A new report from leading insurance broker Willis predicts increasing growth of the Bermuda reinsurance market in 2005 ? and that hedge funds may play an important part.

The Bermuda chapter of a special supplement titled Willis Re-View 2005, authored by Bermuda-based James Kent, says the local market will not see the rapid expansion sustained in 200002 but that "new companies have recently evolved and will add to the market in 2005".

"Perhaps most interesting is the emergence of hedge fund companies who are backed by various institutional investors and have the ability to write conventional reinsurance business using either a fronting company or more generally by consolidating indemnity via trust funds," the bulletin said.

It is a development that AIG boss Maurice 'Hank' Greenberg tipped his hat to at an industry conference in New York last month, saying hedge funds wanted to "use their capital to get involved".

In Bermuda there are already reportedly some players in this arena, according to Willis.

"The two most prominent hedge funds currently based in Bermuda offering traditional reinsurance capacity are Nephila Capital Ltd. and CIG Re, the latter being backed by well-known US hedge fund Citadel. A new entrant expected to set-up in Bermuda during 2005 is Independence Re."

Mr. Kent also wrote that financial guaranty reinsurers recently set up here are forging ahead.

"Another recent market development has been the arrival of financial guaranty reinsurance companies and reinsuring investment grade structured finance and municipal transactions."

He said the most prominent was Channel Re, a joint venture established last year with significant investments from Bermuda-based companies RenaissanceRe and PartnerRe.

The second, which set up more recently, is BluePoint Re, a venture backed by the Wachovia Corporation.

A third up-and-coming financial guaranty reinsurer ? Ascend ? is also about to move in, the report said.

Ascend Financial Services Ltd., Ascend Guaranty Ltd. and Ascend Insurance Group Ltd. all incorporated in Bermuda on 7 December, 2004, according to a search of the Bermuda Registrar of Companies records.

The Willis report said Ascend's plans included "15 staff due to move to the Island".

As for those companies already doing business here, the Willis report pointed to capital injections including the $200 million allocation recently given to Aspen's Bermuda unit "to facilitate an increase in the property reinsurance underwriting activities, primarily to service their existing client base in the US and Japan".

Touching on the fall-out to the industry from New York attorney general Eliot Spitzer's probe of practices, the Willis report predicted this could lead to maintenance of "pricing levels over the short-term as well as much greater transparency and discipline in business practices throughout the industry."

The report concluded: "So as we move into 2005, the Bermuda reinsurance market remains financially strong and relatively free of major legacy issues.

"Having secured its position as one of the three key global reinsurance markets (alongside New York and London), Bermuda is expected to consolidate this through 2005 in a stabilising property and casualty treaty market."