'An Afternoon with Kathryn': The world's top reinsurance heads this week spoke to the biggest issues facing the industry including where rates are likely to go, diverse views on the future of Bermuda as a leading reinsurance market and the likelihood of consolidation between sector players.

Where: Hawksmere 18th annual International Reinsurance Congress held in Bermuda annually in association with PricewaterhouseCoopers

Who: The panel discussion 'the future of the reinsurance industry' was moderated by the former editor and publisher of Business Insurance Kathryn McIntyre, who was called "legendary" by PricewaterhouseCoopers partner Peter Mitchell in his introductory remarks.

Although the session was on the future of the reinsurance industry, Mr. Mitchell said with a smile that the panel discussion might have just as easily been called 'An afternoon with Kathryn'.

Ms McIntyre was given the Bermuda Insurance Institute's Lifetime Achievement Award earlier this year for her championship through the years of Bermuda as a re/insurance domicile, both as a journalist and later as an editor.

This week she spoke with senior reinsurers from Europe, the US and Bermuda. They were: Wilhelm Zeller, board chairman of Hannover Re, Mark Wigmore, previously CEO of St. Paul Re and now a professor at the University of Connecticut, Rick Pagnani, president of the reinsurance arm of Quanta Capital Holdings and Robert Mulderig, former CEO of Mutual Risk Management, which is now effectively out of business after financial woes said to largely be the result of reinsurers failure to pay claims.

Rates: rise or fall?

Speculation that reinsurance rates across lines were likely to continue a downward trend, or at least see flat growth, may have been reversed after a wave of natural catastrophe events in the past two months.

Rick Pagnani said he expected rate increases and decreases would be "segment specific" and there would be variation in where rates fell even within lines.

As an example, he said what happened with property rates - something much talked about since the wave of four devastating storms in the Atlantic and typhoons in the Pacific - would depend on geography.

After 1992's devastating Hurricane Andrew - the costliest single natural catastrophe - rate increases skyrocketed across the state by 100 percent and 300 percent in southeast Florida, he said. But Mr. Pagnani predicted that rate increase would be much more moderate this time around despite Florida facing wider claims and with the price of damage likely exceeding that of Andrew.

"This could be double what Andrew was but you don't have this 'oh my God what are we going to do," he said, a positive shift that he attributed to the discipline of the reinsurance underwriters.

Robert Mulderig said however that he thought it would be "a stretch to see it come over to the casualty market. But I agree it is going to be specific to areas."

He continued: "The industry was on a slippery slope and I think it still is. The storms will change that slope in the near-term," he said, but added that he did not see it doing so in the long term, as "reinsurance has not figured out a way to keep capital out of the market (when the market softens) expect to lose it in underwriting losses."

Wilhelm Zeller, who was on the Island after recently attending the annual Insurance Leadership Forum at the Greenbriar and previous to that, the annual Monte Carlo Rendez-vous de Septembre, said that the results of a survey conducted by a major broker with reinsurance CEOs showed that earlier this year 97 percent expected rate decreases when policies came up for renewal on January 1.

Mr. Zeller said that the intention had been to make public the results of the survey at the Rendez-Vous in the second week of September but said that never happened because that view was "no longer topical" because so much had changed with the fall of Converium and global catastrophic activity including the hurricanes and typhoons.

"On balance we expect more rate increases than decreases," he said.

What will happen to the market; will there be consolidation?

Since a bustle of start-up activity when market conditions improved in 2001 - as rates went up in response to a void in capacity, largely following the September 11 terrorist attacks - there has been speculation that some players will either merge or be acquired. Thoughts have been that this would likely happen when market conditions showed signs of softening - with rates falling, and capacity levels increasing - and that a wave of Bermuda start-ups could be likely targets.

Mark Wigmore said he thought consolidation would have to happen as he did not foresee enough demand for all reinsurance players to be able to continue as stand alone entities.

"Pessimistically I am going to say no," he said, when asked if there was enough business to keep all players going.

Mr. Pagnani also predicted consolidation and acquisitions. He said Quanta - one of the new start-ups, and one of the last to market - took that to heart, realising that they would have to "work harder, work smarter and it would only get harder in coming years," to maintain its independence.

Mr. Zeller said: "There is absolutely not enough business to make all this new capital happy," he said, referring to capital that came into the market in response to a capacity crunch from 2001 - with the bulk of the billions that flowed in going to Bermuda start-ups as well as to boost capital levels for established players.

And it will not take long for consolidation to happen, Mr. Zeller said, predicting that in the next 18 to 36 months there could begin to be merger and acquisition activity. He also said new reinsurers would have to make up their minds on what they wanted to be; what lines and global areas they would focus on.

The comments follow other market leaders predicting last month that consolidation, especially that targeted the 'Class of 2001' companies that set up in Bermuda after the void in capacity, was unlikely to happen anytime soon.

ACE chairman Brian Duperreault, on a panel at the Fox-Pitt Kelton conference, said: "We say consolidation is what you do when nothing else is going right. It is not normally a good sign in our business when consolidation starts taking place as it means your underlying value proposition isn't so good anymore."

Mr. Zeller said he thought there would be merger and acquisition activity, except perhaps of long-tail casualty companies where capacity was likely to continue to be limited, not simply because of capital levels but because only certain players would get the business because of ratings and reputation.

He said that an example of this was AIG reportedly only having nine casualty reinsurers that it will deal with.

What of Bermuda?

The reinsurance heads agreed Bermuda had become one of the leading centres of risk capital, but some charged it might price itself out of the market. Others predicted Bermuda would continue its path of going from strength to strength.

Mr. Mulderig said he thought ten years from now there would be different company names and different faces, but he did not foresee Bermuda losing its preemincence as a reinsurance centre because of the "quality of the jurisdiction" but without overbearing regulations being imposed on reinsurers.

He said his view was conditional on the Island not changing its tax structure.

"Absent income tax, it should do well. Bermuda has done a terrific job in securing this place. That is not going to change."

But Mr. Wigmore said there were plenty of issues facing Bermuda that could see it lose its position, from presidential hopeful Sen. John Kerry's saying he will close the 'Bermuda loophole' if elected, to a nearly overheating property market and concerns about Government regulation, specifically on work permits.

He also charged that Bermuda was a more expensive domicile to do business.

Mr. Pagnani agreed the Island could be expensive.

Mr. Wigmore said he was aware of companies, but did not name names, that were looking at where they could move if things changed for the Island. He also cited recent concerns over a Government-initiated salary survey widely seen as a possible canvas ahead of putting in place income tax. "That would change the game dramatically," he said.

Mr. Wigmore, who is not associated with a Bermuda-based company and is not known to have lived here, said he had also heard "noise that there were going to be crackdowns on work permits. Unless this is not just political posturing, this could be a problem." He continued: "Already some companies are moving operations off Bermuda. The tax savings have to be weighed against the higher cost of housing education etc."

He said ACE's shift of certain positions to its Philadelphia office was an example.

But Mr. Zeller said he thought Bermuda's future was bright. He recognised that the size of the Island would keep Bermuda from being the base for significant numbers of reinsurance employees, but that he saw Bermuda getting "bigger, better and tackling its infrastructure issues".

"You can't run a multinational group (wholly) out of Bermuda. You can have headquarters but operations (elsewhere)," he said.

Mr. Zeller also predicted that history could repeat itself with yet another wave of reinsurers flocking to these shores.