Bermuda’s insurance and reinsurance industry will register a record profit of $10 billion or more for 2006, according to a report on the Island by a leading industry analyst.

A report entitled “Bermuda: The New Capital of Insurance?” by Connecticut-based Conning Research and Consulting, Inc., concludes that the Island “has become the place where the capital markets and the market for insurance and reinsurance talent most closely intersect”.

It predicts a bright outlook for Bermuda, but warns that competition is likely to intensify in the near future.

“In the past 20 years, Bermuda has grown from a small haven for captives to a thriving centre of insurance, and especially reinsurance,” said Stephan Christiansen, director of research at Conning Research.

“By 2004, Bermuda accounted for nearly 12 percent of the unaffiliated reinsurance ceded from the US market, worth $8 billion, up from just over nine percent, or $7.1 billion, in 2003.”

The report found that a significant portion of the $25 billion in new capital raised for the industry over the past year has come to Bermuda.

And Conning concluded that swift and efficient allocation of capital was at the core of the Bermuda insurance model, and it became even more efficient with the “Class of 2005” and the increasing influence of hedge funds.

“We expect record earnings for Bermuda in 2006 — as much as $10 billion or more in net income — thanks to a relatively benign hurricane season,” said Mr. Christiansen.

“This will help propel the Bermuda model, help it continue to innovate in risk transfer efficiency, with increased usage of capital markets mechanisms such as catastrophe bonds, sidecar reinsurers, and industry loss warrants.”

Conning examined the recent boom in the Island’s flagship industry, which has seen a wave of new Bermuda companies incorporated since the massive damage in the US caused by hurricanes Katrina, Rita and Wilma in 2005.

“Much of this recent growth came in the wake of unprecedented losses from the over $80 billion in insured losses incurred in the 2005 US hurricane season, which generated heightened demand for property catastrophe reinsurance and strained the capacity of the traditional insurance and reinsurance industry,” the introduction to the Conning Research report said.

“With a relatively benign hurricane season coming to a close, and record earnings within Bermuda and the US and the global insurance industry, the immediate future of Bermuda looks bright, although competition is likely to intensify.

“Capital put at risk has paid off nicely (or magnificently) — what stays in the market will find itself in increasing competition for premium with other accumulated capital, particularly outside the property catastrophe sector.”

The long term future for the Island was not so easy for Conning to predict.

“Across all these possibilities, one constant can be comfortably predicted: Bermuda will continue to play a formative role in the evolving relationship between capital and talent in property-casualty insurance,” the report adds.

“This, we believe, has been the Bermuda market’s most distinctive trait ever since the formation of ACE and XL two decades ago.”