reinsurance companies to weather the storm of tough competition and overcapacity bedevilling the industry.

The agency predicts that companies should post weaker but still healthy returns in the coming year although revenues will be squeezed.

"Reinsurers that command above-market prices through customised products and meet the needs of under-served niche markets will prosper in this environment, as will those with expense efficiencies,'' Standard & Poor's reinsurance sector report stated.

Meanwhile, companies that must lower prices to retain market share are going to suffer as insurers and corporations flock to financially stronger reinsurers, the report stated.

S&P reported global non-life reinsurance premiums declined by about six percent in 1998 even though total revenues had a small increase for reinsurers worldwide.

S&P expects non-life reinsurance premiums to be flat in 1999.

"Growth in today's environment often involves significant risk because there is a potentially reckless quest for market share at the expense of sound underwriting,'' the agency stated. "Fortunately, strong capital growth in the industry since 1994 has enabled reinsurers to build a strong capital base that is expected to limit rating downgrades in 1999. However, growing underwriting losses could erode strong capital levels.'' Leading reinsurers have taken the strategy of carving out a market niche while offering specialised products to customers, S&P noted. Part of the strategies being taken are to make links to corporate financial management.

"More than ever, insurers and corporate customers need to know how to identify those reinsurers with strong balance sheets, where are likely to be around for the long haul, as well as the most innovative and forward-thinking leaders in the business,'' the agency stated. "Some are directly addressing corporate clients who are self-insuring through captives. This alternative risk transfer market now totals about 35 percent to 40 percent of the traditional business insurance market, a share that's still growing.'' While consolidation in the industry has been a trend over the past year, most of the logical deals seem to have been done. S&P stated that reinsurers may find it increasingly difficult to justify the premium being paid for future acquisitions.

With the changes in the industry, clients will find it more difficult to choose a reinsurer.

"Soft rates, fierce competition, consolidation, and product innovation have brought a lot of change to the reinsurance industry,'' the report stated.

"Price will always be a consideration, particularly when it comes to basic reinsurance, but specialised needs may be best served by a new skill set that depends on creativity in structuring a solution, expertise in a given sector or problem or use of proprietary financial models. Financial strength is crucial because in all areas from straightforward reinsurance to complex contracts, it is of paramount importance that the reinsurer is around when claims come due.'' The full report is available at S&P's web site at www.standardandpoors.com/ratings.