A leading insurance brokerage is gearing up to place as much business as it can in the Bermuda market ? but the extent to which that happens may depend on insurers themselves.

Aon Bermuda chairman Ross McKenzie, posted to the Island from London last month, said he has been sent here by the company to make sure Aon's global network connects with the Bermuda market ? but he said the question of what approach Bermuda companies will take now that market conditions are showing signs of change could dictate how much business is actually placed here. Although the last two years have been good for re/insurers ? it being a true sellers' market with rate increases across most lines of business coupled with tighter terms and conditions ? there are clear indications that things might not be so good from here on out with rates having "topped out" and some lines declining.

There is also pressure for re/insurers to offer wider coverage than they have under policies in 2002 and 2003.

This shift in the market could leave re/insurers with the dilemma of trying to maintain underwriting discipline while achieving growth.

Mr. McKenzie this week said buyers ? who have watched insurers profit over the last two years ? will be keen to see the tides turn from the rate increases they faced in recent years to more moderately priced premiums and wider coverage.

Buyers' expectations are something watched closely by brokers, who are in the business of finding their clients (the buyers) the best insurance solution for their needs.

Mr. McKenzie, who is also vice-chairman of Aon Re Americas, said there is a keen interest from corporate re/insurance buyers in the Bermuda market, both because of the Island's concentration of top insurers and reinsurers (including the wave of new re/insurers that set up after the September 11 tragedy and void in capacity that followed) and for the superior and efficient service these companies give.

When interviewed by Mr. McKenzie said he had just ended a call with a colleague in Latin America.

"That was one of our Americas units on the line; they are wanting to know if they can do more business in this market. That is the sort of thing that will happen; I can connect the business opportunities. But whether they (the insurers) write the business or not, is, of course, up to the market.

"My job is to make sure they are connecting with the Bermuda marketplace; to make sure we have not missed any important markets for our clients. We want to find and deliver better solutions from here. Potentially, there could be opportunity. Bermuda is seriously on the world map of insurance and reinsurance now.

"It is a major, major world centre but the next phase of (this market's) life now after the strong results in 2002 and 2003 will be an interesting time."

Mr. McKenzie, a 40-year veteran of the broking industry, said: "The years 2002/03 were very, very good years for the insurance and reinsurance companies. They were about as good a two years as I can ever recall in the industry. It was easy to make money in those years. Rates increased across the board, and we probably had the lowest incidence of major losses in those two years as well. So both the increase and the reduced claims meant everyone had a good time."

But he cautioned: "Pricing topped out at the beginning of this year. We have had some classes that are already showing reductions like aviation, energy, some property lines, slight reductions showing in property catastrophe coverage. I think there is a bit of a crossroads coming up. The question for the Bermuda companies is how they will keep the growth machine going. The stock analysts and the shareholders like growth just as much as they like margins. A couple of good growth years have been had here, and that goes for the industry as a whole, I'm not suggesting otherwise, but where does it go from here? As the rates top out, the Bermuda-based companies have to make a decision, like everybody else, if they will withdraw as the pricing starts to come down again or follow the rates down. And if so, by how far, that will be the question.

"But either option could potentially mean no growth. So if you want growth, there are only two options: You either acquire companies or you pursue more business. To pursue more business, pricing is going to be an issue so you have to start looking at discounting rates and prices. It will be interesting to see which way the Bermuda-based companies go," he said.

In late 2001, insurance rates skyrocketed on the back of high demand and a void in capacity. To make matters worse, insurers were also grappling with depressed investment returns after poor stock market performance. Mr. McKenzie said it was well-recognised that a correction was overdue for insurers, who had seen rates drop to lows in the 1990s that were not sustainable, but the rate of the increases had hit buyers between the eyes.

"The buyers of re/insurance had to swallow some pretty big lumps. And brokers took lots of stick. We had to prepare buyers (for the increases)."

"Now the same people who were faced with that (the increases), now see the nice results (for the re/insurers) in the press, and think hang on, maybe the correction was a bit too severe, and ask what is the fair price.

"No one is trying to beat anybody into the ground here. But there are questions on what is a fair price. When you are the buyer having to stand before the board and justify increases. I don't think anybody would argue that prices (in the late 1990s) did get too low and a correction was expected, but some are now asking if the correction was too severe."

Mr. McKenzie said re/insurance buyers would "definitely" be expecting prices to come down, at least a little. "There will be some gentle pressure on some policy forms and more negotiation," he predicted.

However, Mr. McKenzie said there was no hard and fast answer to the question of where prices should be. "There were not any major losses in 2002/03 to test the whole macroeconomics of the industry. Certainly, and thankfully, the results from the companies have been good. I don't think the industry could have afforded too many more years like the 2000 and 2001 years. But it is interesting to see where this will go."

Mr. McKenzie said Aon's focus was being able to place business for clients.

"The client hires and fires us. There is no doubt our allegiance is to find the best solution for our client, whether that is a corporate buyer or a cedent insurance company. But the best solution does not necessarily mean the cheapest price. There are a lot of issues in a best solution; quality, security, are they mentally prepared to be in business for the long term, specifically with reinsurance where you enter into the relationship in the spirit of it being long term trading relationship and a fair price.

"There is pressure coming on pricing because all of these corporate clients are struggling with their own expense ratios, and insurance costs is just one of the cost elements they need to test. They have to make sure they are getting the right price. And coverage is another issue. In 2002/03 renewals, coverage got squeezed a lot and it would be fair to say that there was (previously) low rates and wider coverage.

"In this process, there has been some pretty serious coverage changes where buyers had a broader coverage before then they have now. What happens next is not just about the premium rate and the price, it is about the coverage, both the capacity and depth of the coverage."

Insurers may also see lower demand for premium, as some insurance buyers, grappling with the overnight surge in the cost of insurance when the market turned in 2001, retained more risk themselves. Mr. McKenzie said that could mean lower demand for premium even in a softening market, as once a corporation became comfortable with a certain level of self-retention, they may continue to go that route even when prices came down.

"This is not necessarily a good thing for insurance companies as it takes premium out of the pool," he said.

"I want to stay close to the Bermuda based companies. I want to understand what they do, I want to connect them to the Aon network across the Americas. And if they do make a change and want to write different lines of business, different classes, if they want to look at coming down a little closer to the working areas of the businesses (instead of writing at the excess layer) then I want to make sure I can connect them to Aon brokers who can deliver whatever the products and solutions are, right to our client base," Mr. McKenzie said.

He added that it was Aon's job to place its clients business, and that Bermuda companies were sought after. "Aon will find the market for its client base. We have to; that is the competitive pressure of the business that we are in. For us the important pieces are the service delivery. Bermuda is, beyond doubt, right up there in the front line of service ? whether it be the prompt issuance of documentation or payment of claims, this market is very much at the leading edge of that service delivery mechanism."

Bermuda's ability to issue policies and pay claims quickly was something Mr. McKenzie said put it ahead of other markets, including London.

"The Bermuda market stands in great stead globally. I am a little surprised they do not promote it a little heavier than they do. I was part of the London market reform group; one of the big issues in the London market has been prompt service whether it be documents or claims payments because it is a historic system with lots of layers. At a time when London was investigating its systems, Bermuda was already doing very well on service delivery."

Mr. McKenzie concluded: "Everything is right for Bermuda, the capital base, the ratings of the company, the service delivery, the reputation is sound, so it is an interesting little development now ? which way various parts of the market decide to go forward, and how they will grow the business. "Some have said to me that they will back off the business (certain lines) if they go below a certain level and that is fine. There is no right or wrong in that but there is the question of whether shareholders and the stock analysts be satisfied with that. No one knows the answer but one must ask if share prices will go down because there is no growth," he said.

"What this market in the last couple of years has done is underscore that a broker needs a broad skill set. It did get a little bit silly at the end of the 1990's, whereas now within Aon, a lot of work goes on the balance sheet analysis, the actuarial studies, the finance models and the catastrophe models. A lot of work goes on with the broker and the buyer before we come to the marketplace. Both the buyer and seller now have similar skills. Everyone is looking now at the same sort of picture.

"A decade or so back there was more mystery, but now there is a much higher level of sophistication. There is now a clear transparency; the client can see almost the same picture as the re/insurance company can see when it comes to potential losses. It is a more educated place to do business, and a far more professional industry than in years past. It is a different scenario than a decade ago."

Aon is staffed in Bermuda with 150 employees, making it, according to Mr. McKenzie, the Island's largest broker. It traces its roots in Bermuda back to 1963, the date one of the company's it acquired years later was established on the Island.