abundance of capital, the news is not all bad, RenaissanceRe Holdings Ltd.

chief executive James Stanard said in the company's recently released annual report.

Abundance of capital -- generated by stock and bond portfolio gains, accumulated operating profits and lack of big catastrophic losses over the past two years -- means abundance of competition. It also means declining premiums.

"The two emotions that rule the stock market -- fear and greed -- similarly affect the reinsurance market and we are now clearly in the `greed' phase,'' Mr. Stanard said.

"The most important trends fall broadly within the availability and management of capital. The capital availability in many segments of the reinsurance market exceeds the opportunity to deploy it in the short run.'' Much of the new capital comes from the Lloyd's of London reconstruction and renewal plan, Mr. Stanard said.

Though an abundance of capital is driving premium rates down and challenging underwriting discipline, consolidation is reason for optimism, he added.

PartnerRe Ltd.'s $950 million deal for Societe Anonyme Francaise de Reassurances, is the latest in a list of reinsurance company acquisitions.

"Acquisitions are withdrawing capital, because cash used to acquire a company can no longer be deployed to bear insurance risk, unless the seller `recycles' that cash back into the insurance business, which has not been happening so far.'' Consolidation has had other beneficial effects on RenaissanceRe's competitive position, Mr. Stanard said.

"It continues the `flight to quality' trend.'' Mr. Stanard also said that when one reinsurer buys another, no matter how well the consolidation is managed, some business becomes available to the market.

"One detrimental effect has been that consolidation usually reduces the amount of reinsurance the combined entity purchases,'' he said.

Reinsurers are also buyers of insurance. The reinsurer of a reinsurer is known as a retrocessionaire.

Just as an insurer must decide to cede to the reinsurer a portion of a risk it has underwritten, the reinsurer must make the same decision as to which risks it can sustain within its resources and what portion of the risks it must retrocede.

"The loss of business due to our clients being purchased caused approximately 40 percent of our 7.8 net decline in gross premiums last year, and may have a similar effect this year,'' Mr. Stanard said.

In 1996, the company posted $269.9 million in gross premiums written compared to $292.6 for the prior year, a decline of 7.8 percent, or $22.7 million.

In January, the company reported $156.2 million in year profits compared to $165.3 million for 1995.

Mr. Stanard also said that the market estimates that pricing of US risks fell ten to 15 percent last year while non-US risks fell 15-20 percent but RenaissanceRe estimated US premiums levels fell about 12 percent last year.

James Stanard