise that market."

Mr. O'Hara said: "You do have to work with them very closely if you want to maintain your ratings and it really helps to work with them on a quantitative basis. We've put a lot of investment into the capital management model where we can demonstrate our return on capital in all their lines of business.

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