The next step for Bermuda's insurance/reinsurance sector will be adjusting to the new emphasis on electronic commerce, a new report has said.

Global Reinsurance Analysis 1997, prepared by Guy Carpenter & Co., Inc., noted how the Bermuda reinsurance market in just five years, has emerged as a major catastrophe reinsurance centre, writing about a quarter of the world's catastrophe reinsurance premium.

It discussed one part of the electronic commerce emphasis involving the intranet system, Bermuda Connect, which will allow companies to do a number of things including filing statutory financial returns, paying government fees and reserving company names.

But the report said that reinsurance markets in Bermuda, Europe, the UK and the US today represent a single global industry, as a result of the unifying effect of technology and multi-jurisdictional business practices.

Blessed with spectacular underwriting results that saw average combined ratios of 49 percent and 56 percent in 1996 and 1995, respectively, return on average equity continues to improve for the majority of the Bermuda `cat' reinsurers.

The report said that in 1994, after forecasting 20 percent return on equity (ROE) in their initial private placements, only one of the eight companies achieved that goal, with the composite coming in at around 14.9 percent.

In 1995, large year-end dividends, which reduced equity figures before being replaced by public offerings and favourable underwriting results, pushed the composite ROE to 21 percent. Six of the eight companies were over or close to the 20 percent goal.

In 1996, six of the eight comfortably exceeded 20 percent. But the composite was 20.8 as a result of PartnerRe's 18.4 percent ROE and Tempest Re's 15.7 percent.

The report added: "Partner has the largest capital base at $1.4 billion but only wrote premiums of $206 million, and Tempest Re was undergoing changes under its new ownership.

"The significantly under leveraged position of PartnerRe resulted in a composite ROE lower than that in 1995 in spite of the fact that the majority of individual companies showed improvements. The overall capital base of the Bermuda reinsurers exceeds $5 billion.'' The report also discusses the Bermuda reinsurers' growth strategy and "shared regulatory system that is quality focused.'' Other key conclusions include that: Bermuda `cat' reinsurers are diversifying into other business, investing in Lloyd's ventures or setting up branches in the London market to access the specialist and difficult risks that London attracts.

Reinsurers are still strongly profitable, despite soft pricing and strong competition.

Traditional reinsurance boundaries have faded, and competition for top-line premium growth and risk diversity is driving global expansion. Reinsurers are today less defined by geographic region than they are by global presence.

Many reinsurers are pursuing a growth-through-acquisition policy, frequently by purchasing other reinsurers.

Recent capital market initiatives demonstrate that investors are now willing to take on catastrophic risks through financial instruments such as fixed-income securities.

Profitable results continued in the US to a level reminiscent of the 1980s.

Despite continued development of environmental and asbestos claims, US reinsurers in the Guy Carpenter composite recorded their highest level of net investment income in the composite period that starts in 1984.

In the London market, the return of capacity and improved loss experience have reduced rates as underwriters compete for market share to generate the returns promised their shareholders.

Lloyd's has made significant strides in resolving past problems and creating a sound trading basis for the future. With continued replacement of individual capacity with corporate capacity, further consolidation and the introduction of some outside regulation, Lloyd's should emerge as a worldwide source of capacity.

The globalisation of the European reinsurance markets is blurring traditional boundaries and minimising individual country characteristics. Consolidation in the region continues to produce fewer, but far better capitalised reinsurers.