Recent international news reports claim that the flow of new insurance business to the Island may be having an effect on the hardening market following the September 11 terrorist attacks.

The reports, from the Reuters news agency, quote brokers and reinsurers stating: "Price increases for property cover in the year-end renewals - when many insurers buy their reinsurance policies - have not lived up to sky-high expectations in the wake of the World Trade Center attacks."

"Hopes for price increases of between 60 percent and 100 percent on property-catastrophe cover have had to be scaled back to between 30 or 40 percent because of unexpectedly high competition," market sources told Reuters.

"My guess would be that European reinsurers will find they have not achieved the rate increases they budgeted for, nor written the volume they expected,'' said one London-based reinsurance broker.

Reuters cites the reason for lower-than-expected rate increases as the influx of new companies, "several of which are based on the Atlantic tax haven island of Bermuda, which have reduced the size of price rises that their hard-pressed rivals, struggling under the burden of massive losses from the World Trade Center attacks, have been able to extract from their clients".

Standard and Poor's estimates that these new entrants could snatch as much as $6.5 billion in reinsurance premium this year out of a total estimated premium volume of $110 billion.

Not only are these new players set to frustrate existing firms' hopes for bumper premiums for certain risks, but they could reduce the length of the market upturn.

"One effect of the entry of these new companies is that they will definitely shorten the hard market (where demand for reinsurance capacity is very strong and therefore prices are high),'' Wilhelm Zeller, executive chairman of Hannover Re, the world's fifth largest reinsurer, told Reuters.

"Whereas it might have lasted five years, with these additional reinsurers it might only last two or three years.''

Bermuda has so far attracted seven new reinsurers, in the wake of the September 11 terrorist attacks.

The Reuters reports said the new ventures were initially treated with scepticism: "In spite of their lack of a track record - which caused some established players to dismiss them as a force in the renewals - these start-ups have succeeded in taking business that their established rivals were banking on winning for themselves," noted one reinsurance executive

It added: "These new companies are taking $30 million to $40 million lines in property reinsurance programmes as a matter of course."

Furthermore, there have been claims that the new companies can price themselves more cheaply than established reinsurers as they have no losses from September 11 or other events that have hit other players, such as asbestos exposures which will cut reinsurers' profit margins in the next few years.

Reuters also reported a reinsurance broker as saying property reinsurers in the Lloyd's market, once considered the unrivalled leader in this kind of business, might also lose out to the new Bermuda companies.

"There are a number of underwriters who predicted big increases in business, thinking they could sit back and wait for the business to pour in,'' he said.

"But brokers managed to get a lot of capacity from Bermuda, so they did not need to return to Europe with their caps in their hands begging for capacity.''

Reuters further reported that insurance industry experts are calling for Lloyd's to ditch some of its traditions or risk losing out to more nimble rivals, "such as tax haven Bermuda, a big offshore insurance centre".

David Wharrier, a director at credit rating agency Fitch Ratings, said Lloyd's had undoubtedly been losing out to Bermuda in terms of new money being invested in insurance.

"Bermuda has ease of start up and tax advantages, applications are processed very quickly." Some companies also complain that under Lloyd's rules they are damaged by the bad performance of others.