A leading ratings agency has questioned whether a wave of new insurers coming into the Bermuda market since 2001 have sufficiently broad underwriting expertise to weather a downturn in market conditions.

US-based Fitch Ratings, in a report this week on the prospects of the so-called Bermuda Class of 2001, said the companies had performed well since setting up after a void in capacity and a rise in insurance prices following the September 11, 2001 terrorist attacks in the US, but speculated that the ?true mettle of the start-ups would not be tested until the soft part of the cycle?.

Insurers have been operating in a hard market ? where rates for coverage are high and capacity is hard to come by ? since 2001, but there are clear signs now that the market is, at least along some lines, shifting back into a soft cycle. This development has prompted some companies to focus on lines of business where rates are still strong, as is the case with some casualty lines.

Although Fitch said more than 100 insurers, by estimates, had incorporated on the Island at the time, the reports singled out the leading six start-ups for review, with each having raised $500 million or more in initial capital

They are Allied World Assurance Company (AWAC), Arch Capital, AXIS Capital, Endurance Specialty, Montpelier Re and Olympus Re.

The report ? titled ?Bermuda Class of 2001: Still Riding the Wave? ? was put out by Fitch ratings analysts Donald Thorpe and James Auden on Tuesday.

Fitch looked at the group?s successes so far, but cautioned that challenges were ahead.

Most notably the report questioned the recent move by the new players, albeit with veteran insurers at the helm, into lines of business that are seeing the most favourable pricing trends while scaling back on lines they were writing, but that are now seeing rate drops.

Mr. Thorpe, who is a senior director in Fitch?s insurance group, said: ?We have already observed the start-ups beginning to expand into new lines of business (for example, property writers expanding into casualty lines) as the result of declining margins in their original lines of business.

?This diversification into traditionally more challenging market segments creates some concerns whether required underwriting expertise is in place across all business segments.?

The Fitch report conceded that, so far, the companies have ?done extremely well by almost any measure?, and said collectively the group had in the last year posted strong results with $8.9 billion in net written premiums, and earned net income of $2 billion and total shareholders? equity adding up to $10.5 billion.

?Their timing was excellent and these companies have benefited from the distractions created by legacy issues within more mature competitors,? Mr. Thorpe said

However, the report cautioned that tough times could be ahead.

?Conversely, they have only experienced the very best of times ? the hard part of the pricing cycle combined with a relatively low catastrophe loss environment.?

The report concluded that while the start-ups (most of which are now in their third year of operation) have demonstrated many of the key characteristics necessary for success, it is not yet clear whether they can maintain underwriting discipline in a soft insurance market or how they will deploy the significant amount of capital they have raised in a period of declining insurance prices.

?A large amount of capital and a softening market are a dangerous mix and can result in the transfer of a significant amount of shareholders? money to policyholders in the form of underwriting losses,? the report said.

The full report is available online at www.fitchratings.com