The importance of managing the cyclical nature of the insurance industry - that was the focus of Bermuda Insurance 2007's opening session yesterday.

The discussion, which was held at the Fairmont Hamilton Princess Hotel featured a panel of big hitters in the Island's insurance market, including Brian O'Hara, president and CEO of XL Capital, and Michael Butt, chairman of Axis Capital.

A session hosted by Caroline Foulger, insurance partner of PricewaterhouseCoopers Bermuda, centred on the strategies of cyclical management and the current position of the cycle in terms of pricing, capacity and capital.

The insurance industry, generally, has been in a softening market for the past two years following the formation of a flurry of new insurance and reinsurance start-ups in the wake of Hurricane Katrina in 2005 and the relatively low level of major catastrophes.

Mr. O'Hara talked about the motivating factors behind previous softened markets, including high interest rates driving cash flow in 1981 and the emergence of captives and the chance for companies to write their own risk in the 1990s.

"Each cycle has got different drivers, but a lot of things have changed in this time," he said.

"You have human nature and people naturally want to grow their business and balance sheets are taking off and reserves are retained.

"But the governing thing is that there is a very active share of reserve changes that are keeping growth of capital under check.

"First and foremost, it is about the transparency that is in the industry today and all of the changes that have empowered the actuaries, accountants and outside auditors in greater checks and balances.

"Today, I think we are playing on a more level playing field where we compete on strengths and weaknesses rather than accounting procedures and how we might spin our results."

And he reckons the insurance world is in for a more stable period in the future.

"I think cycles are with us whatever your industry," he said.

"This time it looks like we are going to have a natural bottoming out and re-emergence."

Mr. Butt said now is the time to reward the real money makers and wealth generators of the insurance operation - the underwriters.

"I think we have not had the tools necessary to reward people appropriately for what they are doing," he said.

"Now we have a more appropriate method of rewarding people over time.

"The problem is we have got to get companies to agree that underwriters are important and we have got to focus it on people who are creating the wealth and then we will get a more stable system.

"Underwriting companies will be focusing on the fact that the wealth makers and creators will be rewarded over time appropriately."

Mr. O'Hara went on to speak about the role short and long term investments play in his company's overall management strategy.

"The reason we decided to build one of the first side cars was because we saw it was a good opportunity, but not necessarily in the long term," he said.

"We don't see any point in loading up the whole balance sheet with excess capital to write the Cat.

"It seems to be following the gameplan for once in our industry and it looks like a lot of that capital will go on the side line.

"I think this industry does not need more capital and at this point it is about the deployment of capital and its very well defined uses rather than a broader application which will yield success."

Other subjects touched on included clients' requirements on pricing, the ratings and regulations incurred by insurance companies and the impact of interest rates and currency on the insurance sector.

Mr. O'Hara, who steps down from his post next year, concluded by talking about his vision and the company's plans for the future.

"It is about paying attention to the fundamentals," he said.

"It is about blocking and tackling and sticking to the gameplan. I have found this industry to be too exciting, so a period of boredom would be okay with me."